10-Q 1 q3-201310q.htm FORM 10-Q Q3-2013 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________
FORM 10-Q
 __________________________________________________________
(Mark One)
S
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2013
OR
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission File Number: 001-31892
 _______________________________________________________
SYNNEX CORPORATION
(Exact name of registrant as specified in its charter)
 _______________________________________________________
Delaware
 
94-2703333
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
 
44201 Nobel Drive
Fremont, California
 
94538
(Address of principal executive offices)
 
(Zip Code)
(510) 656-3333
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  S    No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  S    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer S
Accelerated filer £
Non-accelerated filer £
Smaller reporting company £
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  S

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding as of September 27, 2013
Common Stock, $0.001 par value
 
37,613,497


 



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

2

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

SYNNEX CORPORATION 
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except for par value)
(unaudited)
 
August 31,
2013
 
November 30,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
139,363

 
$
163,699

Short-term investments
14,525

 
15,933

Accounts receivable, net
1,307,209

 
1,401,087

Receivable from affiliates
215

 
285

Inventories
1,012,055

 
923,340

Current deferred tax assets
22,577

 
23,390

Other current assets
65,714

 
52,727

Total current assets
2,561,658

 
2,580,461

Property and equipment, net
124,128

 
122,923

Goodwill
188,140

 
189,088

Intangible assets, net
26,109

 
29,049

Deferred tax assets
10,042

 
619

Other assets
40,073

 
41,122

Total assets
$
2,950,150

 
$
2,963,262

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Borrowings under securitization, term loans and lines of credit
$
165,072

 
$
52,698

Convertible debt
—

 
141,436

Accounts payable
1,106,576

 
1,111,833

Accrued liabilities
174,949

 
181,270

Income taxes payable
12,444

 
7,470

Total current liabilities
1,459,041

 
1,494,707

Long-term borrowings
68,232

 
81,152

Long-term liabilities
53,065

 
58,783

Deferred tax liabilities
3,169

 
9,265

Total liabilities
1,583,507

 
1,643,907

Commitments and contingencies (Note 17)

 

SYNNEX Corporation stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or outstanding
—

 
—

Common stock, $0.001 par value, 100,000 shares authorized, 37,804 and 37,348 shares issued as of August 31, 2013 and November 30, 2012, respectively
37

 
37

Additional paid-in capital
279,196

 
324,292

Treasury stock, 781 and 720 shares as of August 31, 2013 and November 30, 2012, respectively
(23,703
)
 
(21,611
)
Accumulated other comprehensive income
19,059

 
35,405

Retained earnings
1,091,649

 
980,900

Total SYNNEX Corporation stockholders’ equity
1,366,238

 
1,319,023

Noncontrolling interest
405

 
332

Total equity
1,366,643

 
1,319,355

Total liabilities and equity
$
2,950,150

 
$
2,963,262


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

3

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except for per share amounts)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Revenue
$
2,733,913

 
$
2,576,948

 
$
7,786,113

 
$
7,520,441

Cost of revenue
(2,569,633
)
 
(2,425,019
)
 
(7,310,956
)
 
(7,042,804
)
Gross profit
164,280

 
151,929

 
475,157

 
477,637

Selling, general and administrative expenses
(100,781
)
 
(94,878
)
 
(303,754
)
 
(297,277
)
Income before non-operating items, income taxes and noncontrolling interest
63,499

 
57,051

 
171,403

 
180,360

Interest expense and finance charges, net
(2,983
)
 
(5,809
)
 
(13,339
)
 
(17,363
)
Other income, net
12,159

 
890

 
13,948

 
2,607

Income before income taxes and noncontrolling interest
72,675

 
52,132

 
172,012

 
165,604

Provision for income taxes
(26,042
)
 
(17,306
)
 
(61,196
)
 
(56,794
)
Net income
46,633

 
34,826

 
110,816

 
108,810

Net (income) loss attributable to noncontrolling interest
(22
)
 
313

 
(67
)
 
(1,074
)
Net income attributable to SYNNEX Corporation
$
46,611

 
$
35,139

 
$
110,749

 
$
107,736

Earnings per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
Basic
$
1.26

 
$
0.96

 
$
3.01

 
$
2.95

Diluted
$
0.19

 
$
0.93

 
$
1.97

 
$
2.84

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
36,965

 
36,700

 
36,805

 
36,537

Diluted
37,559

 
37,917

 
37,820

 
37,966

 

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

4

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Net income
$
46,633

 
$
34,826

 
$
110,816

 
$
108,810

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities, net of $0 tax for both the three and nine months ended August 31, 2013 and 2012
5

 
(377
)
 
193

 
(356
)
Change in unrecognized pension and post-retirement benefit costs, net of $0 tax for both the three and nine months ended August 31, 2013 and 2012
—

 
62

 
—

 
62

Foreign currency translation adjustments, net of tax of $351 and $799 for the three and nine months ended August 31, 2013, respectively, and net of tax of $413 for both the three and nine months ended August 31, 2012, respectively
(2,588
)
 
11,229

 
(16,549
)
 
6,275

Total other comprehensive income (loss)
(2,583
)
 
10,914

 
(16,356
)
 
5,981

Comprehensive income:
44,050

 
45,740

 
94,460

 
114,791

Comprehensive (income) loss attributable to noncontrolling interest
(24
)
 
316

 
(57
)
 
(768
)
Comprehensive income attributable to SYNNEX Corporation
$
44,026

 
$
46,056

 
$
94,403

 
$
114,023

 

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

5

SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
Cash flows from operating activities:
 
 
 
Net income
$
110,816

 
$
108,810

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
12,330

 
12,445

Amortization of intangible assets
5,922

 
6,209

Accretion of convertible notes discount
2,314

 
3,920

Share-based compensation
6,790

 
6,256

Provision for (benefit from) doubtful accounts
4,340

 
(912
)
Tax benefits from employee stock plans
2,063

 
2,768

Excess tax benefit from share-based compensation
(2,537
)
 
(2,764
)
Gains on investments
(949
)
 
(2,398
)
Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
Accounts receivable
108,638

 
124,693

Inventories
(67,035
)
 
78,197

Other assets
(16,101
)
 
(4,065
)
Accounts payable
(52,173
)
 
(102,770
)
Accrued liabilities
11,384

 
(18,416
)
Deferred liabilities
(7,715
)
 
6,666

Net cash provided by operating activities
118,087

 
218,639

Cash flows from investing activities:
 
 
 
Purchase of trading investments
(410
)
 
(3,875
)
Proceeds from sale of trading investments
3,477

 
5,525

Investment in held-to-maturity term deposits, net
(129
)
 
—

Acquisition of businesses, net of cash acquired
(25,889
)
 
1,870

Purchase of property and equipment
(15,343
)
 
(11,540
)
Loans and deposits to third parties, net of payments received
1,368

 
1,056

Proceeds from sale of equity method investments
4,153

 
3,480

Purchase of cost investment
(1,705
)
 
—

Changes in restricted cash
1,659

 
4

Net cash used in investing activities
(32,819
)
 
(3,480
)
Cash flows from financing activities:
 
 
 
Proceeds from securitization and revolving line of credit
554,052

 
1,307,301

Payment of securitization and revolving line of credit
(488,264
)
 
(1,390,897
)
Payment of long-term bank loans, capital leases and other borrowings
(1,208
)
 
(2,208
)
Payment of Convertible Senior Notes
(218,870
)
 
—

Excess tax benefit from share-based compensation
2,537

 
2,764

Increase (decrease) in book overdraft
43,285

 
(26,506
)
Payment of acquisition related contingent consideration
—

 
(1,052
)
Cash paid for repurchase of treasury stock
(1,882
)
 
—

Proceeds from issuance of common stock, net of taxes paid for settlement of equity awards
6,920

 
8,520

Payment for purchase of shares of subsidiary from noncontrolling interest
(11,400
)
 
(6,050
)
Net cash used in financing activities
(114,830
)
 
(108,128
)
Effect of exchange rate changes on cash and cash equivalents
5,226

 
(1,610
)
Net increase (decrease) in cash and cash equivalents
(24,336
)
 
105,421

Cash and cash equivalents at beginning of period
163,699

 
67,571

Cash and cash equivalents at end of period
$
139,363

 
$
172,992

 

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

6
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)



NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION: 
SYNNEX Corporation (together with its subsidiaries, herein referred to as “SYNNEX” or the “Company”) is a business process services company offering a comprehensive range of services to resellers, retailers, and original equipment manufacturers (“OEMs”) worldwide. SYNNEX’s business process services include wholesale distribution and business process outsourcing (“BPO”) services. SYNNEX is headquartered in Fremont, California and has operations in North America, Central America, Asia and Europe.
The accompanying interim unaudited Consolidated Financial Statements as of August 31, 2013 and for the three and nine months ended August 31, 2013 and 2012 have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The amounts as of November 30, 2012 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto as of and for the fiscal year ended November 30, 2012, included in the Company’s Annual Report on Form 10-K for the fiscal year then ended.
The results of operations for the three and nine months ended August 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending November 30, 2013, or any future period and the Company makes no representations related thereto.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 
The Company’s significant accounting policies are disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2012. There have been no material changes to these accounting policies, except as described below. For a discussion of the significant accounting policies, please see the discussion in the Annual Report on Form 10-K for the fiscal year ended November 30, 2012.
Restricted cash 
Restricted cash balances relate to temporary restrictions caused by the timing of lockbox collections under the Company’s borrowing arrangements, future payments to contractors for the long-term projects at the Company’s Mexico operation and deposits.  
The following table summarizes the restricted cash balances as of August 31, 2013 and November 30, 2012 and the location where these amounts are recorded on the Consolidated Balance Sheets:
 
As of 
 
August 31, 2013
 
November 30, 2012
Related to borrowing arrangements and others:
 
 
 
        Other current assets
$
23,357

 
$
23,247

Related to long-term projects:
 
 
 
        Other assets
4,184

 
6,103

Total restricted cash
$
27,541

 
$
29,350

 
Concentration of credit risk 
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of accounts receivable, and cash and cash equivalents.

7
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The Company’s cash and cash equivalents are maintained with high quality institutions, the compositions and maturities of which are regularly monitored by management. Through August 31, 2013, the Company had not experienced any losses on such deposits. 
Accounts receivable include amounts due from customers and vendors primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for potential credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of the receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer and vendor risks. Through August 31, 2013, such losses have been within management’s expectations. 
In both three and nine months ended August 31, 2013, one customer accounted for 10% of the Company's total revenue. In both three and nine months ended August 31, 2012, no customer accounted for 10% or more of the Company's total revenue. Products purchased from the Company’s largest OEM supplier, Hewlett-Packard Company (“HP”), accounted for approximately 30% and 31% for the three and nine months ended August 31, 2013, respectively, and 38% and 36% of the total revenue for the three and nine months ended August 31, 2012, respectively.
As of August 31, 2013, no customer exceeded 10% of the total consolidated accounts receivable balance. As of November 30, 2012, one customer accounted for 10% of the consolidated accounts receivable balance.
Revenue recognition
The Company generally recognizes revenue on the sale of hardware and software products when they are shipped and on services when they are performed, if a purchase order exists, the sales price is fixed or determinable, collection of resulting accounts receivable is reasonably assured, risk of loss and title have transferred and product returns are reasonably estimable. Provisions for sales returns are estimated based on historical data and are recorded concurrently with the recognition of revenue. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers. The Company recognizes revenue on certain service contracts, post-contract software support services, and extended warranty contracts, where it is not the primary obligor, on a net basis.
The Company provides services such as call center, renewals, maintenance and contract management services to its customers under contracts that typically consist of a master services agreement or statement of work, which contains the terms and conditions of each program and service offering. Typically the contracts are based on time, transactions or volume. Revenue is generally recognized over the term of the contract or when service has been rendered, the sales price is fixed or determinable and collection of the resulting accounts receivable is reasonably assured.
The Company's operation in Mexico primarily focuses on projects with the Mexican government and other local agencies that are long-term in nature. Under the agreements, the Company sells computers and equipment to contractors that provide services to the Mexican government. The Company also sells computer equipment and services directly to the Mexican government. The payments are due on a monthly basis and contingent upon the satisfactory performance of certain services, fulfillment of certain obligations and meeting certain conditions. The Company recognizes revenue and cost of revenue on a straight-line basis over the term of the contract, as the contingencies are satisfied and payments become due.
Earnings per common share 
Earnings per common share-basic is computed by dividing the net income attributable to SYNNEX Corporation for the period by the basic weighted-average number of outstanding common shares. 
Earnings per common share-diluted is computed by adding the dilutive effect of in-the-money employee stock options, restricted stock awards, restricted stock units and similar equity instruments granted by the Company to the basic weighted-average number of outstanding common shares. The Company uses the treasury stock method, under which, the amount the employee must pay for exercising stock options, the amount of compensation cost for future services that the Company has not yet recognized and the amount of tax benefits that would be recorded in “Additional paid-in capital” when the award becomes deductible are assumed to be used to repurchase shares. 
It was the Company’s intent to settle the principal amount of the convertible debt in cash; accordingly, the principal amount was excluded from the determination of diluted earnings per share. In April 2013, the Company decided to settle the

8
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

payment of the conversion premium in cash as discussed in Note 11—Convertible Debt. Through April 2013, the Company accounted for the conversion premium using the treasury stock method by adjusting the diluted weighted-average common shares if the effect was dilutive. From April 2013, the numerator for the computation of earnings per common share-diluted was adjusted for the changes in the estimated value of the conversion premium until the final settlement date.
The calculation of earnings per common share attributable to SYNNEX Corporation is presented in Note 12. 
Reclassifications
Certain reclassifications have been made to prior period amounts in the Consolidated Statements of Cash Flows to conform to current period presentation. Such reclassifications have no effect on the cash flow from operating, investing and financing activities as previously reported.
Recent accounting pronouncements 
In February 2013, the Financial Accounting Standards Board ("FASB") issued an accounting update which requires companies to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The amendments are effective prospectively for reporting periods beginning after December 15, 2012 with early adoption permitted. The accounting update will be applicable to the Company in the first quarter of fiscal year 2014.
In March 2013, the FASB issued an accounting update that clarifies the applicable guidance for the release of the cumulative translation adjustment when an entity ceases to have a controlling financial interest in a subsidiary or a group of assets that is a business within a foreign entity. The guidance clarifies that the accounting for the release of cumulative translation adjustment into net income for sales or transfers of a controlling financial interest within a foreign entity is the same irrespective of whether the sale or transfer is of a subsidiary or a group of assets that is a business. The accounting update is applicable for fiscal years and interim reporting periods within those years beginning after December 15, 2013 with early adoption permitted. The accounting update will be applicable for the Company in the second quarter of fiscal year 2014.
In July 2013, the FASB issued a new accounting standard that will require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The new accounting update will be applicable to the Company in the first quarter of fiscal 2015; however, early adoption and retrospective application are permitted. The Company is currently evaluating the impact of this new standard on its Consolidated Financial Statements.
During fiscal year 2013, the following accounting standards were adopted:
In June 2011, the FASB issued an accounting update that amends the presentation of “Comprehensive income” in the financial statements. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company adopted the accounting update in the first quarter of fiscal year 2013 and updated its presentation of comprehensive income in the financial statements.

NOTE 3—ACQUISITIONS AND DIVESTITURES:
Fiscal year 2013 acquisitions
In April 2013, the Company acquired substantially all of the assets of Supercom Canada Limited ("Supercom Canada"), a distributor of information technology ("IT") and consumer electronics products and services in Canada. The purchase price was approximately CAD36,500, or US$35,599, in cash, including CAD4,450, or US$4,340, in deferred payments, subject to certain post-closing conditions, payable within 18 months. Subsequent to the acquisition, the Company repaid debt and working capital lines in the amount of US$53,721. Based on the preliminary purchase price allocation, the Company recorded net tangible assets of US$25,677, goodwill of US$5,384 and intangible assets of US$4,369 in relation to this acquisition. The determination of the fair value of the assets and liabilities acquired is preliminary and subject to the finalization of more detailed analysis. This acquisition did not meet the conditions of a material business combination and was not subject to the disclosure requirements of accounting guidance for business combinations utilizing the purchase method of accounting. The

9
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

acquisition is integrated into the distribution services segment and is expected to expand the Company's existing product and service offerings in Canada.
Fiscal year 2012 acquisitions and divestitures
In fiscal year 2012, the Company purchased shares of its subsidiary SYNNEX Infotec Corporation (“Infotec Japan”) which were held by the noncontrolling interest SB Pacific Corporation Limited ("SB Pacific") for $17,450, of which $11,400 was paid during the nine months ended August 31, 2013. The transaction increased the Company's ownership interest in Infotec Japan from 70.0% to 99.8%. In fiscal year 2012, the Company also sold its 33.3% noncontrolling interest in SB Pacific, its equity-method investee at that time, back to SB Pacific. During the nine months ended August 31, 2013, the Company received the final payment of $4,153 of the sale price.
In fiscal year 2012, the Company acquired a business in the Global Business Services ("GBS") segment for a purchase price of $6,200 with $1,200 payable upon the completion of certain post-closing procedures and $1,300 contingent consideration payable upon the achievement of certain target earnings. The Company recorded goodwill of $6,150 in relation to this acquisition. This acquisition did not meet the conditions of a material business combination and was not subject to the disclosure requirements of accounting guidance for business combinations utilizing the purchase method of accounting.

NOTE 4—SHARE-BASED COMPENSATION: 
The Company recognizes share-based compensation expense for all share-based awards made to employees and directors, including employee stock options, restricted stock awards, restricted stock units and employee stock purchases, based on estimated fair values.
The Company uses the Black-Scholes valuation model to estimate fair value of stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using historical volatility of the Company’s common stock.
The following table summarizes the number of share-based awards granted under the Company’s Amended and Restated 2003 Stock Incentive Plan, as amended, during the three and nine months ended August 31, 2013 and 2012 and the grant-date fair value of the awards:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
 
Units awarded
 
Fair value of grants
 
Units awarded
 
Fair value of grants
 
Units awarded
 
Fair value of grants
 
Units awarded
 
Fair value of grants
Stock options
—

 
$
—

 
—

 
$
—

 
—

 
$
—

 
20
 
$
301

Restricted stock awards
1

 
25

 
7
 
228

 
39


1,354


42
 
1,578

Restricted stock units
—

 
—

 
—

 
—

 
106

 
3,736

 
23
 
971

 
1

 
$
25

 
7
 
$
228

 
145

 
$
5,090

 
85
 
$
2,850

The Company recorded share-based compensation expenses of $2,092 and $6,790 in "Selling, general and administrative expenses" for the three and nine months ended August 31, 2013, respectively, and $2,031 and $6,256 for the three and nine months ended August 31, 2012, respectively.


10
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 5—BALANCE SHEET COMPONENTS:
 
As of
 
August 31, 2013
 
November 30, 2012
Short-term investments:
 
 
 
Trading securities
$
4,202

 
$
5,709

Available-for-sale securities
47

 
44

Held-to-maturity securities
8,580

 
8,297

Cost method investments
1,696

 
1,883

 
$
14,525

 
$
15,933

 
As of
 
August 31, 2013
 
November 30, 2012
Accounts receivable, net:
 
 
 
Accounts receivable
$
1,360,801

 
$
1,461,796

Less: Allowance for doubtful accounts
(18,730
)
 
(18,229
)
Less: Allowance for sales returns
(34,862
)
 
(42,480
)
 
$
1,307,209

 
$
1,401,087

 
As of
 
August 31, 2013
 
November 30, 2012
Property and equipment, net:
 
 
 
Land
$
19,229

 
$
18,699

Equipment and computers
104,833

 
101,994

Furniture and fixtures
21,045

 
21,373

Buildings and leasehold improvements
107,421

 
101,848

Construction in progress
1,283

 
1,804

Total property and equipment, gross
253,811

 
245,718

Less: Accumulated depreciation
(129,683
)
 
(122,795
)
 
$
124,128

 
$
122,923

Goodwill:
 
Distribution
 
GBS
 
Total
Balance as of November 30, 2012
$
105,860

 
$
83,228

 
$
189,088

Additions from acquisitions, net of adjustments
5,620

 
123

 
5,743

Foreign exchange translation
(5,448
)
 
(1,243
)
 
(6,691
)
Balance as of August 31, 2013
$
106,032

 
$
82,108

 
$
188,140

 
The additions to "Goodwill" recorded during the nine months ended August 31, 2013 relate primarily to the acquisition of Supercom Canada in the distribution segment and adjustments for the purchase price allocation for a prior period acquisition in the GBS segment.

11
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Intangible assets, net:
 
As of August 31, 2013
 
As of November 30, 2012
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
 
Gross
Amounts
 
Accumulated
Amortization
 
Net
Amounts
Vendor lists
$
36,938

 
$
(29,867
)
 
$
7,071

 
$
36,945

 
$
(28,684
)
 
$
8,261

Customer lists
52,453

 
(33,845
)
 
18,608

 
50,406

 
(30,360
)
 
20,046

Other intangible assets
4,866

 
(4,436
)
 
430

 
4,962

 
(4,220
)
 
742

 
$
94,257

 
$
(68,148
)
 
$
26,109

 
$
92,313

 
$
(63,264
)
 
$
29,049

 
Amortization expenses were $1,998 and $5,922 for the three and nine months ended August 31, 2013, respectively, and $2,063 and $6,209 for the three and nine months ended August 31, 2012, respectively.

NOTE 6—INVESTMENTS: 
The carrying amount of the Company’s investments is shown in the table below: 
 
August 31, 2013
 
November 30, 2012
 
Cost Basis
 
Unrealized
Gains
 
Carrying
Value
 
Cost Basis
 
Unrealized Gains
 
Carrying
Value
Short-term:
 
 
 
 
 
 
 
 
 
 
 
Trading securities
$
3,811

 
$
391

 
$
4,202

 
$
5,636

 
$
73

 
$
5,709

Available-for-sale securities
—

 
47

 
47

 
—

 
44

 
44

Held-to-maturity investments
8,580

 
—

 
8,580

 
8,297

 
—

 
8,297

Cost method securities
1,696

 
—

 
1,696

 
1,883

 
—

 
1,883

 
$
14,087

 
$
438

 
$
14,525

 
$
15,816

 
$
117

 
$
15,933

Long-term investments in other assets:
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
$
943

 
$
183

 
$
1,126

 
$
1,095

 
$
22

 
$
1,117

Cost-method investments
4,985

 
—

 
4,985

 
3,313

 
—

 
3,313

 
Short-term trading securities generally consist of equity securities relating to the Company’s deferred compensation plan. Short-term and long-term available-for-sale securities primarily consist of investments in other companies’ equity securities. Held-to-maturity investments primarily consist of term deposits with maturities from the date of purchase greater than three months and less than one year. These term deposits are held until the maturity date and are not traded. Short-term cost-method securities primarily consist of investments in a hedge fund and a private equity fund under the Company’s deferred compensation plan. Long-term cost-method investments consist of investments in equity securities of private entities.
Trading securities and available-for-sale securities are recorded at fair value in each reporting period and therefore the carrying value of these securities equals their fair value. For cost-method securities, the Company records an impairment charge when the decline in fair value is determined to be other-than-temporary. The fair value of the cost-method investments is based on (i) the published fund values, (ii) a valuation model developed internally based on the published value of the securities held by the fund or (iii) an internal valuation of the investee.
The following table summarizes the total gains and losses recorded in “Other income, net” in the Consolidated Statements of Operations for changes in the fair value of the Company's trading investments during the three and nine months ended August 31, 2013 and 2012:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Gain on trading investments, net
$
142

 
$
695

 
$
1,382

 
$
1,809



12
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 7—DERIVATIVE INSTRUMENTS: 
In the ordinary course of business, the Company is exposed to foreign currency risk, interest risk, equity risk and credit risk. The Company’s transactions in some of its foreign operations are denominated in local currency. The Company’s foreign locations enter into transactions, and own monetary assets and liabilities, that are denominated in currencies other than their functional currency. As part of its risk management strategy, the Company uses short-term forward contracts to minimize its balance sheet exposure to foreign currency risk. These derivatives are not designated as hedging instruments. The forward exchange contracts are recorded at fair value in each reporting period and any gains or losses, resulting from the changes in fair value, are recorded in earnings in the period of change. Generally, the Company does not use derivative instruments to cover equity risk and credit risk. The Company’s policy is not to allow the use of derivatives for trading or speculative purposes. The fair value of the Company’s forward exchange contracts are also disclosed in Note 8.
The following table summarizes the fair value of the Company’s foreign exchange forward contracts as of August 31, 2013 and November 30, 2012:
  
 
Fair Value as of
Location                 
 
August 31, 2013
 
November 30, 2012
Other current assets
 
$
2,839

 
$
1,292

Accrued liabilities
 
105

 
—

The notional amounts of the foreign exchange forward contracts that were outstanding as of August 31, 2013 and November 30, 2012 were $157,768 and $128,518, respectively. The notional amounts represent the gross amounts of foreign currency that will be bought or sold at maturity. In relation to its forward contracts, the Company recorded gains of $1,254 and $7,734 in “Other income (expense), net” during the three and nine months ended August 31, 2013, respectively, and gains of $2,270 and $3,637, during the three and nine months ended August 31, 2012, respectively.

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

13
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The following table summarizes the valuation of the Company’s investments and financial instruments that are measured at fair value on a recurring basis:  
 
As of August 31, 2013
 
As of November 30, 2012
 
Total
 
Fair value measurement category
 
Total
 
Fair value measurement category
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
$
29,191

 
$
29,191

 
$
—

 
$
—

 
$
95,074

 
$
95,074

 
$
—

 
$
—

Trading securities
4,202

 
4,202

 
—

 
—

 
5,709

 
5,709

 
—

 
—

Available-for-sale securities in short-term investments
47

 
47

 
—

 
—

 
44

 
44

 
—

 
—

Available-for-sale securities in other assets
1,126

 
1,126

 
—

 
—

 
1,117

 
1,117

 
—

 
—

Forward foreign currency exchange contracts
2,839

 
—

 
2,839

 
—

 
1,292

 
—

 
1,292

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$
105

 
$
—

 
$
105

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Acquisition-related contingent consideration
1,300

 
—

 
—

 
1,300

 
2,611

 
—

 
—

 
2,611

 
The Company's cash equivalents consist primarily of highly liquid investments in money market funds and term deposits with maturity periods of three months or less. The carrying value of the cash equivalents approximates the fair value since they are near their maturity. Investments in trading and available-for-sale securities consist of equity securities and are recorded at fair value based on quoted market prices. The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers.
The acquisition-related contingent consideration liability represents the future potential earn-out payments relating to the acquisitions in the GBS segment. The fair values of the contingent consideration liabilities are based on the Company’s probability assessment of the established profitability measures during the periods ranging from one year to three years from the date of the acquisitions. During the three and nine months ended August 31, 2013, the fair value of the contingent consideration liability was remeasured and the resulting decrease of $786 and $1,233, respectively, were recorded as a benefit to “Selling, general and administrative expenses” in the Consolidated Statements of Operations. The change in the fair value was due to updated estimates of expected revenue and gross profit related to the achievement of established earn-out targets. The remaining change in the carrying value of the liability is due to the translation effect of foreign currencies.
The carrying value of held-to-maturity securities, accounts receivable, accounts payable and short-term debt, approximate fair value due to their short maturities and the interest rates which are variable in nature. The carrying value of the Company's term loans approximate their fair value since they bear interest rates that are similar to existing market rates. The convertible debt had a carrying value of $141,436 as of November 30, 2012 and a fair value of $167,735 based on the closing price of the convertible debt traded in a limited trading market. The fair value was categorized as level 2 in the fair value measurement category levels. In August 2013, the Company repaid all of the outstanding convertible debt.
During the three and nine months ended August 31, 2013, there were no transfers between the fair value measurement category levels.

NOTE 9—ACCOUNTS RECEIVABLE ARRANGEMENTS: 
The Company primarily finances its United States operations with an accounts receivable securitization program (the “U.S. Arrangement”). The Company can finance up to a maximum of $400,000 in U.S. trade accounts receivable (“U.S. Receivables”). The maturity date of the U.S. Arrangement is October 18, 2015. The effective borrowing cost under the U.S. Arrangement is a blend of the prevailing dealer commercial paper rates plus a program fee of 0.425% per annum based on the used portion of the commitment, and a facility fee of 0.425% per annum payable on the aggregate commitment of the lenders. As of August 31, 2013, there was $90,000 of borrowings outstanding under the U.S. Arrangement. As of November 30, 2012,

14
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

there were no borrowings outstanding under the U.S. Arrangement. In September 2013, the Company amended the U.S Arrangement to increase the commitment of the lenders to $500,000. In addition, the amendment also included an accordion feature to allow requests for an increase in the lenders' commitment by an additional $100,000 to a maximum commitment of $600,000. All other terms and conditions of the U.S Arrangement remained the same.
Under the terms of the U.S. Arrangement, the Company sells, on a revolving basis, its U.S. Receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings by this subsidiary are secured by pledging all of such subsidiary's rights, title and interest in and to the U.S. Receivables as security for repayment of its borrowings. Any borrowings under the U.S. Arrangement are recorded as debt on the Company's Consolidated Balance Sheets. As is customary in trade accounts receivable securitization arrangements, a credit rating agency's downgrade of the third party issuer of commercial paper or of a back-up liquidity provider (which provides a source of funding if the commercial paper market cannot be accessed) could result in an increase in the Company's cost of borrowing or loss of the Company's financing capacity under these programs if the commercial paper issuer or liquidity back-up provider is not replaced. Loss of such financing capacity could have a material adverse effect on the Company's financial condition and results of operations.
The Company also has other financing agreements in North America with various financial institutions (“Flooring Companies”) to allow certain customers of the Company to finance their purchases directly with the Flooring Companies. Under these agreements, the Flooring Companies pay the Company directly on behalf of the customer and typically charge certain fees which the Company records as flooring fees. The Company is contingently liable to repurchase inventory sold under flooring agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the Flooring Companies. Please see Note 17—Commitments and Contingencies for further information.
The following table summarizes the net sales financed through the flooring agreements and the flooring fees incurred: 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Net sales financed
$
275,021

 
$
229,370

 
$
681,047

 
$
603,195

Flooring fees(1)
1,420

 
1,358

 
3,864

 
3,553

____________________________________
(1)
Flooring fees are included within “Interest expense and finance charges, net.”
As of August 31, 2013 and November 30, 2012, accounts receivable subject to flooring agreements were $61,084 and $55,963, respectively.
Infotec Japan has arrangements with various banks and financial institutions for the sale and financing of approved accounts receivable and notes receivable. The amount outstanding under these arrangements that was sold, but not collected as of August 31, 2013 and November 30, 2012 was $16,358 and $11,233, respectively.


15
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 10—BORROWINGS: 
Borrowings consist of the following: 
 
As of
 
August 31, 2013
 
November 30, 2012
Convertible debt
$
—

 
$
141,436

SYNNEX U.S. securitization
90,000

 
—

SYNNEX Canada revolving line of credit
7,686

 
—

SYNNEX Canada term loan
7,648

 
8,648

Infotec Japan credit facility
117,157

 
111,542

Other borrowings and capital leases
10,813

 
13,660

Total borrowings
233,304

 
275,286

Less: Current portion
(165,072
)
 
(194,134
)
Non-current portion
$
68,232

 
$
81,152

Convertible debt 
In May 2008, the Company issued $143,750 of aggregate principal amount of its 4.0% Convertible Senior Notes due 2018 (the “Convertible Senior Notes”) in a private placement. The carrying amount of the Convertible Senior Notes, net of the unamortized debt discount, was $141,436 as of November 30, 2012. The convertible debt was repaid in August 2013. See Note 11—Convertible Debt.
SYNNEX U.S. securitization 
The Company can finance up to a maximum of $400,000 in U.S. Receivables under its U.S. Arrangement. See Note 9—Accounts Receivable Arrangements. The effective borrowing cost under the U.S. Arrangement is a blend of the prevailing dealer commercial paper rates, plus a program fee on the used portion of the commitment and a facility fee payable on the aggregate commitment. As of August 31, 2013, the outstanding balance under the U.S. arrangement was $90,000. As of November 30, 2012 there were no borrowings outstanding under the U.S. Arrangement.
SYNNEX U.S. senior secured revolving line of credit 
The Company has a senior secured revolving line of credit arrangement (the “Revolver”) with a financial institution which provides a maximum commitment of $100,000 and expires in October 2017. The Revolver includes an accordion feature to increase the maximum commitment by an additional $50,000 to $150,000 at the Company's request, in the event the current lender consents to such increase or another lender participates in the Revolver. Interest on borrowings under the Revolver is based on a base rate or London Interbank Offered Rate (“LIBOR”), at the Company's option. The margin on the LIBOR is determined in accordance with the Company's fixed charge coverage ratio and is currently 1.50% per annum. The Company's base rate is based on the financial institution's prime rate. The Revolver also contains an unused line fee of 0.30% per annum. The Revolver is secured by the Company's inventory and other assets. It would be an event of default under the Revolver if a lender under the U.S. Arrangement declines to extend the maturity date at any point within thirty days prior to the maturity date of the U.S. Arrangement, unless the Company has a binding commitment in place to renew or replace the U.S. Arrangement. There is no event of default if within the thirty day period prior to maturity of the Revolver: (a) borrowing availability exceeds 90% of the commitment amount and (b) the fixed charge coverage ratio, when measured at the end of the fiscal quarter on a trailing four quarter basis, is greater than or equal to 1.75 to 1.00. There were no borrowings outstanding under this credit arrangement as of both August 31, 2013 and November 30, 2012.
SYNNEX Canada revolving line of credit 
SYNNEX Canada Limited ("SYNNEX Canada") has a revolving line of credit arrangement with a financial institution (the “Canadian Revolving Arrangement”) which has a maximum commitment of CAD100,000 and includes an accordion feature to increase the maximum commitment by an additional CAD25,000 to CAD125,000, at SYNNEX Canada's request. The Canadian Revolving Arrangement also provides a sublimit of US$5,000 for the issuance of standby letters of credit. As of

16
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

November 30, 2012, outstanding standby letters of credit totaled US$3,447. There were no letters of credit outstanding as of August 31, 2013. SYNNEX Canada has granted a security interest in substantially all of its assets in favor of the lender under the Canadian Revolving Arrangement. In addition, the Company pledged its stock in SYNNEX Canada as collateral for the Canadian Revolving Arrangement. The interest rate applicable under the Canadian Revolving Arrangement is equal to (i) the Canadian base rate plus a margin of 0.75% for a Base Rate Loan in Canadian Dollars, (ii) the US base rate plus a margin of 0.75% for a Base Rate Loan in U.S. Dollars, and (iii) the Bankers' Acceptance rate ("BA") plus a margin of 2.00% for a BA Rate Loan. The Canadian base rate means the greater of (a) the prime rate determined by a major Canadian financial institution and (b) the one month Canadian Dealer Offered Rate ("CDOR") (the average rate applicable to Canadian dollar bankers' acceptances for the applicable period) plus 1.50%. The US base rate means the greater of (a) a reference rate determined by a major Canadian financial institution for US dollar loans made to Canadian borrowers and (b) the US federal funds rate plus 0.50%. A fee of 0.25% per annum is payable with respect to the unused portion of the commitment. The credit arrangement expires in May 2017. As of August 31, 2013, there was US$7,686 outstanding under the Canadian Revolving Arrangement. There was no borrowing outstanding under the Canadian Revolving Arrangement as of November 30, 2012.
SYNNEX Canada term loan
SYNNEX Canada has a term loan associated with the purchase of its logistics facility in Guelph, Canada. The interest rate for the unpaid principal amount is a fixed rate of 5.374% per annum. The final maturity date for repayment of the unpaid principal is April 1, 2017. The balance outstanding on the term loan as of August 31, 2013 and November 30, 2012 was $7,648 and $8,648, respectively.
Infotec Japan credit facility
Infotec Japan has a credit agreement with a group of financial institutions for a maximum commitment of JPY14,000,000. The credit agreement is comprised of a JPY6,000,000 long-term loan and a JPY8,000,000 short-term revolving credit facility. The credit agreement was refinanced in December 2012, to increase the short-term revolving credit facility to JPY8,000,000 from JPY4,000,000. The interest rate for the long-term and short-term loans is based on the Tokyo Interbank Offered Rate ("TIBOR") plus a margin of 1.90% per annum. As of August 31, 2013 and November 30, 2013, the balance outstanding under the credit facility was $117,157 and $111,542, respectively. The credit facility expires in December 2015. The long-term loan can be repaid at any time prior to December 2015 without penalty. The Company has issued a guarantee to cover all obligations of Infotec Japan to the lenders.
Other borrowings and capital leases
Infotec Japan has a short-term revolving credit facility of JPY1,000,000 with a financial institution. The credit facility was renewed for one year in March 2013 and bears an interest rate that is based on TIBOR plus a margin of 1.60% per annum. As of August 31, 2013 and November 30, 2012, the balance outstanding under this credit facility was $10,187 and $12,124, respectively. In addition, as of November 30, 2012, Infotec Japan had a term loan with a financial institution with a balance of $424, which was repaid in December 2012 and bore a fixed interest rate of 1.50%.
In September 2013, Infotec Japan established a short-term revolving credit facility of JPY2,000,000 with a financial institution. The interest rate for the credit facility is based on TIBOR plus a margin of 0.50% per annum. In addition, there is a facility fee of 0.425% per annum. The credit facility can be renewed annually.
As of August 31, 2013 and November 30, 2012, the Company also had $624 and $1,112, respectively, in outstanding capital lease obligations and obligations for the sale and financing of approved accounts receivable and notes receivable with recourse provisions to Infotec Japan.
Interest expense and finance charges 
For the three and nine months ended August 31, 2013, the total interest expense and finance charges for the Company's borrowings were $3,623 and $15,936, respectively. The interest expense for the nine months ended August 31, 2013, includes non-cash interest expenses of $2,314 for the Convertible Senior Notes. For the three and nine months ended August 31, 2012, the total interest expense and finance charges for the Company's borrowings were $6,989 and $20,986, respectively, including non-cash interest expenses of $1,335 and $3,920, respectively, for the Convertible Senior Notes. The variable interest rates ranged between 0.64% and 4.08% during both three and nine months ended August 31, 2013 and between 0.87% and 4.06%, and 0.87% and 4.24%, respectively, during the three and nine months ended August 31, 2012.

17
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Covenants compliance 
In relation to the U.S. Arrangement, the Revolver, the Infotec Japan credit facility and the Canadian Revolving Arrangement, the Company has a number of covenants and restrictions that, among other things, require the Company to comply with certain financial and other covenants. These covenants require the Company to maintain specified financial ratios and satisfy certain financial condition tests, including minimum net worth and fixed charge coverage ratios. They also limit the Company’s ability to incur additional debt, make or forgive intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase the Company’s stock, create liens, cancel debt owed to the Company, enter into agreements with affiliates, modify the nature of the Company’s business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate.
Guarantees 
The Company has issued guarantees to certain vendors, lenders of its subsidiaries for trade credit lines and loans, and to a certain customer's lessor. In addition, the Company, as the ultimate parent, guaranteed the obligations of SYNNEX Investment Holdings Corporation up to $35,035 in connection with the sale of China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. The total guarantees issued by the Company as of August 31, 2013 and November 30, 2012 were $341,110 and $264,162, respectively. The Company is obligated under these guarantees to pay amounts due should its subsidiaries or customer not pay valid amounts owed to their vendors or lenders or not comply with subsidiary sales agreements.

NOTE 11—CONVERTIBLE DEBT:
In August 2013, the Company settled its Convertible Senior Notes with an aggregate principal amount of $143,750 which were issued in May 2008 in a private placement. The Convertible Senior Notes bore a cash coupon interest rate of 4.0% per annum and the initial conversion rate was 33.9945 shares of common stock per $1 principal amount, equivalent to an initial conversion price of $29.42 per share of common stock. The Convertible Senior Notes were called in the second quarter of fiscal year 2013. No interest was accrued subsequent to May 2013 in accordance with the Indenture. The final settlement amount of $218,870 was paid in cash and comprised of $143,750 in principal payments and $75,120 in payment of conversion premium. The conversion premium, which represents the total settlement amount less the principal, was recorded as a reduction of "Additional paid-in capital.” The final settlement amount was calculated in accordance with the Indenture based on the volume weighted-average trading price of the Company's common stock over the 60 consecutive trading-day period beginning on and including the third trading day after the related conversion.
Based on a cash coupon interest rate of 4.0%, the Company recorded contractual interest expense of $3,010 during the nine months ended August 31, 2013. There was no interest expense recorded for the three months ended August 31, 2013. The contractual interest expense was $1,624 and $4,872, respectively, during the three and nine months ended August 31, 2012. Based on an effective rate of 8.0%, the Company recorded non-cash interest expenses of $2,314 during the nine months ended August 31, 2013. There was no non-cash interest expense recorded during the three months ended August 31, 2013. The non-cash interest expense was $1,335 and $3,920, respectively, during the three and nine months ended August 31, 2012. As of November 30, 2012, the carrying value of the Convertible Senior Notes, net of unamortized debt discount of $2,314, was $141,436. The debt discount was fully amortized as of May 31, 2013.


18
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 12—EARNINGS PER COMMON SHARE: 
The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated: 
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Numerator:
 
 
 
 
 
 
 
Net income attributable to SYNNEX Corporation
$
46,611

 
$
35,139

 
$
110,749

 
$
107,736

Less: impact of conversion premium of convertible debt
(39,474
)
 
—

 
(36,409
)
 
—

Net income for diluted earnings per share calculation
$
7,137

 
$
35,139

 
$
74,340

 
$
107,736

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares - basic
36,965

 
36,700

 
36,805

 
36,537

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock options, restricted stock awards and restricted stock units
594

 
574

 
547

 
617

Conversion premium of convertible debt
—

 
643

 
468

 
812

Weighted-average common shares - diluted
37,559

 
37,917

 
37,820

 
37,966

 
 
 
 
 
 
 
 
Earnings per share attributable to SYNNEX Corporation:
 
 
 
 
 
 
 
Basic
$
1.26

 
$
0.96

 
$
3.01

 
$
2.95

Diluted
$
0.19

 
$
0.93

 
$
1.97

 
$
2.84

It was the Company’s intent to settle the principal amount of the Convertible Senior Notes in cash; accordingly, the principal amount was excluded from the determination of diluted earnings per share. In April 2013, the Company decided to settle the payment of the conversion premium in cash as discussed in Note 11—Convertible Debt. Through April 2013, the Company accounted for the conversion premium using the treasury stock method by adjusting the diluted weighted-average common shares if the effect was dilutive. For the three months ended August 31, 2013, the numerator for the computation of earnings per common share-diluted was adjusted for any dilutive changes in the estimated value of the conversion premium from May 31, 2013 through the final settlement date. For the nine months ended August 31, 2013, the numerator for the computation of diluted earnings per common share was adjusted for any dilutive changes in the estimated value of the conversion premium from April 2013 through the final settlement date. For the three and nine months ended August 31, 2013, the adjustment to the numerator had the effect of reducing the diluted earnings per share by $1.05 and $0.96, respectively.
Options to purchase 10, 13 and 7 shares during the nine months ended August 31, 2013 and during the three and nine months ended August 31, 2012, respectively, have not been included in the computation of diluted earnings per share as their effect would have been anti-dilutive. No options were anti-dilutive for the three months ended August 31, 2013.

NOTE 13—SEGMENT INFORMATION: 
Operating segments
Operating segments are based on components of the Company that engage in business activity that earn revenue and incur expenses and (a) whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resource allocation and performance and (b) for which discrete financial information is available.
The distribution services segment distributes IT systems, peripherals, system components, software, networking equipment, consumer electronics ("CE") and complementary products and offers data center server and storage solutions. The distribution services segment also provides contract assembly services.

19
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

The GBS segment offers a range of BPO services to customers that include technical support, renewals management, lead management, direct sales, customer service, back office processing and information technology outsourcing ("ITO"). Many of these services are delivered and supported on the proprietary software platforms that the Company has developed to provide additional value to its customers.
Summarized financial information related to the Company’s reportable business segments for the three and nine months ended August 31, 2013 and 2012 is shown below:
 
Distribution
 
GBS
 
Inter-Segment
Elimination
 
Consolidated
Three months ended August 31, 2013
 
 
 
 
 
 
 
Revenue
$
2,687,283

 
$
55,064

 
$
(8,434
)
 
$
2,733,913

Income from operations before non-operating items, income taxes and noncontrolling interest
61,783

 
1,773

 
(57
)
 
63,499

Three months ended August 31, 2012
 
 
 
 
 
 
 
Revenue
2,535,991

 
49,729

 
(8,772
)
 
2,576,948

Income from operations before non-operating items, income taxes and noncontrolling interest
52,627

 
4,581

 
(157
)
 
57,051

 
 
 
 
 
 
 
 
Nine months ended August 31, 2013
 
 
 
 
 
 
 
Revenue
$
7,648,896

 
$
162,598

 
$
(25,381
)
 
$
7,786,113

Income from operations before non-operating items, income taxes and noncontrolling interest
161,591

 
10,022

 
(210
)
 
171,403

Nine months ended August 31, 2012
 
 
 
 
 
 
 
Revenue
7,402,218

 
142,505

 
(24,282
)
 
7,520,441

Income from operations before non-operating items, income taxes and noncontrolling interest
171,379

 
9,151

 
(170
)
 
180,360

 
 
 
 
 
 
 
 
Total assets as of August 31, 2013
$
2,835,441

 
$
319,258

 
$
(204,549
)
 
$
2,950,150

Total assets as of November 30, 2012
2,848,689

 
316,993

 
(202,420
)
 
2,963,262

The inter-segment elimination relates to the inter-segment, back office support services provided by the GBS segment to the distribution services segment, elimination of inter-segment profit, inter-segment investments and inter-segment receivables.
Segment by geography
The Company primarily operates in North America. The United States and Canada are included in the “North America” operations. China, India, Japan and the Philippines are included in “Asia-Pacific” operations and the remaining countries it operates in are included in “Other” operations. The revenues attributable to countries are based on geography of entities from where the products are distributed or services are provided.

20
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Shown below is summarized financial information related to the geographic areas in which the Company operated during the three and nine months ended August 31, 2013 and 2012:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Revenue:
 
 
 
 
 
 
 
North America
$
2,441,447

 
$
2,287,397

 
$
6,840,300

 
$
6,523,462

Asia-Pacific
270,455

 
272,933

 
883,127

 
944,010

Other
22,011

 
16,618

 
62,686

 
52,969

 
$
2,733,913

 
$
2,576,948

 
$
7,786,113

 
$
7,520,441

 
As of
 
August 31, 2013
 
November 30, 2012
Property and equipment, net:
 
 
 
North America
$
87,254

 
$
87,689

Asia-Pacific
20,485

 
22,782

Other
16,389

 
12,452

 
$
124,128

 
$
122,923

Revenue in the United States was approximately 75% and 74% of the total revenue for the three and nine months ended August 31, 2013, respectively, and 76% and 73% of the total revenue for the three and nine months ended August 31, 2012, respectively. Revenue in Canada was approximately 15% and 14% of total revenue for the three and nine months ended August 31, 2013, respectively and 13% and 14% for the three and nine months ended August 31, 2012, respectively. Revenue in Japan was approximately 9% and 11% of the total revenue for the three and nine months ended August 31, 2013, respectively, and 10% and 12% of the total revenue for the three and nine months ended August 31, 2012, respectively.
Net property and equipment in the United States was approximately 56% and 57% of the total as of August 31, 2013 and November 30, 2012, respectively. Net property and equipment in Canada was approximately 14% of the total as of both August 31, 2013 and November 30, 2012. As of both August 31, 2013 and November 30, 2012, no other country represented more than 10% of the total net property and equipment.

NOTE 14—RELATED PARTY TRANSACTIONS: 
The Company has a business relationship with MiTAC International Corporation (“MiTAC International”), a publicly-traded company in Taiwan, which began in 1992 when MiTAC International became the Company's primary investor through its affiliates. As of both August 31, 2013 and November 30, 2012, MiTAC International and its affiliates beneficially owned approximately 27% of the Company’s common stock. Matthew Miau, the Company’s Chairman Emeritus of the Board of Directors and a director, is the Chairman of MiTAC International and a director or officer of MiTAC International’s affiliates. The shares owned by MiTAC International are held by the following entities:
 
As of August 31, 2013
MiTAC International(1)
5,908

Synnex Technology International Corp.(2)
4,283

Total
10,191

_____________________________________
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC International. Excludes 594 shares (of which 534 shares are directly held and 60 shares are subject to exercisable options) held by Matthew Miau.
(2)
Synnex Technology International Corp. ("Synnex Technology International") is a separate entity from the Company and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC International owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 13.6% in Synnex Technology International.

21
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

MiTAC International generally has significant influence over the Company and over the outcome of all matters submitted to stockholders for consideration, including any merger or acquisition of the Company. Among other things, this could have the effect of delaying, deterring or preventing a change of control over the Company.
The Company purchased inventories from MiTAC International and its affiliates totaling $3,485 and $8,639 during the three and nine months ended August 31, 2013, respectively, and $1,840 and $2,819 during the three and nine months ended August 31, 2012, respectively. The Company’s sales to MiTAC International and its affiliates during the three and nine months ended August 31, 2013, totaled $364 and $939, respectively, and during the three and nine months ended August 31, 2012, totaled $362 and $2,585, respectively. In addition, the Company received reimbursements of rent and overhead costs for facilities used by MiTAC International amounting to $857 and $2,580 during the three and nine months ended August 31, 2013, respectively, and $870 and $2,742, during the three and nine months ended August 31, 2012, respectively.
The Company’s business relationship with MiTAC International has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. The Company negotiates manufacturing, pricing and other material terms on a case-by-case basis with MiTAC International and its contract assembly customers for a given project. While MiTAC International is a related party and a controlling stockholder, the Company believes that the significant terms under its arrangements with MiTAC International, including pricing, will not materially differ from the terms it could have negotiated with unaffiliated third parties, and it has adopted a policy requiring that material transactions with MiTAC International or its related parties be approved by its Audit Committee, which is composed solely of independent directors. In addition, Matthew Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors. 
Synnex Technology International is a publicly-traded corporation in Taiwan that currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also a potential competitor of the Company. Neither MiTAC International, nor Synnex Technology International is restricted from competing with the Company.

NOTE 15—PENSION AND EMPLOYEE BENEFITS PLANS: 
The employees of Infotec Japan are covered by certain defined benefit pension plans, including a multi-employer pension plan. Full-time employees are eligible to participate in the plans on the first day of February following their date of hire and are not required to contribute to the plans.
The components of net periodic pension costs pertaining to the Company's single employer benefit plan during the three and nine months ended August 31, 2013 and 2012 were as follows:
 
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Service cost
$
145

 
$
216

 
$
453

 
$
585

Interest cost
37

 
56

 
114

 
152

Expected return on plan assets
(15
)
 
(34
)
 
(46
)
 
(92
)
Net periodic pension costs
$
167

 
$
238

 
$
521

 
$
645

During the three and nine months ended August 31, 2013, the Company contributed $161 and $498, respectively, to the single-employer benefit plan. During the three and nine months ended August 31, 2012, the Company contributed $204 and $638, respectively, to the plan.


22
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 16—EQUITY:
Share repurchase program 
In June 2011, the Board of Directors authorized a three-year $65,000 share repurchase program. During the nine months ended August 31, 2013, the Company purchased 55 shares at a weighted-average price of $34.28 per share. The Company did not purchase any shares during the three months ended August 31, 2013. As of August 31, 2013 the Company has purchased 361 shares for a total cost of $11,340.
The share purchases were made on the open market and the shares repurchased by the Company are held in treasury for general corporate purposes.

23
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

Changes in equity
A reconciliation of the changes in equity for the nine months ended August 31, 2013 and August 31, 2012 is presented below:
 
 
Nine Months Ended August 31, 2013
 
Nine Months Ended August 31, 2012
 
 
  Attributable to  
SYNNEX
Corporation
 
Attributable to  
Noncontrolling
interest
 
Total Equity    
 
Attributable
  to SYNNEX  
    Corporation     
 
Attributable to  
Noncontrolling
interest
 
Total Equity    
Beginning balance of equity:
 
$
1,319,023

 
$
332

 
$
1,319,355

 
$
1,158,379

 
$
10,079

 
$
1,168,458

Issuance of common stock on exercise of options
 
6,056

 
—

 
6,056

 
7,789

 
—

 
7,789

Issuance of common stock for employee stock purchase plan
 
1,074

 
—

 
1,074

 
1,026

 
—

 
1,026

Tax benefit from employee stock plans
 
2,063

 
—

 
2,063

 
2,768

 
—

 
2,768

Taxes paid for the settlement of equity awards
 
(210
)
 
—

 
(210
)
 
(295
)
 
—

 
(295
)
Share-based compensation
 
6,790

 
—

 
6,790

 
6,250

 
6

 
6,256

Changes in ownership of noncontrolling interest
 
7

 
16

 
23

 
(2,364
)
 
(4,051
)
 
(6,415
)
Repurchase of treasury stock
 
(1,882
)
 
—

 
(1,882
)
 
—

 
—

 
—

Conversion premium of convertible debt
 
(75,120
)
 
—

 
(75,120
)
 
—

 
—

 
—

Deferred tax adjustment for settlement of convertible debt
 
14,034

 
—

 
14,034

 
—

 
—

 
—

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
110,749

 
67

 
110,816

 
107,736

 
1,074

 
108,810

Other comprehensive income (loss):
 

 

 

 

 

 

Changes in unrealized gains (losses) on available-for-sale securities
 
193

 
—

 
193

 
(420
)
 
64

 
(356
)
Net unrealized components of defined benefit pension plans
 
—

 
—

 
—

 
126

 
(64
)
 
62

Foreign currency translation adjustments
 
(16,539
)
 
(10
)
 
(16,549
)
 
6,581

 
(306
)
 
6,275

Total other comprehensive income (loss)
 
(16,346
)
 
(10
)
 
(16,356
)
 
6,287

 
(306
)
 
5,981

Total comprehensive income
 
94,403

 
57

 
94,460

 
114,023

 
768

 
114,791

Ending balance of equity:
 
$
1,366,238

 
$
405

 
$
1,366,643

 
$
1,287,576

 
$
6,802

 
$
1,294,378

The balance of "Accumulated other comprehensive income," which is included in the total equity attributable to SYNNEX Corporation, is primarily comprised of cumulative translation adjustments.

24
SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS---(continued)
For the three and nine months ended August 31, 2013 and 2012
(currency and share amounts in thousands, except per share amounts)
(unaudited)

NOTE 17—COMMITMENTS AND CONTINGENCIES:
The Company was contingently liable as of August 31, 2013 under agreements to repurchase repossessed inventory acquired by Flooring Companies as a result of default on floor plan financing arrangements by the Company's customers. These arrangements are described in Note 9—Accounts Receivable Arrangements. Losses, if any, would be the difference between the repossession cost and the resale value of the inventory. There have been no repurchases through August 31, 2013 under these agreements and the Company is not aware of any pending customer defaults or repossession obligations. From time to time, the Company receives notices from third parties, including customers and suppliers, seeking indemnification, payment of money or other actions in connection with claims made against them. Also, the Company is involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company is not currently involved in any material proceedings.
In December 2009, the Company sold China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. In conjunction with this sale, the Company has recorded a contingent indemnification liability of $4,122.
The Company does not believe that the above commitments and contingencies will have a material adverse effect on the Company's results of operations, financial position or cash flows.

NOTE 18—SUBSEQUENT EVENTS:
On September 10, 2013, the Company announced that it entered into a Master Asset Purchase Agreement with International Business Machines Corporation, a New York corporation (“IBM”), pursuant to which the Company will acquire IBM's customer care business ("the Assets") for an aggregate purchase price of $505,000, subject to post-closing adjustments. A portion of the purchase price will be paid in shares of the Company's common stock up to the lesser of $75,000 or 5% of the outstanding shares of the Company's common stock (the "Stock Consideration"). At the closing, the Company will issue the Stock Consideration and $430,000 in cash, less $75,000 to be held back in the event a portion of the Assets are not transferred to us at the initial closing. IBM will operate the Assets for the benefit of the Company pending one or more subsequent closings, which are to occur no later than June 30, 2015. In connection with the acquisition, the Company intends to offer employment to approximately 35,000 employees in locations around the world, including the United States, the United Kingdom, India and the Philippines.
The Company anticipates the initial closing to occur in the coming months. Completion of the acquisition is subject to customary closing conditions, including, but not limited to, expiration or termination of the applicable waiting period under Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other regulatory approvals.


25

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report. 
When used in this Quarterly Report on Form 10-Q or the Report, the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “may,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our business model and our services, our market strategy, including expansion of our product lines, our infrastructure, anticipated benefits, costs, and timing of our acquisitions, including our acquisition of the customer care business of International Business Machines Corporation, or IBM, our employee hiring, impact of MiTAC International Corporation, or MiTAC International, ownership interest in us, our revenue and operating results, our gross margins, competition with Synnex Technology International Corp., our future needs for additional financing, concentration of customers, our international operations, including our operations in Japan, expansion of our operations, our strategic acquisitions of businesses and assets, effects of future expansion of our operations, adequacy of our cash resources to meet our capital needs, cash held by our foreign subsidiaries, adequacy of our disclosure controls and procedures, pricing pressures, competition, impact of our accounting policies, our tax rates, our anti-dilution share repurchase program, and statements regarding our securitization programs and revolving credit lines. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed, as well as the seasonality of the buying patterns of our customers, concentration of sales to large customers, dependence upon and trends in capital spending budgets in the information technology, or IT, and consumer electronics, or CE, industries, fluctuations in general economic conditions and risks set forth under Part II, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview
We are a Fortune 500 corporation and a leading business process services company, servicing resellers, retailers and original equipment manufacturers, or OEMs, in multiple regions around the world. Our primary business process services are wholesale distribution and business process outsourcing, or BPO. We operate in two segments: distribution services and global business services, or GBS. Our distribution services segment distributes IT systems, peripherals, system components, software, networking equipment, CE, and complementary products and also offers data center server and storage solutions. Our GBS segment offers a range of BPO services to customers that include technical support, renewals management, lead management, direct sales, customer service, back office processing and information technology outsourcing, or ITO. Many of these services are delivered and supported on the proprietary software platforms we have developed to provide additional value to our customers.
We combine our core strengths in distribution with our BPO services to help our customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and after-market product support. We distribute more than 25,000 technology products (as measured by active SKUs) from more than 200 IT, CE and OEM suppliers to more than 20,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan and Mexico. As of August 31, 2013, we had approximately 14,000 full-time and temporary employees worldwide. From a geographic perspective, approximately 89% and 88%, of our total revenue was from North America for the three and nine months ended August 31, 2013, respectively, and 89% and 87% for the three and nine months ended August 31, 2012.
In our distribution services segment, we purchase IT systems, peripherals, system components, software, networking equipment, CE and complementary products from our primary suppliers such as Hewlett-Packard Company, or HP, Lenovo, AsusTek Computer Inc., Beats Electronics LLC and Seagate Technologies LLC 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, or VARs, corporate resellers, government resellers, system integrators, direct marketers, and national and regional retailers. In our distribution business, we provide comprehensive IT solutions in key vertical markets such as government and healthcare. We also provide specialized service offerings that increase efficiencies in areas like print management, renewals, networking and other services. In our GBS segment, our customers are primarily manufacturers of IT hardware and CE devices, developers of software, cloud service providers, and broadcast and social media.

26

Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates for the three and nine months ended August 31, 2013 from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2012. For more information on our critical accounting policies, please see the discussion in our Annual Report on Form 10-K for the fiscal year ended November 30, 2012.
Recent Acquisitions and Divestitures 
We seek to augment our services offering expansion with strategic acquisitions of businesses and assets that complement and expand our global BPO capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. Our historical acquisitions have brought us new reseller and retail customers, OEM suppliers, and product lines have extended the geographic reach of our operations, particularly in targeted markets, and have diversified and expanded the services we provide to our OEM suppliers and customers. We account for acquisitions using the purchase method of accounting and include acquired entities within our Consolidated Financial Statements from the closing date of the acquisition. 
Acquisitions subsequent to the three and nine months ended August 31, 2013
On September 10, 2013, we announced that we entered into a Master Asset Purchase Agreement with IBM, a New York corporation, pursuant to which we will acquire IBM’s customer care business, or the Assets, for an aggregate purchase price of $505.0 million, subject to post-closing adjustments. A portion of the purchase price will be paid in shares of our common stock up to the lesser of $75.0 million or 5% of the outstanding shares of our common stock, or the Stock Consideration. At the closing, we will issue the Stock Consideration and $430.0 million in cash, less $75.0 million to be held back in the event a portion of the Assets are not transferred to us at the initial closing. If a portion of the Assets are not transferred at the initial closing, IBM will operate the Assets for our benefit, pending one or more subsequent closings, which are to occur no later June 30, 2015. In connection with the acquisition, we intend to offer employment to approximately 35,000 employees in locations around the world, including the United States, the United Kingdom, India and the Philippines.
We anticipate the initial closing to occur in the coming months. Completion of the acquisition is subject to customary closing conditions, including, but not limited to, expiration or termination of the applicable waiting period under Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other regulatory approvals.
Acquisitions during fiscal year 2013
In April 2013, we acquired substantially all of the assets of Supercom Canada Limited or Supercom Canada, a distributor of IT and consumer electronics products and services in Canada. The purchase price was approximately CAD36.5 million, or US$35.6 million, in cash, including approximately CAD4.5 million, or US$4.3 million, in deferred payments, subject to certain post-closing conditions, payable within 18 months. Subsequent to the acquisition, we repaid debt and working capital lines in the amount of US$53.7 million. Based on the preliminary purchase price allocation, we recorded net tangible assets of US$25.7 million, goodwill of US$5.4 million and intangible assets of US$4.4 million in relation to this acquisition. The determination of the fair value of the assets and liabilities acquired is preliminary and subject to the finalization of more detailed analysis. The acquisition is integrated into the distribution services segment and is expected to expand our existing product and service offerings in Canada.
Acquisitions and divestitures during fiscal year 2012
In fiscal year 2012, we purchased shares of our subsidiary SYNNEX Infotec Corporation, or Infotec Japan, which were held by the noncontrolling interest SB Pacific Corporation Limited, or SB Pacific, for $17.5 million, of which $11.4 million was paid during the nine months ended August 31, 2013. The transaction increased our ownership interest in Infotec Japan from 70.0% to 99.8%. In fiscal year 2012, we also sold our 33.3% noncontrolling interest in SB Pacific, our equity-method investee at that time, back to SB Pacific. During the nine months ended August 31, 2013, we received the final payment of $4.2 million of the sale price.
In fiscal year 2012, we acquired a business in the GBS segment for a purchase price of $6.2 million with $1.2 million payable upon the completion of certain post-closing procedures and $1.3 million contingent consideration payable upon the achievement of certain target earnings. We recorded goodwill of $6.2 million in relation to this acquisition.


27

Results of Operations 
The following table sets forth, for the indicated periods, data as percentages of revenue: 
Statements of Operations Data:
Three Months Ended
 
Nine Months Ended
 
August 31, 2013
 
August 31, 2012
 
August 31, 2013
 
August 31, 2012
Revenue
100.00
 %
 
100.00
 %
 
100.00
 %
 
100.00
 %
Cost of revenue
(93.99
)
 
(94.10
)
 
(93.90
)
 
(93.65
)
Gross profit
6.01

 
5.90

 
6.10


6.35

Selling, general and administrative expenses
(3.69
)
 
(3.69
)
 
(3.90
)
 
(3.95
)
Income from operations before non-operating items, income taxes and noncontrolling interest
2.32

 
2.21

 
2.20

 
2.40

Interest expense and finance charges, net
(0.10
)
 
(0.23
)
 
(0.17
)
 
(0.23
)
Other income, net
0.44

 
0.04

 
0.18

 
0.03

Income from operations before income taxes and noncontrolling interest
2.66

 
2.02

 
2.21

 
2.20

Provision for income taxes
(0.96
)
 
(0.67
)
 
(0.79
)
 
(0.75
)
Net income
1.70

 
1.35

 
1.42

 
1.45

Net (income) loss attributable to noncontrolling interest
(0.00)

 
0.01

 
(0.00)

 
(0.02
)
Net income attributable to SYNNEX Corporation
1.70
 %
 
1.36
 %
 
1.42
 %
 
1.43
 %
Three and Nine Months Ended August 31, 2013 and 2012
Revenue 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
(in thousands)
 
 
 
(in thousands)
 
 
Revenue
$
2,733,913

 
$
2,576,948

 
6.1
 %
 
$
7,786,113

 
$
7,520,441

 
3.5
%
Distribution revenue
2,687,283

 
2,535,991

 
6.0
 %
 
7,648,896

 
7,402,218

 
3.3
%
GBS revenue
55,064

 
49,729

 
10.7
 %
 
162,598

 
142,505

 
14.1
%
Inter-segment elimination
(8,434
)
 
(8,772
)
 
(3.9
)%
 
(25,381
)
 
(24,282
)
 
4.5
%
In our distribution services segment, we sell in excess of 25,000 technology products (as measured by active SKUs) from more than 200 IT, CE and OEM suppliers to more than 20,000 resellers. 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 because of rapid changes in product models and features. The revenue generated in our GBS segment relates to BPO services such as technical support, renewals management, lead management, direct sales, customer service, back office processing and ITO. The inter-segment elimination relates to the inter-segment, back office support services provided by our GBS segment to our distribution services segment. Third-party GBS revenue can be derived by netting the inter-segment eliminations into GBS revenue. The GBS programs and customer service requirements change frequently from one period to the next and are often not comparable.
Revenue in our distribution services segment increased by 6.0% during the three months ended August 31, 2013 compared to the three months ended August 31, 2012. The increase in revenue was due to growth in U.S. sales, local currency sales in Japan and the acquisition of Supercom Canada in April 2013. These increases were negatively impacted by a 2.8% translation impact of foreign exchange rates, primarily due to the weakening of the Japanese yen and the Canadian dollar.

28

The increase in our revenue was caused by the growth in peripheral sales of 17%, primarily from the sale of audio products and system accessories, 9% higher networking equipment sales and 2% higher IT system and system component sales. Revenue growth was partially offset by 9% lower software sales primarily due to the strategic consolidation of less profitable products. All product categories were negatively impacted by the translation impact of foreign exchange rates, primarily due to the weakening Japanese yen and the Canadian dollar.
Revenue in our distribution services segment increased by 3.3% during the nine months ended August 31, 2013 compared to the nine months ended August 31, 2012. The increase in revenue was due to growth in U.S. sales, local currency sales growth in Japan and the April 2013 acquisition of Supercom Canada. These increases were negatively impacted by 2.3% for the translation impact of foreign exchange rates, primarily from the weakening of the Japanese yen.
The increase in revenue by product category, in comparison to the nine months ended August 31, 2012, was caused by 10% higher sales of peripherals, 8% higher networking equipment sales and 7% higher system components sales. Revenue growth was partially offset by 17% lower software sales, primarily due to lower gaming sales during the first half of the year and the reduction in revenue associated with a strategic decision to consolidate less profitable products. All product categories were negatively impacted by the translation impact of foreign exchange rates, primarily due to the weakening Japanese yen.
In our GBS segment, revenue in the three and nine months ended August 31, 2013 increased 10.7% and 14.1%, respectively, from the three and nine months ended August 31, 2012 primarily due to revenue generated from new customer contracts and expanded business from certain existing customers.
The demand for our products and services improved in the third quarter of fiscal year 2013 in the U.S and Asian markets, while Canada continued to navigate through a flat to modest economic environment.
Gross Profit
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
(in thousands)
 
 
 
(in thousands)
 
 
Gross profit
$
164,280

 
$
151,929

 
8.1
%
 
$
475,157

 
$
477,637

 
(0.5
)%
Percentage of revenue
6.01
%
 
5.90
%
 

 
6.10
%
 
6.35
%
 

Our gross profit is affected by a variety of factors, including competition, average selling prices, mix of products and services we sell, our customers, our sources of revenue by segments, product costs along with rebate and discount programs from our suppliers, reserves or settlements thereof, freight costs, charges for inventory losses, acquisitions and divestitures of business units, fluctuations in revenue, and our mix of business including our GBS services.
Our gross margin was higher by 11 basis points during the three months ended August 31, 2013 compared to the three months ended August 31, 2012. The improvement was primarily due to a reduction in reserve requirements related to certain vendor programs and our product mix. Gross margin improvement was partially offset by the onboarding of personnel in our GBS segment due to recently signed business.
Our gross margin during the nine months ended August 31, 2013, was 25 basis points lower as compared to the nine months ended August 31, 2012. As we started fiscal year 2013, the comparisons were difficult as fiscal year 2012 had benefitted from higher incentive rebates and higher profitability as a result of market supply and demand changes due to a shortage of hard disk drives. A strengthening U.S. and Japan market and a reduction in reserve requirements related to certain vendor programs improved gross margin in the first three fiscal quarters of fiscal 2013.
No specific customers, or changes in pricing strategy, individually or in the aggregate, contributed materially to the change in gross profit.

29

Selling, General and Administrative Expenses
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
(in thousands)
 
 
(in thousands)
 
Selling, general and administrative expenses
$
100,781

 
$
94,878

 
6.2
%
 
$
303,754

 
$
297,277

 
2.2
%
Percentage of revenue
3.69
%
 
3.69
%
 
 
 
3.90
%
 
3.95
%
 
 
Approximately two-thirds of our selling, general and administrative expenses consist of personnel costs such as salaries, commissions, bonuses, share-based compensation, deferred compensation expense or income, and temporary personnel costs. Selling, general and administrative expenses also include costs of our facilities, utility expense, professional fees, depreciation expense on our capital equipment, bad debt expense, amortization expense on our intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
Our selling, general and administrative expenses in the three months ended August 31, 2013 were 6.2% higher compared to the three months ended August 31, 2012. The increase in expense was primarily due to $6.4 million in higher personnel costs and general overhead expenses as the result of our April 2013 acquisition of Supercom Canada in our distribution segment and to support the growth in our GBS segment. Our operating expenses during the three months ended August 31, 2013 also included expenses related to our anticipated acquisition of the IBM customer care business. In addition, the prior year period benefitted from $2.3 million lower bad debt reserve requirements. These higher expenses were offset in part by a $3.4 million decrease as a result of fluctuations in foreign exchange rates, primarily due to the weakening of the Japanese yen.
Our selling, general and administrative expenses in the nine months ended August 31, 2013 were 2.2% higher compared to the nine months ended August 31, 2012. Our personnel costs and general overhead expenses were higher by $12.8 million, as a result of the growth in both our segments and the impact of the April 2013 acquisition of Supercom Canada. In addition, we recognized one-time integration expenses for the acquisition of Supercom Canada and acquisition related expenses for the anticipated acquisition of the IBM customer care business. These increases in expenses were offset in part by a $7.9 million decrease as a result of changes in foreign exchange rates, primarily due to the weakening of the Japanese yen.
Income from Operations before Non-Operating Items, Income Taxes and Noncontrolling Interests
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
(in thousands)
 
 
 
(in thousands)
 
 
Income from operations before non-operating items, income taxes and noncontrolling interest
$
63,499

 
$
57,051

 
11.3
 %
 
$
171,403

 
$
180,360

 
(5.0
)%
Percentage of total revenue
2.32
%
 
2.21
%
 
 
 
2.20
%
 
2.40
%
 
 
Distribution income from operations before non-operating items, income taxes and noncontrolling interest
61,783

 
52,627

 
17.4
 %
 
161,591

 
171,379

 
(5.7
)%
Percentage of distribution revenue
2.30
%
 
2.08
%
 
 
 
2.11
%
 
2.32
%
 
 
GBS income from operations before non-operating items, income taxes and noncontrolling interest
1,773

 
4,581

 
(61.3
)%
 
10,022

 
9,151

 
9.5
 %
Percentage of GBS revenue
3.22
%
 
9.21
%
 
 
 
6.16
%
 
6.42
%
 
 
Inter-segment eliminations
(57)

 
(157
)
 
(63.7
)%
 
(210)

 
(170
)
 
23.5
 %
In our distribution services segment, our operating margin in the three months ended August 31, 2013 was higher than the three months ended August 31, 2012, benefiting from higher gross margin as a result of a strengthening demand environment, positive adjustments to certain program related reserves and higher vendor incentives, offset in part by higher selling, general and operating expenses.

30

Our operating margin in the nine months ended August 31, 2013 was lower than the nine months ended August 31, 2012. Distribution services gross margin during the first half of fiscal year 2013 was negatively impacted by competitive pricing pressure, a mixed demand environment and the $2.1 million one-time integration expenses related to the acquisition of Supercom Canada.
In our GBS segment, our operating margin in the three months ended August 31, 2013 was lower than the three months ended August 31, 2012. The GBS results in the three months ended August 31, 2013 include $2.3 million in charges, primarily consisting of $1.4 million in costs incurred for our anticipated acquisition of the IBM customer care unit, which was recorded in selling, general and administrative expenses. GBS margin was also lower due to upfront personnel investment in the third quarter of fiscal year 2013 associated with recent business wins. These incremental expenses in the third quarter of fiscal year 2013 resulted in the operating margin for the nine months ended August 31, 2013 being lower than the nine months ended August 31, 2012.
Interest Expense and Finance Charges, Net
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
(in thousands)
 
 
 
(in thousands)
 
 
Interest expense and finance charges, net
$
2,983

 
$
5,809

 
(48.6
)%
 
$
13,339

 
$
17,363

 
(23.2
)%
Percentage of revenue
0.10
%
 
0.23
%
 
 
 
0.17
%
 
0.23
%
 
 
Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our lines of credit and other debt, fees associated with third party accounts receivable flooring arrangements, non-cash interest expense on our convertible debt and the sale or pledge of accounts receivable through our securitization facilities, offset by income earned on our cash investments and financing income from our multi-year contracts in our Mexico operation.
The decrease in interest expense and finance charges, net, during the three months ended August 31, 2013 compared to the three months ended August 31, 2012 was due to $3.0 million lower interest expense on our convertible debt which was called in May 2013. The decrease in interest expense and finance charges, net, during the nine months ended August 31, 2013 compared to the nine months ended August 31, 2012 was due to $3.5 million lower interest expense on our convertible debt and lower average borrowings during fiscal year 2013, offset in part by lower interest income from our Mexico contracts.
Other Income, Net
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
August 31, 2013
 
August 31, 2012
 
Percent  Change
 
(in thousands)
 
 
 
(in thousands)
 
 
Other income, net
$
12,159

 
$
890

 
1,266.2
%
 
$
13,948

 
$
2,607

 
435.0
%
Percentage of revenue
0.44
%
 
0.04
%
 
 
 
0.18
%

0.03
%
 
 
Amounts recorded as other income, net include foreign currency transaction gains and losses, investment gains and losses (including those in our deferred compensation plan) and other non-operating gains and losses.
The increase in other income, net during the three and nine months ended August 31, 2013 as compared to the three the nine months ended August 31, 2012 was due to $12.3 million received from a class-action legal settlement, offset in part by lower earnings on our deferred compensation investments.
Provision for Income Taxes
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.
Our effective tax rate for the three and nine months ended August 31, 2013 was 35.8% and 35.6%, respectively, compared to 33.2% and 34.3% for the three and nine months ended August 31, 2012, respectively. Our effective tax rate was impacted by changes in the mix of income in the different tax jurisdictions in which we operate. In addition, the effective tax rate in the three

31

and nine months ended August 31, 2012 was favorably impacted by a $1.0 million release of uncertain tax benefit reserves following the expiration of the statute of limitations.
Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and earnings being higher than anticipated in countries where we have higher statutory rates, by changes in the valuations of our deferred tax assets or liabilities, or by changes or interpretations in tax laws, regulations or accounting principles. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
Net (Income) Loss Attributable to Noncontrolling Interests
Net (income) loss attributable to noncontrolling interests represents the share of net income attributable to others, which is recognized for the portion of subsidiaries’ equity not owned by us. The change in the net (income) loss attributable to noncontrolling interests in the three and nine months ended August 31, 2013 as compared to the three and nine months ended August 31, 2012 is due to our purchase of SB Pacific’s 30.0% ownership of Infotec Japan during fiscal year 2012. This noncontrolling interest has been reflected in the results of our distribution services segment.

Liquidity and Capital Resources 
Cash Flows 
Our business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on debt, accounts receivable arrangements, our securitization programs and our revolver programs for our working capital needs.
We have financed our growth and cash needs to date primarily through working capital financing facilities, convertible debt, bank credit lines and cash generated from operations.
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 personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by additional borrowings or issuing common stock.
Net cash provided by operating activities was $118.1 million for the nine months ended August 31, 2013, primarily from net income of $110.8 million and a $108.6 million decrease in accounts receivable, offset in part by a $67.0 million increase in inventory and $52.2 million decrease in accounts payable. The changes in accounts receivables, inventory and accounts payable are primarily due to our organic and acquisition related growth and due to the seasonal nature of our business.
Net cash provided by operating activities for the nine months ended August 31, 2012 was $218.6 million primarily from net income of $108.8 million, a $124.7 million decrease in accounts receivable and $78.2 million lower inventory, offset in part by $102.8 million decrease in accounts payable. The changes in our working capital were due to the mix of cash collections from our accounts receivable and lower inventory purchases, offset in part by a reduction in our accounts payable balances.
Net cash used in investing activities for the nine months ended August 31, 2013 was $32.8 million, which included $24.4 million paid for the acquisition of Supercom Canada, net of cash acquired, and $1.0 million paid for our prior acquisitions in our GBS segment. Our investment in property and equipment was $15.3 million and our investment in cost-method securities was $1.7 million. We received $4.2 million from our fiscal year 2012 sale of equity-method investee SB Pacific Limited and $3.1 million proceeds from sale of our deferred compensation investments, net of purchases.
Net cash used by investing activities for the nine months ended August 31, 2012 was $3.5 million, which was due to $11.5 million investment in equipment and leasehold improvements to support the growth in our distribution and GBS segments. This was offset by $3.5 million received from divesting our ownership in SB Pacific from 33.3% to 19.7%, $1.9 million received upon finalization of the purchase price of prior acquisitions, $1.7 million received in net proceeds from our investments, and $1.1 million collected from third-party loans.
Net cash used in financing activities for the nine months ended August 31, 2013 was $114.8 million, consisting primarily of $218.9 million paid for the settlement of the Convertible Senior Notes and $53.7 million payment of debt acquired from Supercom Canada. In addition, we paid $11.4 million for the fiscal year 2012 purchase of shares of our subsidiary Infotec Japan from the noncontrolling interest. Cash used for the repurchase of treasury stock was $1.9 million. These payments were

32

partially offset by $119.5 million net receipts from our revolving lines of credit and term loans, a $43.3 million higher book overdraft and $6.9 million proceeds from the issue of common stock upon the exercise of employee stock awards.
Net cash used in financing activities for the nine months ended August 31, 2012 was $108.1 million, consisting primarily of $85.8 million net payments on our securitization arrangements, revolving lines of credit, and our term loans. The book overdraft was lower by $26.5 million, due to timing of payments. The additional investment in Infotec Japan, our subsidiary, was $6.1 million during the period and payment of acquisition related contingent considerations was $1.1 million. These payments were offset in part by proceeds from the exercise of employee stock options, which were $8.5 million during the period and by excess tax benefits from share-based compensation of $2.8 million.
Capital Resources 
Our cash and cash equivalents totaled $139.4 million and $163.7 million as of August 31, 2013 and November 30, 2012, respectively. Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was $132.8 million and $92.8 million as of August 31, 2013 and November 30, 2012, respectively. Repatriation of the cash held by our foreign subsidiaries would be subject to United States federal income taxes. Also, repatriation of some foreign balances is restricted by local laws. However, we have historically 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 the expected impact of the applicable taxes depending upon the planned timing and the 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 requirements.
We believe we will have sufficient resources to meet our present and future working capital requirements for the next twelve months, including any additional financing that may be required for the acquisition of the IBM customer care business, based on our financial strength and performance, existing sources of liquidity, available cash resources and funds available under our various borrowing arrangements. 
Our accounts receivable securitization program and our senior secured revolving line of credit arrangement are renewable on their expiration dates. We have no reason to believe that these arrangements will not be renewed 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 
We primarily finance our United States operations with an accounts receivable securitization program, or the U.S. Arrangement. We can finance up to a maximum of $400.0 million in U.S. trade accounts receivable, or U.S. Receivables. The maturity date of the U.S. Arrangement is October 18, 2015. The effective borrowing cost under the U.S. Arrangement is a blend of the prevailing dealer commercial paper rates plus a program fee of 0.425% per annum based on the used portion of the commitment, and a facility fee of 0.425% per annum payable on the aggregate commitment of the lenders. As of August 31, 2013, the outstanding balance under the U.S. arrangement was $90.0 million. As of November 30, 2012, there were no borrowings outstanding under the U.S. Arrangement.
In September 2013, we amended our U.S Arrangement to increase the commitment of the lenders to $500.0 million. In addition, the amendment also included an accordion feature to allow requests for an increase in the lenders' commitment by an additional $100.0 million to a maximum commitment of $600.0 million. All other terms and conditions of the U.S Arrangement remained the same.
Under the terms of the U.S. Arrangement, we sell, on a revolving basis, our U.S. Receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings by this subsidiary are secured by pledging all such subsidiary's rights, title and interest in and to the U.S. Receivables as security for repayment of its borrowings. Any borrowings under the U.S. Arrangement are recorded as debt on our Consolidated Balance Sheets. As is customary in trade accounts receivable securitization arrangements, a credit rating agency's downgrade of the third party issuer of commercial paper or of a back-up liquidity provider (which provides a source of funding if the commercial paper market cannot be accessed) could result in an increase in our cost of borrowing or loss of our financing capacity under these programs if the commercial paper issuer or liquidity back-up provider is not replaced. Loss of such financing capacity could have a material adverse effect on our financial condition and results of operations.

33

We have a senior secured revolving line of credit arrangement, or the Revolver, with a financial institution which provides a maximum commitment of $100.0 million and expires in October 2017. The Revolver includes an accordion feature to increase the maximum commitment by an additional $50.0 million to $150.0 million at our request, in the event the current lender consents to such increase or another lender participates in the Revolver. Interest on borrowings under the Revolver is based on a base rate or London Interbank Offered Rate, or LIBOR, at our option. The margin on the LIBOR is determined in accordance with our fixed charge coverage ratio and is currently 1.50% per annum. Our base rate is based on the financial institution's prime rate. The Revolver also contains an unused line fee of 0.30% per annum. The Revolver is secured by our inventory and other assets. It would be an event of default under the Revolver if a lender under the U.S. Arrangement declines to extend the maturity date at any point within thirty days prior to the maturity date of the U.S. Arrangement, unless we have a binding commitment in place to renew or replace the U.S. Arrangement. There is no event of default if within the thirty day period prior to maturity of the Revolver: (a) borrowing availability exceeds 90% of the commitment amount and (b) the fixed charge coverage ratio, when measured at the end of the fiscal quarter on a trailing four quarter basis, is greater than or equal to 1.75 to 1.00. There were no borrowings outstanding under this credit arrangement as of both August 31, 2013 and November 30, 2012.
SYNNEX Canada Limited, or SYNNEX Canada, has a revolving line of credit arrangement with a financial institution, or the Canadian Revolving Arrangement, which has a maximum commitment of CAD100.0 million and includes an accordion feature to increase the maximum commitment by an additional CAD25.0 million to CAD125.0 million, at SYNNEX Canada's request. The Canadian Revolving Arrangement also provides a sublimit of $5.0 million for the issuance of standby letters of credit. As of November 30, 2012, outstanding standby letters of credit totaled $3.4 million. There were no letters of credit outstanding as of August 31, 2013. SYNNEX Canada has granted a security interest in substantially all of its assets in favor of the lender under the Canadian Revolving Arrangement. In addition, we pledged our stock in SYNNEX Canada as collateral for the Canadian Revolving Arrangement. The interest rate applicable under the Canadian Revolving Arrangement is equal to (i) the Canadian base rate plus a margin of 0.75% for a Base Rate Loan in Canadian Dollars, (ii) the US base rate plus a margin of 0.75% for a Base Rate Loan in U.S. Dollars, and (iii) the Bankers' Acceptance rate, or BA, plus a margin of 2.00% for a BA Rate Loan. The Canadian base rate means the greater of (a) the prime rate determined by a major Canadian financial institution and (b) the one month Canadian Dealer Offered Rate or CDOR (the average rate applicable to Canadian dollar bankers' acceptances for the applicable period) plus 1.50%. The US base rate means the greater of (a) a reference rate determined by a major Canadian financial institution for US dollar loans made to Canadian borrowers and (b) the US federal funds rate plus 0.50%. A fee of 0.25% per annum is payable with respect to the unused portion of the commitment. The credit arrangement expires in May 2017. As of August 31, 2013, there was $7.7 million outstanding under our Canadian Revolving Arrangement. There was no borrowing outstanding under our Canadian Revolving Arrangement as of November 30, 2012.
SYNNEX Canada has a term loan associated with the purchase of its logistics facility in Guelph, Canada. The interest rate for the unpaid principal amount is a fixed rate of 5.374% per annum. The final maturity date for repayment of the unpaid principal is April 1, 2017. The balance outstanding on the term loan as of August 31, 2013 and November 30, 2012 was $7.6 million and $8.6 million, respectively.
Infotec Japan has a credit agreement with a group of financial institutions for a maximum commitment of JPY14.0 billion. The credit agreement is comprised of a JPY6.0 billion long-term loan and a JPY8.0 billion short-term revolving credit facility. The credit agreement was refinanced in December 2012, to increase the short-term revolving credit facility to JPY8.0 billion from JPY4.0 billion. The interest rate for the long-term and short-term loans is based on the Tokyo Interbank Offered Rate, or TIBOR, plus a margin of 1.90% per annum. The credit facility expires in December 2015. The long-term loan can be repaid at any time prior to December 2015 without penalty. We have issued a guarantee to cover all obligations of Infotec Japan to the lenders. The balance outstanding on the credit facility was $117.2 million and $111.5 million as of August 31, 2013 and November 30, 2012, respectively.
Infotec Japan has a short-term revolving credit facility of JPY1.0 billion with a financial institution. The credit facility was renewed for one year in March 2013 and bears an interest rate that is based on TIBOR plus a margin of 1.60% per annum. As of August 31, 2013 and November 30, 2012, the balance outstanding under this credit facility was $10.2 million and $12.1 million, respectively. In addition, as of November 30, 2012, Infotec Japan had a term loan with a financial institution with a balance of $0.4 million, which was repaid in December 2012 and bore a fixed interest rate of 1.50%.
In September 2013, Infotec Japan established a short-term revolving credit facility of JPY 2.0 billion with a financial institution. The interest rate for the credit facility is based on TIBOR plus a margin of 0.50% per annum. In addition, there is a facility fee of 0.425% per annum. The credit facility can be renewed annually.

34

As of August 31, 2013 and November 30, 2012, we also had $0.6 million and $1.1 million, respectively, outstanding in capital lease obligations primarily pertaining to Infotec Japan and under arrangements with various banks and financial institutions for the sale and financing of approved accounts receivable and notes receivable with recourse provisions to Infotec Japan.
Covenants Compliance 
In relation to our U.S. Arrangement, the Revolver, the Infotec Japan credit facility and the Canadian Revolving Arrangement, we have a number of covenants and restrictions that, among other things, require us to comply with certain financial and other covenants. These covenants require us to maintain specified financial ratios and satisfy certain financial condition tests, including minimum net worth and fixed charge coverage ratios. They also limit our ability to incur additional debt, make or forgive 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, 2013, we were in compliance with all material covenants for the above arrangements. 
Convertible Debt 
In August 2013, we settled our Convertible Senior Notes with an aggregate principal amount of $143.8 million which were issued in May 2008 in a private placement. The Convertible Senior Notes bore a cash coupon interest rate of 4.0% per annum and the conversion rate was 33.9945 shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of $29.42 per share of common stock. The Convertible Senior Notes were called in the second quarter of fiscal year 2013. No interest was accrued subsequent to May 2013 in accordance with the Indenture. The final settlement amount of $218.9 million was paid in cash and comprised of $143.8 million in principal payments and $75.1 million in payment of conversion premium. The conversion premium, which represents the difference between the total settlement amount less the principal, was recorded as a reduction of additional paid-in capital. The final settlement amount was calculated in accordance with the Indenture based on the volume weighted-average trading price of our common stock over the 60 consecutive trading-day period beginning on and including the third trading day after the related conversion.
Based on a cash coupon interest rate of 4.0%, we recorded contractual interest expense of $3.0 million during the nine months ended August 31, 2013, and $1.6 million and $4.9 million, respectively, during the three and nine months ended August 31, 2012. Based on an effective rate of 8.0%, we recorded non-cash interest expenses of $2.3 million, during the nine months ended August 31, 2013 and $1.3 million and $3.9 million, respectively, during the three and nine months ended August 31, 2012. As of November 30, 2012, the carrying value of the Convertible Senior Notes, net of unamortized debt discount of $2.3 million, was $141.4 million. The debt discount was fully amortized as of May 31, 2013.
Guarantees
We issued guarantees to certain vendors, lenders of our subsidiaries for trade credit lines and loans, and to a certain customer's lessor. In addition, we, as the ultimate parent, guaranteed the obligations of SYNNEX Investment Holdings Corporation up to $35.0 million in connection with the sale of China Civilink (Cayman), which operated in China as HiChina Web Solutions, to Alibaba.com Limited. The total guarantees issued by us as of August 31, 2013 and November 30, 2012 were $341.1 million and $264.2 million, respectively. We are obligated under these guarantees to pay amounts due should our subsidiaries or customer not pay valid amounts owed to their vendors or lenders or not comply with subsidiary sales agreements.
Related Party Transactions 
We have a business relationship with MiTAC International, a publicly-traded company in Taiwan, which began in 1992 when MiTAC International became our primary investor through its affiliates. As of both August 31, 2013 and November 30, 2012, MiTAC International and its affiliates beneficially owned approximately 27% of our common stock. Matthew Miau, our Chairman Emeritus of the Board of Directors and director, is the Chairman of MiTAC International and a director or officer of MiTAC International’s affiliates.

35

The shares owned by MiTAC International are held by the following entities:
 
As of August 31, 2013
 
(in thousands)
MiTAC International(1)
5,908

Synnex Technology International Corp.(2)
4,283

Total
10,191

_____________________________________
(1)
Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC International. Excludes 594 thousand shares (of which 534 thousand shares are directly held and 60 thousand shares are subject to exercisable options) held by Matthew Miau.
(2)
Synnex Technology International Corp., or 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 International owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 13.6% in Synnex Technology International.
MiTAC International generally has significant influence over us and over the outcome of all 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 from MiTAC International and its affiliates totaling $3.5 million and $8.6 million during the three and nine months ended August 31, 2013, respectively, and $1.8 million and $2.8 million during the three and nine months ended August 31, 2012, respectively. Our sales to MiTAC International and its affiliates during the three and nine months ended August 31, 2013, totaled $0.4 million and $0.9 million, respectively, and during the three and nine months ended August 31, 2012, totaled $0.4 million and $2.6 million, respectively. In addition, we received reimbursements of rent and overhead costs for facilities used by MiTAC International amounting to $0.9 million and $2.6 million during the three and nine months ended August 31, 2013, respectively, and $0.9 million and $2.7 million, during the three and nine months ended August 31, 2012, respectively.
Our business relationship with MiTAC International has been informal and is not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. We negotiate manufacturing, pricing and other material terms on a case-by-case basis with MiTAC International and our contract assembly customers for a given project. While MiTAC International is a related party and a controlling stockholder, we believe that the significant terms under our arrangements with MiTAC International, including pricing, will not materially differ from the terms we could have negotiated with unaffiliated third parties, and we have adopted a policy requiring that material transactions with MiTAC International or its related parties be approved by our Audit Committee, which is composed solely of independent directors. In addition, Matthew Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors. 
Synnex Technology International is a publicly-traded corporation in Taiwan that currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also our potential competitor. Neither MiTAC International, nor Synnex Technology International is restricted from competing with us.
Recent Accounting Pronouncements 
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements see Note 2 to the Consolidated Financial Statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 
There have been no material changes in our quantitative and qualitative disclosures about market risk for the three and nine months ended August 31, 2013 from our Annual Report on Form 10-K for the fiscal year ended November 30, 2012. For further discussion of quantitative and qualitative disclosures about market risk, reference is made to our Annual Report on Form 10-K for the fiscal year then ended.


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ITEM 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II - OTHER INFORMATION
 
ITEM 1A. Risk Factors 
The following are certain risk factors that could affect our business, financial results and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q because these factors could cause the actual results and conditions to differ materially from those projected in the forward-looking statements. Before you invest in our Company, you should know that making such an investment involves some risks, including the risks described below. The risks that have been highlighted here are not the only ones that we face. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to the Acquisition of IBM’s Customer Care Business
Failure to complete the acquisition of IBM’s customer care business could negatively impact the stock price and the future of our business and financial results.
We expect the initial closing for the acquisition of IBM’s customer care business to occur in the coming months, subject to customary closing conditions and regulatory approvals. There is no assurance that we will receive the necessary regulatory approvals or satisfy the other conditions for the completion of the acquisition. If the acquisition is not completed for any reason, we will be subject to risks, including the following:
•
the current market price of our common stock may reflect a market assumption that the acquisition will occur, and a failure to complete the acquisition could result in a negative perception by the market of us generally and a resulting decline in the market price of our common stock;
•
we have incurred substantial transaction costs relating to the acquisition (including significant legal, accounting and financial advisory fees), and these substantial costs are payable by us whether or not the acquisition is completed;
•
there may be substantial disruption to our business and a distraction of our management and employees from day-to-day operations because matters related to the acquisition (including integration planning) may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial;
•
the diversion of management time required by the acquisition could also adversely affect our results of operations and lead to the loss of important customers; and
•
the loss of existing key and other employees could adversely affect our operations and business results.
In addition, we would not realize any of the expected benefits of having completed the acquisition. If the acquisition is not completed, these risks may materialize and materially adversely affect our business, financial results, financial condition and stock price.
We may not be able to realize all of the anticipated benefits of the acquisition of IBM’s customer care business if we fail to integrate this business successfully, which could reduce our profitability and adversely affect our stock price.
If our proposed acquisition of IBM’s customer care business closes, our ability to realize the anticipated benefits of the transaction will depend, in part, on our ability to integrate this customer care business successfully and efficiently with our business. The integration of this business in several geographic locations is a complex, costly and time-consuming process. The integration process may disrupt our business and, if implemented ineffectively, preclude realization of the full benefits expected by us. If we are not successful in this integration, our financial results could be adversely impacted. Our management will be required to dedicate significant time and effort to this integration process, which could divert their attention from other business concerns. In addition, the overall integration may result in unanticipated problems, expenses, liabilities, competitive responses, loss of customer and other relationships, a loss of key employees, and diversion of management’s attention, and may cause our stock price to decline. The difficulties of combining the operations of the two businesses include, among others:

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•
challenges associated with minimizing the diversion of management attention from ongoing business concerns;
•
coordinating geographically separate organizations which may be subject to additional complications resulting from being geographically distant from other of our operations;
•
coordinating and combining international operations, relationships, and facilities, and eliminating duplicative operations;
•
retaining key employees and maintaining employee morale, particularly in areas where we do not currently have personnel;
•
unanticipated changes in general business or market conditions that might interfere with our ability to carry out all of our integration plans;
•
unanticipated issues in integrating information, communications and other systems;
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issues not discovered in our due diligence process; and
•
preserving important strategic and customer relationships.
In addition, even if the integration is successful, we may not realize the full potential benefits of the transaction. Such benefits may not be achieved within the anticipated time frame, or at all. As a result, we cannot assure you that this acquisition will result in the realization of the full benefits anticipated from the transaction.
Risks Related to Our Business 
We anticipate that our revenue and operating results will fluctuate, which could adversely affect the enterprise value of our Company and our securities. 
Our operating results have fluctuated and will fluctuate in the future as a result of many factors, including: 
•
general economic conditions and level of IT and CE spending;
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the loss or consolidation of one or more of our significant OEM suppliers or customers;
•
market acceptance, product mix, quality, pricing, availability and useful life of our products;
•
market acceptance, quality, pricing and availability of our services;
•
competitive conditions in our industry;
•
pricing, margin and other terms with our OEM suppliers;
•
decline in inventory value as a result of product obsolescence and market acceptance;
•
variations in our levels of excess inventory and doubtful accounts;
•
changes in the terms of OEM supplier-inventory protections, such as price protection and return rights; and
•
the impact of the business acquisitions and dispositions we make.
Although we attempt to control our expense levels, these levels are based, in part, on anticipated revenue. Therefore, we may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. 
Our operating results also are affected by the seasonality of the IT and CE products and services industry. We have historically experienced higher sales in our fourth fiscal quarter due to patterns in the capital budgeting, federal government spending and purchasing cycles of end-users. These patterns may not be repeated in subsequent periods. You should not rely on period-to-period comparisons of our operating results as an indication of future performance. The results of any quarterly period are not indicative of results to be expected for a full fiscal year. In future quarters, our operating results may be below our expectations or those of our public market analysts or investors, which would likely cause our share price to decline. 

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We depend on a small number of OEMs to supply the IT and CE products and services that we sell and the loss of, or a material change in our business relationship with a major OEM supplier could adversely affect our business, financial position and operating results.
Our future success is highly dependent on our relationships with a small number of OEM suppliers. For example, sales of HP products and services represented approximately 30% and 31% of our total revenue for the three and nine months ended August 31, 2013, respectively, and 38% and 36% for the three and nine months ended August 31, 2012, respectively. Our OEM supplier agreements typically are short-term and may be terminated without cause upon short notice. The loss or deterioration of our relationship with HP or any other major OEM supplier, the authorization by OEM suppliers of additional distributors, the sale of products by OEM suppliers directly to our reseller and retail customers and end-users, or our failure to establish relationships with new OEM suppliers or to expand the distribution and supply chain services that we provide OEM suppliers could adversely affect our business, financial position and operating results. For example in fiscal year 2008, International Business Machines Corporation, or IBM, terminated its approval to market IBM System X and related products and services. In addition, OEM suppliers may face liquidity or solvency issues that in turn could negatively affect our business and operating results.
Our business is also highly dependent on the terms provided by our OEM suppliers. Generally, each OEM supplier has the ability to change the terms and conditions of its distribution agreements, such as reducing the amount of price protection and return rights or reducing the level of purchase discounts, rebates and marketing programs available to us.
From time to time we may conduct business with a supplier without a formal agreement because the agreement has expired or otherwise terminated. In such case, we are subject to additional risk with respect to products, warranties and returns, and other terms and conditions. If we are unable to pass the impact of these changes through to our reseller and retail customers, our business, financial position and operating results could be adversely affected. 
Our gross margins are low, which magnifies the impact of variations in revenue, operating costs and bad debt on our operating results.  
As a result of significant price competition in the IT and CE products and services industry, our gross margins are low, and we expect them to continue to be low in the future. Increased competition arising from industry consolidation and low demand for certain IT and CE products and services may hinder our ability to maintain or improve our gross margins. These low gross margins magnify the impact of variations in revenue, operating costs and bad debt on our operating results. A portion of our operating expense is relatively fixed, and planned expenditures are based in part on anticipated orders that are forecasted with limited visibility of future demand. As a result, we may not be able to reduce our operating expense as a percentage of revenue to mitigate any further reductions in gross margins in the future. If we cannot proportionately decrease our cost structure in response to competitive price pressures, our business and operating results could suffer.
We also receive purchase discounts and incentive rebates from OEM suppliers based on various factors, including sales or purchase volume and breadth of customers. A decrease in net sales could negatively affect the level of volume rebates received from our OEM suppliers and thus, our gross margins. Because some rebates from OEM suppliers are based on percentage increases in sales of products, it may become more difficult for us to achieve the percentage growth in sales required for larger discounts due to the current size of our revenue base. A decrease or elimination of purchase discounts and rebates from our OEM suppliers would adversely affect our business and operating results.
Because we sell on a purchase order basis, we are subject to uncertainties and variability in demand by our reseller, retail and contract assembly services customers, which could decrease revenue and adversely affect our operating results.  
We sell to our reseller, retail and contract assembly services customers on a purchase order basis, rather than pursuant to long-term contracts or contracts with minimum purchase requirements. Consequently, our sales are subject to demand variability by our reseller, retail and contract assembly services customers. The level and timing of orders placed by our customers vary for a variety of reasons, including seasonal buying by end-users, the introduction of new hardware and software technologies and general economic conditions. Customers submitting a purchase order may cancel, reduce or delay their orders. If we are unable to anticipate and respond to the demands of our reseller, retail and contract assembly services customers, we may lose customers because we have an inadequate supply of products, or we may have excess inventory, either of which could harm our business, financial position and operating results.

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The success of our contact center and renewals management business is subject to the terms and conditions of our customer contracts.  
We provide contact center support services and renewals management services to our customers under contracts with provisions that could impact our profitability. Many of our contracts have short termination provisions that could cause fluctuations in our revenue and operating results from period to period. For example, some contracts have performance-related bonus or penalty provisions, whereby we could receive a bonus if we satisfy certain performance levels or have to pay a penalty for failing to do so. The programs that we put in place for our customer products may not be accepted by the market. In addition, with respect to our contact center business, our customers may not guarantee a minimum call volume; however, we hire employees based on anticipated average call volumes. The reduction of call volume, loss of any customers, payment of any penalties for failure to meet performance levels or inability to terminate any unprofitable contracts could have an adverse impact on our operations and financial results.
Our renewals management business is subject to dynamic changes in the business model and competition, which in turn could cause our GBS operations to suffer.
The software and hardware renewals management and the customer management operations of our GBS segment represent emerging markets that are vulnerable to numerous changes that could cause a shift in the business and size of the market. For example, if software and hardware customers move to a utility or fee-for-service based business model, this business model change could significantly impact operations or cause a significant shift in the way business is currently conducted. If OEMs place more focus in this area and internalize these operations, then this could also cause a significant reduction in the size of the available market for third party service providers. Similarly, if competitors offer their services at below market margin rates to “buy” business, or use other lines of business to subsidize the renewals management business, then this could cause a significant reduction in the size of the available market. In addition, if a cloud-based solution or some other technology were introduced, this new technology could cause an adverse shift in the way our renewals management operations are conducted or decrease the size of the available market.
We are subject to the risk that our inventory value may decline, and protective terms under our OEM supplier agreements may not adequately cover the decline in value, which in turn may harm our business, financial position and operating results.  
The IT and CE products industry is subject to rapid technological change, new and enhanced product specification requirements, and evolving industry standards. These changes may cause inventory on hand to decline substantially in value or to rapidly become obsolete. Most of our OEM suppliers offer limited protection from the loss in value of inventory. For example, we can receive a credit from many OEM suppliers for products held in inventory in the event of a supplier price reduction. In addition, we have a limited right to return a certain percentage of purchases to most OEM suppliers. These policies are often subject to time restrictions and do not protect us in all cases from declines in inventory value. In addition, our OEM suppliers may become unable or unwilling to fulfill their protection obligations.
to us. The decrease or elimination of price protection or the inability of our OEM suppliers to fulfill their protection obligations could lower our gross margins and cause us to record inventory write-downs. If we are unable to manage our inventory with our OEM suppliers with a high degree of precision, we may have insufficient product supplies or we may have excess inventory, resulting in inventory write-downs, either of which could harm our business, financial position and operating results.
We depend on OEM suppliers to maintain an adequate supply of products to fulfill customer orders on a timely basis, and any supply shortages or delays could cause us to be unable to timely fulfill orders, which in turn could harm our business, financial position and operating results.  
Our ability to obtain particular products in the required quantities and to fulfill reseller and retail customer orders on a timely basis is critical to our success. In most cases, we have no guaranteed price or delivery agreements with our OEM suppliers. We occasionally experience a supply shortage of certain products as a result of strong demand or problems experienced by our OEM suppliers. For example, in fiscal year 2011, we experienced shortage in hard drives from OEM suppliers in Thailand due to floods. If shortages or delays persist, the price of those products may increase, or the products may not be available at all. In addition, our OEM suppliers may decide to distribute, or to substantially increase their existing distribution business, through other distributors, their own dealer networks, or directly to resellers, retailers or end-users.

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Accordingly, if we are not able to secure and maintain an adequate supply of products to fulfill our reseller and retail customer orders on a timely basis, our business, financial position and operating results could be adversely affected.
The market for CE products that we distribute is characterized by short product life cycles. Increased competition for limited retailer shelf space, decreased promotional support from resellers or retailers or increased popularity of downloadable or online content and services could adversely impact our revenue.
The market for CE products, such as personal computers and tablets, mobile devices, video game titles and hardware, and audio or visual equipment, is characterized by short product life cycles and frequent introductions of new products. For example, the life cycle of a video game generally involves a relatively high level of sales during the first few months after introduction followed by a rapid decline in sales and may result in product obsolescence. The markets in which we compete frequently introduce new products to meet changing consumer preferences and trends. As a result, competition is intense for resellers' and retailers' limited shelf space and promotions. If our vendors' new products are not introduced in a timely manner or do not achieve significant market acceptance, we may not generate sufficient sales or profitability. Further, if we are unable to successfully compete for resellers' or retailers' space and promotional resources, this could negatively impact market acceptance of our products and negatively impact our business and operating results. In addition, increased consumer use of downloadable content and online services and the further integration of technological tasks currently requiring several different CE products may negatively affect our CE product distribution business and operating results, as they may reduce consumer demand for having several different electronics devices and other physical products. For example, the popularity of downloadable and online games has increased and continued increases in downloadable and online gaming may result in a reduced level of over-the-counter retail video games sales.
Because we conduct substantial operations in China, risks associated with economic, political and social events in China could negatively affect our business and operating results.  
A substantial portion of our IT systems operations, including our IT systems support and software development operations, is located in China. In addition, we also conduct general and administrative activities from our facility in China. As of August 31, 2013, we had approximately 1,000 support personnel located in China. Our operations in China are subject to a number of risks relating to China’s economic and political systems, including:  
•
a government controlled foreign exchange rate and limitations on the convertibility of the Chinese Renminbi;
•
extensive government regulation;
•
changing governmental policies relating to tax benefits available to foreign-owned businesses;
•
the telecommunications infrastructure;
•
a relatively uncertain legal system; and
•
uncertainties related to continued economic and social reform.
Our IT systems are an important part of our global operations. Any significant interruption in service, whether resulting from any of the above uncertainties, natural disasters or otherwise, could result in delays in our inventory purchasing, errors in order fulfillment, reduced levels of customer service and other disruptions in operations, any of which could cause our business and operating results to suffer.

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We may have higher than anticipated tax liabilities. 
We conduct business globally and file income tax returns in various tax jurisdictions. Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:
 
•
changes in income before taxes in various jurisdictions in which we operate that have differing statutory tax rates;
•
changing tax laws, regulations, and/or interpretations of such tax laws in multiple jurisdictions;
•
effect of tax rate on accounting for acquisitions and dispositions;
•
issues arising from tax audit or examinations and any related interest or penalties; and
•
uncertainty in obtaining tax holiday extensions or expiration or loss of tax holidays in various jurisdictions.
We report our results of operations based on our determination of the amount of taxes owed in various tax jurisdictions in which we operate. The determination of our worldwide provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain. Our determination of tax liability is always subject to review or examination by tax authorities in various tax jurisdictions. Any adverse outcome of such review or examination could have a negative impact on our operating results and financial condition. The results from various tax examinations and audit may differ from the liabilities recorded in our financial statements and could adversely affect our financial results and cash flows.
We have pursued and intend to continue to pursue strategic acquisitions or investments in new markets and may encounter risks associated with these activities, which could harm our business and operating results.  
We have in the past pursued and in the future expect to pursue acquisitions of, or investments in, businesses and assets in new markets, either within or outside the IT and CE products and services industry, that complement or expand our existing business. Our acquisition strategy involves a number of risks, including:  
•
difficulty in successfully integrating acquired operations, IT systems, customers, and OEM supplier relationships, products and services and businesses with our operations;
•
loss of key employees of acquired operations or inability to hire key employees necessary for our expansion;
•
diversion of our capital and management attention away from other business issues;
•
increase in our expenses and working capital requirements;
•
in the case of acquisitions that we may make outside of the United States, difficulty in operating in foreign countries and over significant geographical distances; and
•
other financial risks, such as potential liabilities of the businesses we acquire.
We may incur additional costs and consolidate certain redundant expenses in connection with our acquisitions and investments, which may have an adverse impact on our operating margins. Future acquisitions may result in dilutive issuances of equity securities, the incurrence of additional debt, large write-offs, a decrease in future profitability, or future losses. The incurrence of debt in connection with any future acquisitions could restrict our ability to obtain working capital or other financing necessary to operate our business. Our recent and future acquisitions or investments may not be successful, and if we fail to realize the anticipated benefits of these acquisitions or investments, our business and operating results could be harmed.  
Because of the capital-intensive nature of our business, we need continued access to capital, which if not available to us or if not available on favorable terms, could harm our ability to operate or expand our business.  
Our business requires significant levels of capital to finance accounts receivable and product inventory that is not financed by trade creditors. If cash from available sources is insufficient, proceeds from our accounts receivable securitization and revolving credit programs are limited or cash is used for unanticipated needs, we may require additional capital sooner than anticipated.

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In the event we are required, or elect, to raise additional funds, we may be unable to do so on favorable terms, or at all, and may incur expenses in raising the additional funds. Our current and future indebtedness could adversely affect our operating results and severely limit our ability to plan for, or react to, changes in our business or industry. We could also be limited by financial and other restrictive covenants in securitization or credit arrangements, including limitations on our borrowing of additional funds and issuing dividends. Furthermore, the cost of securitization or debt financing could significantly increase in the future, making it cost prohibitive to securitize our accounts receivable or borrow, which could force us to issue new equity securities. If we issue new equity securities, existing stockholders may experience dilution, or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds on acceptable terms, we may not be able to take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. Any inability to raise additional capital when required could have an adverse effect on our business and operating results.
The terms of our debt arrangements impose significant restrictions on our ability to operate which in turn could negatively affect our ability to respond to business and market conditions and therefore could have an adverse effect on our business and operating results.
As of August 31, 2013, we had $233.3 million in outstanding short and long-term borrowings under term loans, lines of credit and capital leases, excluding trade payables. The terms of one or more of the agreements under which this indebtedness was incurred may limit or restrict, among other things, our ability to:  
•
incur additional indebtedness;
•
pay dividends or make certain other restricted payments;
•
consummate certain asset sales or acquisitions;
•
enter into certain transactions with affiliates; and
•
merge, consolidate or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets.
We are also required to maintain specified financial ratios and satisfy certain financial condition tests, including a minimum net worth and a fixed charge coverage ratio as outlined in our senior secured revolving line of credit arrangement. Our inability to meet these ratios and tests could result in the acceleration of the repayment of the related debt, the termination of the facility, the increase in our effective cost of funds or the cross-default of other credit and securitization arrangements. As a result, our ability to operate may be restricted and our ability to respond to business and market conditions may be limited, which could have an adverse effect on our business and operating results.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations.
Our ability to make scheduled debt payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot be certain that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.  
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot be certain that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Some of our credit facilities restrict our ability to dispose assets and use the proceeds from the disposition. As such, we may not be able to consummate those dispositions or use any resulting proceeds and, in addition, such proceeds may not be adequate to meet any debt service obligations then due.
If we cannot make scheduled payments on our debt, we will be in default and, as a result: 
•
our debt holders could declare all outstanding principal and interest to be due and payable;

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•
the lenders under our credit agreement could terminate their commitments to loan us money and foreclose against the assets securing their borrowings; and
•
we could be forced into bankruptcy or liquidation, which is likely to result in delays in the payment of our indebtedness and in the exercise of enforcement remedies related to our indebtedness.
A portion of our revenue is financed by floor plan financing companies and any termination or reduction in these financing arrangements could increase our financing costs and harm our business and operating results.  
A portion of our product distribution revenue is financed by floor plan financing companies. Floor plan financing companies are engaged by our customers to finance, or floor, the purchase of products from us. In exchange for a fee, we transfer the risk of loss on the sale of our products to the floor plan companies. We currently receive payment from these financing companies within approximately 15 to 30 days from the date of the sale, which allows our business to operate at much lower relative working capital levels than if such programs were not available. If these floor plan arrangements are terminated or substantially reduced, the need for more working capital and the increased financing cost could harm our business and operating results.
We have significant credit exposure to our customers, and negative trends in their businesses could cause us significant credit loss and negatively impact our cash flow and liquidity position.  
We extend credit to our customers for a significant portion of our sales to them and they have a period of time, generally 30 days after the date of invoice, to make payment. As a result, we are subject to the risk that our customers will not pay on time or at all. The majority of our customers are small and medium sized businesses. Our credit exposure risk may increase due to financial difficulties or liquidity or solvency issues experienced by our customers, resulting in their inability to repay us. The liquidity or solvency issues may increase as a result of an economic downturn or a decrease in IT or CE spending by end-users. If we are unable to collect payments in a timely manner from our customers due to changes in financial or economic conditions, or for other reasons, and we are unable to collect under our credit insurance policies, we may write-off the amount due from the customers. These write-offs may result in more expensive credit insurance and negatively impact our ability to utilize accounts receivable-based financing. These circumstances could negatively impact our cash flow and liquidity position. Further, we are exposed to higher collection risk as we continue to expand internationally, where the payment cycles are generally longer and the credit rating process may not be as robust as in the United States.
In addition, our Mexico operation primarily focuses on various long-term projects with government and other local agencies, which often involve extended payment terms and could expose us to additional collection risks.  
We may suffer adverse consequences from changing interest rates. 
Our borrowings and securitization arrangements are variable-rate obligations that could expose us to interest rate risks. If interest rates increase, our interest expense would increase, which would negatively affect our net income. An increase in interest rates may increase our future borrowing costs and restrict our access to capital.
Additionally, current market conditions, global economic crisis, and overall credit conditions could limit our availability of capital, which could cause increases in interest margin spreads over underlying indices, effectively increasing the cost of our borrowing. While some of our credit facilities have contractually negotiated spreads, terms such as these are subject to ongoing negotiations.  
We are dependent on a variety of IT and telecommunications systems and the Internet, and any failure of these systems could adversely impact our business and operating results.  
We depend on IT and telecommunications systems and the Internet for our operations. These systems support a variety of functions including inventory management, order processing, shipping, shipment tracking, billing, and our BPO business.  
Failures or significant downtime of our IT or telecommunications systems could prevent us from taking customer orders, printing product pick-lists, shipping products, billing customers and handling call volume. Sales also may be affected if our reseller and retail customers are unable to access our pricing and product availability information. We also rely on the Internet, and in particular electronic data interchange, or EDI, for a large portion of our orders and information exchanges with our OEM suppliers and reseller and retail customers. The Internet and individual websites have experienced a number of disruptions and slowdowns, some of which were caused by organized attacks. In addition, some websites have experienced security

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breakdowns. If we were to experience a security breakdown, disruption or breach that compromised sensitive information, it could harm our relationship with our OEM suppliers and reseller and retail customers. Disruption of our website or the Internet in general could impair our order processing or more generally prevent our OEM suppliers and reseller and retail customers from accessing information. Our BPO business is dependent upon telephone and data services provided by third party telecommunications service vendors and our IT and telecommunications system. Any significant increase in our IT and telecommunications costs or temporary or permanent loss of our IT or telecommunications systems could harm our relationships with our customers. The occurrence of any of these events could have an adverse effect on our operations and financial results.
We rely on independent shipping companies for delivery of products, and price increases or service interruptions from these carriers could adversely affect our business and operating results.  
We rely almost entirely on arrangements with independent shipping companies, such as FedEx and UPS, for the delivery of our products from OEM suppliers and delivery of products to reseller and retail customers. Freight and shipping charges can have a significant impact on our gross margin. As a result, an increase in freight surcharges due to rising fuel cost or general price increases will have an immediate adverse effect on our margins, unless we are able to pass the increased charges to our reseller and retail customers or renegotiate terms with our OEM suppliers. In addition, in the past, UPS has experienced work stoppages due to labor negotiations with management. An increase in freight or shipping charges, the termination of our arrangements with one or more of these independent shipping companies, the failure or inability of one or more of these independent shipping companies to deliver products, or the unavailability of their shipping services, even temporarily, could have an adverse effect on our business and operating results.
Changes in foreign exchange rates and limitations on the convertibility of foreign currencies could adversely affect our business and operating results.  
In the three and nine months ended August 31, 2013, approximately 25% and 26%, respectively, of our total revenue were generated outside the United States. In the three and nine months ended August 31, 2012, approximately 24% and 27% of our total revenue, respectively, were generated outside the United States. Most of our international revenue, cost of revenue and operating expenses are denominated in foreign currencies. We presently have currency exposure arising from both sales and purchases denominated in foreign currencies. Changes in exchange rates between foreign currencies and the U.S. dollar may adversely affect our operating margins. For example, if these foreign currencies appreciate against the U.S. dollar, it will make it more expensive in terms of U.S. dollars to purchase inventory or pay expenses with foreign currencies. This could have a negative impact to us if revenue related to these purchases is transacted in U.S. dollars. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency and make our products, which are usually purchased by us with U.S. dollars, relatively more expensive than products manufactured locally. We currently conduct only limited hedging activities, which involve the use of currency forward contracts. Hedging foreign currencies can be risky. There is also additional risk if the currency is not freely or actively traded. Some currencies, such as the Chinese Renminbi, Indian Rupee and Philippines Peso, are subject to limitations on conversion into other currencies, which can limit our ability to hedge or to otherwise react to rapid foreign currency devaluations. We cannot predict the impact of future exchange rate fluctuations on our business and operating results.  
Because of the experience of our key personnel in the IT and CE industries and their technological and industry expertise, if we were to lose any of our key personnel, it could inhibit our ability to operate and grow our business successfully.  
We are dependent in large part on our ability to retain the services of our key senior executives and other technological and industry experts and personnel. Except for Kevin Murai, our President and Chief Executive Officer, our employees and executives generally do not have employment agreements. Furthermore, we do not carry “key person” insurance coverage for any of our key executives. We compete for qualified senior management and technical personnel. The loss of, or inability to hire, key executives or qualified employees could inhibit our ability to operate and grow our business successfully.
We may experience theft of product from our warehouses, water damage to our properties and other casualty events which could harm our operating results.
From time to time, we have experienced incidents of theft at various facilities, water damages to our properties and other casualty events. These types of incidents may make it more difficult or expensive for us to obtain insurance coverage in the future. Also, the same or similar incidents may occur in the future for which we may not have sufficient insurance coverage or

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policy limits to be fully compensated for the loss, which may have an adverse effect on our business and financial results. For example, in fiscal year 2010, we experienced a loss of product as a result of a train derailment.  
We may become involved in intellectual property or other disputes that could cause us to incur substantial costs, divert the efforts of our management, and require us to pay substantial damages or require us to obtain a license, which may not be available on commercially reasonable terms, if at all.  
From time to time, we receive notifications alleging infringements of intellectual property rights allegedly held by others relating to our business or the products we sell or assemble for our OEM suppliers and others. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have an adverse effect on our business. Although we generally have various levels of indemnification protection from our OEM suppliers and contract assembly services customers, in many cases any indemnification to which we may be entitled is subject to maximum limits or other restrictions.
In addition, we have developed proprietary IT systems, mobile applications, and cloud-based technology and acquired GBS related renewals technology that play an important role in our business. If any infringement claim is successful against us and if indemnification is not available or sufficient, we may be required to pay substantial damages or we may need to seek and obtain a license of the other party’s intellectual property rights. We may be unable to obtain such a license on commercially reasonable terms, if at all.
We are from time to time involved in other litigation in the ordinary course of business. We may not be successful in defending these or other claims. Regardless of the outcome, litigation could result in substantial expense and could divert the efforts of our management.  
We have significant operations concentrated in North America, Central America, Asia and Europe and any disruption in the operations of our facilities could harm our business and operating results.
Our worldwide operations could be subject to natural disasters, adverse weather conditions and other business disruptions, which could seriously harm our revenue and financial condition and increase our costs and expenses. We have significant operations in our facilities located in North America, Central America, Asia and Europe. As a result, any prolonged disruption in the operations of our facilities, whether due to technical difficulties, power failures, break-ins, destruction or damage to the facilities as a result of a natural disaster, fire or any other reason, could harm our operating results. If there are related disruptions in local or international supply chains, we may experience supply shortages or delays in receiving products from our OEM suppliers or experience other delays in shipping to our customers. If we are unable to fulfill customer orders in a timely manner, this could harm our operating results. For example, in March 2011, Japan experienced a 9.0 magnitude earthquake followed by tsunami waves and aftershocks. These events affected the infrastructure in the country, caused power outages and have temporarily disrupted the local and international, supply chains for some vendors. Our facilities in Japan suffered nominal inventory and facility damages. We expect our operations in Japan will continue to be affected by the continuing consequences of such natural disasters. In addition, our Philippines operation is at greater risk due to adverse weather conditions, such as typhoons, mudslides and floods. We currently do not have a formal disaster recovery plan and may not have sufficient business interruption insurance to compensate for losses that could occur.  
Global health and economic, political and social conditions may harm our ability to do business, increase our costs and negatively affect our stock price.
Worldwide economic conditions have experienced significant volatility due to the credit conditions impacted by the subprime mortgage crisis and other factors, including slower economic activity which may impact our results of operations. External factors, such as potential terrorist attacks, acts of war, geopolitical and social turmoil or epidemics and other similar outbreaks in many parts of the world, could prevent or hinder our ability to do business, increase our costs and negatively affect our stock price, which in turn, may require us to record an impairment in the carrying value of our goodwill. More generally, these geopolitical social and economic conditions could result in increased volatility in the United States and worldwide financial markets and economy. For example, increased instability may adversely impact the desire of employees and customers to travel, the reliability and cost of transportation and our ability to obtain adequate insurance at reasonable rates and may require us to incur increased costs for security measures for our domestic and international operations. We are predominantly uninsured for losses and interruptions caused by terrorism, acts of war and similar events. These uncertainties make it difficult for us and our customers to accurately plan future business activities. While general economic conditions have recently begun to improve, there is no assurance that this trend will continue or at what rate.  

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Part of our business is conducted outside of the United States, exposing us to additional risks that may not exist in the United States, which in turn could cause our business and operating results to suffer.  
We have international operations which are subject to risks, including: 
•
political or economic instability;
•
extensive governmental regulation;
•
changes in import/export duties;
•
trade restrictions;
•
compliance with the Foreign Corrupt Practices Act, U.K. bribery laws and similar laws;
•
difficulties and costs of staffing and managing operations in certain foreign countries;
•
work stoppages or other changes in labor conditions;
•
difficulties in collecting of accounts receivable on a timely basis or at all;
•
taxes; and
•
seasonal reductions in business activity in some parts of the world.
We may continue to expand internationally to respond to competitive pressure and customer and market requirements. Establishing operations in any other foreign country or region presents risks such as those described above as well as risks specific to the particular country or region. In addition, until a payment history is established over time with customers in a new geography or region, the likelihood of collecting accounts receivable generated by such operations could be less than our expectations. As a result, there is a greater risk that reserves set with respect to the collection of such accounts receivable may be inadequate. In addition, our Mexico operation primarily focuses on various long-term projects with government and other public agencies that involve extended payment terms and could expose us to additional collection risks. Furthermore, if our international expansion efforts in any foreign country are unsuccessful, we may decide to cease operations, which would likely cause us to incur additional expense and loss. 
In addition, changes in policies or laws of the United States or foreign governments resulting in, among other things, higher taxation, currency conversion limitations, restrictions on fund transfers or the expropriation of private enterprises, could reduce the anticipated benefits of our international expansion. Any actions by countries in which we conduct business to reverse policies that encourage foreign trade or investment could adversely affect our business. If we fail to realize the anticipated growth of our future international operations, our business and operating results could suffer.  
Our investments in our BPO business could adversely affect our operating results as a result of operation execution risks related to managing and communicating with remote resources, technologies, customer satisfaction and employee turnover.
Our BPO business in Costa Rica, India and the Philippines may be adversely impacted if we are unable to manage and communicate with these remote resources. Service quality may be placed at risk and our ability to optimize our resources may be more complicated if we are unable to manage our resources remotely. BPO businesses use a wide variety of technologies to allow them to manage a large volume of work. These technologies ensure that employees are kept productive. Any failure in technology may impact the business adversely. The success of our BPO business primarily depends on performance of our employees and resulting customer satisfaction. Any increase in average waiting time or handling time or lack of promptness or technical expertise of our employees will directly impact customer satisfaction. Any adverse customer satisfaction may impact the overall business. Generally, the employee turnover rate in the BPO business and the risk of losing experienced employees to competitors are high. Higher turnover rates increase recruiting and training costs and decrease operating efficiencies and productivity. If we are unable to successfully manage our service centers, our results of operations could be adversely affected and we may not fully realize the anticipated benefits of our recent acquisitions.


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Risks Related to Our Relationship with MiTAC International Corporation 
As of August 31, 2013, our executive officers, directors and principal stockholders owned approximately 29% of our common stock and this concentration of ownership could allow them to influence all matters requiring stockholder approval and could delay or prevent a change in control of SYNNEX.  
As of August 31, 2013, our executive officers, directors and principal stockholders owned approximately 29% of our outstanding common stock. In particular, MiTAC International and its affiliates owned approximately 27% of our common stock. 
In addition, MiTAC International’s interests and ours may increasingly conflict. For example, until July 2010, we relied on MiTAC International for certain manufacturing and supply services and for relationships with certain key customers. In July 2010, we announced that we had signed a definitive sales agreement to sell certain assets related to our contract assembly business to MiTAC International. The transaction included the sale of inventory and customer contracts, primarily related to customers then being jointly serviced by MiTAC International and us. Also, as part of the transaction, we provided MiTAC International with certain transition services for the business on a fee basis over the next several quarters. Since completion of the transition services, we no longer jointly service any current customers with MiTAC International. In addition, we may not solicit the same contract assembly customers in the future.  
There could be potential conflicts of interest between us and MiTAC International and its affiliates, which could impact our business and operating results.  
MiTAC International’s and its affiliates’ continuing beneficial ownership of our common stock could create conflicts of interest with respect to a variety of matters, such as potential acquisitions, competition, issuance or disposition of securities, election of directors, payment of dividends and other business matters. Similar risks could exist as a result of Matthew Miau’s positions as our Chairman Emeritus, the Chairman of MiTAC International and as a director or officer of MiTAC International’s affiliates. For fiscal year 2012, Mr. Miau received the same compensation as our independent directors. For fiscal year 2013, Mr. Miau will receive the same compensation as our independent directors. Mr. Miau’s compensation as one of our directors is based upon the approval of the Nominating and Corporate Governance Committee, which is solely composed of independent members of the Board. We also have adopted a policy requiring material transactions in which any of our directors has a potential conflict of interest to be approved by our Audit Committee, which is also composed of independent members of the Board. 
Synnex Technology International Corp., or Synnex Technology International, a publicly-traded company based in Taiwan and affiliated with MiTAC International, currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also a potential competitor of ours. As of August 31, 2013, MiTAC Incorporated, a privately-held company based in Taiwan and a separate entity from MiTAC International, directly and indirectly owned approximately 13.6% of Synnex Technology International and approximately 8.1% of MiTAC International. As of August 31, 2013, MiTAC International directly and indirectly owned 0.1% of Synnex Technology International and Synnex Technology International directly and indirectly owned approximately 0.9% of MiTAC International. In addition, MiTAC International directly and indirectly owned approximately 8.7% of MiTAC Incorporated and Synnex Technology International directly and indirectly owned approximately 18.4% of MiTAC Incorporated as of August 31, 2013. Synnex Technology International indirectly through its ownership of Peer Developments Limited owned approximately 11.4% of our outstanding common stock as of August 31, 2013. Neither MiTAC International, nor Synnex Technology International is restricted from competing with us. In the future, we may increasingly compete with Synnex Technology International, particularly if our business in Asia expands or Synnex Technology International expands its business into geographies or customers we serve. Although Synnex Technology International is a separate entity from us, it is possible that there will be confusion as a result of the similarity of our names. Moreover, we cannot limit or control the use of the Synnex name by Synnex Technology International in certain geographies and our use of the Synnex name may be restricted as a result of registration of the name by Synnex Technology International or the prior use in jurisdictions where it currently operates. 

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Risks Related to Our Industry 
Volatility in the IT and CE industries could have a material adverse effect on our business and operating results. 
The IT and CE industries in which we operate have experienced decreases in demand. Softening demand for our products and services caused by an ongoing economic downturn and over-capacity may impact our revenue, as well the salability of inventory and collection of reseller and retail customer accounts receivable. 
While in the past, we may have benefited from consolidation in our industry resulting from delays or reductions in IT or CE spending in particular, and economic weakness in general, any such volatility in the IT and CE industries could have an adverse effect on our business and operating results. 
Our business may be adversely affected by some OEM suppliers’ strategies to increase their direct sales, which in turn could cause our business and operating results to suffer. 
Consolidation of OEM suppliers has resulted in fewer sources for some of the products and services that we distribute. This consolidation has also resulted in larger OEM suppliers that have significant operating and financial resources. Some OEM suppliers, including some of the leading OEM suppliers that we service, have been selling products and services directly to reseller and retail customers and end-users, thereby limiting our business opportunities. If large OEM suppliers increasingly sell directly to end-users or our resellers and retailers, rather than use us as the distributor of their products and services, our business and operating results will suffer.  
OEMs could limit the number of supply chain service providers with which they do business, which in turn could negatively impact our business and operating results.
A determination by any of our primary OEMs to consolidate their business with other distributors or contract assemblers could negatively affect our business and operating results. In particular, the termination of our contract by HP would have a significant negative effect on our revenue and operating results. For example, in fiscal year 2008, IBM consolidated its business with distributors, including SYNNEX, and, as a result, we no longer distribute certain IBM products and services.  
The IT and CE industries are subject to rapidly changing technologies and process developments, and we may not be able to adequately adjust our business to these changes, which in turn would harm our business and operating results.
Dynamic changes in the IT and CE industries, including the consolidation of OEM suppliers and reductions in the number of authorized distributors used by OEM suppliers, have resulted in new and increased responsibilities for management personnel and have placed, and continue to place, a significant strain upon our management, operating and financial systems and other resources. We may be unable to successfully respond to and manage our business in light of industry developments and trends. Also crucial to our success in managing our operations is our ability to achieve additional economies of scale. Our failure to achieve these additional economies of scale or to respond to changes in the IT and CE industries could adversely affect our business and operating results.  
We are subject to intense competition in the distribution and BPO businesses, both in the United States and internationally, and if we fail to compete successfully, we will be unable to gain or retain market share.  
We operate in a highly competitive environment, both in the United States and internationally. The IT and CE product and service distribution, BPO and contract assembly services industries are characterized by intense competition, based primarily on product and service availability, credit availability, price, speed of delivery, ability to tailor specific solutions to customer needs, quality and depth of product and service lines, pre-sales and post-sales technical support, flexibility and timely response to design changes, and technological capabilities, service and support. We compete with a variety of regional, national and international IT and CE product and service distributors and contract manufacturers and assemblers. In some instances, we also compete with our own customers, our own OEM suppliers and MiTAC International and its affiliates.  
Our primary competitors are substantially larger and have greater financial, operating, manufacturing and marketing resources than us. Some of our competitors may have broader geographic breadth and range of services than us and may have more developed relationships with their existing customers. We may lose market share in the United States or in international markets, or may be forced in the future to reduce our prices in response to the actions of our competitors and thereby experience a reduction in our gross margins.  

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In addition, in our contact center business, we also face competition from our customers. For example, some of our customers may have internal capabilities and resources to provide their own call centers. Furthermore, pricing pressures and quality of services could impact our business adversely. Our ability to provide a high quality of service is dependent on our ability to retain and properly train our employees and to continue investing in our infrastructure, including IT and telecommunications systems.  
We may initiate other business activities, including the broadening of our supply chain capabilities, and may face competition from companies with more experience in those new areas. In addition, as we enter new areas of business, we may also encounter increased competition from current competitors or from new competitors, including some that may once have been our OEM suppliers or reseller and retail customers. Increased competition and negative reaction from our OEM suppliers or reseller and retail customers resulting from our expansion into new business areas could harm our business and operating results.  
Compliance with changing regulation of corporate governance and public disclosure may result in additional expense and affect our operations.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, SEC regulations and New York Stock Exchange, or NYSE, rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and corporate governance practices. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expense and a diversion of management time and attention from revenue-generating activities to compliance activities. For example, from fiscal year 2011, we are incurring additional expense related to SEC compliance with XBRL-tagged interactive data-files. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.
The Dodd-Frank Wall Street Reform and Consumer Protection Act directed the SEC to implement disclosure requirements concerning public companies' use and sourcing of “conflict minerals” mined in the Democratic Republic of Congo and adjoining countries. The SEC rules issued in August 2012 necessitate a complex compliance process and related administrative expense for a company once it determines a conflict mineral is necessary to the functionality or production of a product that the company manufactures or contracts to manufacture. Such companies must then conduct a reasonable country of origin inquiry to determine if the conflict minerals originated in the covered countries and undertake due diligence on the source and chain of custody in order to file a conflict minerals report with the SEC. In addition to the increased administrative expense and management involvement for our company as we navigate the aspects of the new requirements that apply to us, we may face a limited pool of suppliers who can provide us “conflict-free” components, parts and manufactured products, and we may not be able to obtain conflict-free products or supplies in sufficient quantities or at competitive prices for our operations or to the extent requested by any reseller customers and their stakeholders, even if the SEC disclosure requirements do not apply to us or to those customers regarding those products. Also, since our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to sufficiently verify the origins for any conflict minerals used in the products that we sell.
If we are unable to maintain effective internal control over financial reporting, our ability to report our financial results on a timely and accurate basis may be adversely affected, which in turn could cause the market price of our common stock to decline.
Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control structure and procedures for financial reporting. We completed an evaluation of the effectiveness of our internal control over financial reporting for fiscal year 2012, and we have an ongoing program to perform the system and process evaluation and testing necessary to continue to comply with these requirements. In the past, however, our internal controls have not eliminated all error. We expect to continue to incur increased expense and to devote additional management resources to Section 404 compliance. In the event that one of our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determines that our internal control

51

over financial reporting is not effective as defined under Section 404, investor perceptions and our reputation may be adversely affected and the market price of our stock could decline.
Changes to financial accounting standards may affect our results of operations and cause us to change our business practices.  
We prepare our financial statements to conform to generally accepted accounting principles in the United States. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, American Institute of Certified Public Accountants, the SEC and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.  

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ITEM 6. Exhibits

Exhibit
Number
  
Description of Document
 
 
10.1#
  
Amendment to SYNNEX Corporation Amended and Restated 2003 Employee Stock Purchase Plan.
 
 
31.1
  
Rule 13a-14(a) Certification of Chief Executive Officer.
 
 
31.2
  
Rule 13a-14(a) Certification of Chief Financial Officer.
 
 
32.1*
  
Statement of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 _____________________________________________
# Indicates management contract or compensatory plan or arrangement.
* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: October 7, 2013

SYNNEX CORPORATION
By:
 
/s/ Kevin M. Murai
 
 
 
Kevin M. Murai
 
 
 
President and Chief Executive Officer
 
 
 
(Duly authorized officer and principal executive officer)
 
 

By:
 
/s/ Marshall W. Witt
 
 
 
Marshall W. Witt
 
 
 
Chief Financial Officer
 
 
 
(Duly authorized officer and principal financial officer)
 


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EXHIBIT INDEX
 
Exhibit
Number
  
Description of Document
 
 
10.1#
  
Amendment to SYNNEX Corporation Amended and Restated 2003 Employee Stock Purchase Plan.
 
 
 
31.1
  
Rule 13a-14(a) Certification of Chief Executive Officer.
 
 
31.2
  
Rule 13a-14(a) Certification of Chief Financial Officer.
 
 
32.1*
  
Statement of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
 
 
 
101.INS
 
XBRL Instance Document.
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 _____________________________________________
# Indicates management contract or compensatory plan or arrangement.
* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.


55