TD SYNNEX CORPORATION For an understanding of SYNNEX and the significant factors that influenced our performance during the past two fiscal years, the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the description of the business appearing in Item 1 of this Report, Selected Consolidated Financial Data and the Consolidated Financial Statements and related Notes and Schedules included elsewhere in this Report. You should carefully review and consider the information regarding our financial condition and results of operations set forth under Part I-Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) in our Annual Report on Form 10-K for the fiscal year endedNovember 30, 2018 , filed with theSecurities and Exchange Commission onJanuary 28, 2019 , for an understanding of our results of operations and liquidity discussions and analysis comparing fiscal year 2018 to fiscal year 2017. OnDecember 1, 2018 , we adopted Accounting Standards Codification ("ASC") Topic 606 applying the full retrospective method. Amounts for fiscal years endedNovember 30, 2018 and 2017 have been adjusted in this Report to reflect the adoption of ASC Topic 606, which did not have a material impact on our consolidated financial statements. Refer to Note 2 to the consolidated financial statements under Item 8 of this Report for further information on the impact of ASC Topic 606 on our financial results, our financial condition and cash flows from operations. Amounts in certain tables appearing in this Report may not add or compute due to rounding. When used in this Annual Report on Form 10-K, or this Report, the words "believes," "estimates," "expects," "allows," "can," "may," "designed," "will," and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about market trends, our business model and our services, our market strategy, including expansion of our product lines, the proposed separation of SYNNEX and Concentrix, including as to the effect on our results of operations going forward, our infrastructure, our investment in information technology, or IT, systems, our employee hiring, retention and turnover, the ownership interest of MiTAC Holdings Corporation, or MiTAC Holdings, in us and its impact, our revenue, our gross margins, our operating costs and results, the value of our inventory, competition with Synnex Technology International Corp., our future needs for additional financing, the likely sources for such funding and the impact of such funding ,market acceptance of our customers' products, concentration of customers, our international operations, foreign currency exchange rates and expected trends related thereto, expansion and scaling of our operations and related effects, including our Concentrix business, our strategic acquisitions and divestitures of businesses and assets, including our acquisition ofConvergys and the impact of the acquisition on our business, revenue, cost of revenue and gross margin, our goodwill, seasonality of sales, adequacy of our capital resources to meet our capital needs, cash held by our foreign subsidiaries and repatriation, changes in fair value of derivative instruments, adequacy of our disclosure controls and procedures, pricing pressures, competition, impact of economic and industry trends, impact of our accounting policies and recently issued accounting pronouncements, our belief regarding the impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, our share repurchase and dividend program, our securitization programs and revolving credit lines, our succession planning, our investments in working capital, personnel, facilities and operations. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed herein, as well as the seasonality of the buying patterns of our customers, concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT, and consumer electronics, or CE, industries, fluctuations in general economic conditions and other risk factors set forth under Part I, Item 1A, "Risk Factors." These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Announcement of a plan to separate our Concentrix segment into a separate publicly-traded company
OnJanuary 9, 2020 , we announced a plan to separate our Concentrix segment into an independent publicly-traded company, in a transaction expected to be completed in the second half of 2020. The separation is intended to qualify as a tax-free transaction for federal income tax purposes for both us and our current stockholders. Immediately following the separation, our stockholders will own shares of both SYNNEX and Concentrix, each at the same percentage ownership that they held of us prior to the transaction. Completion of the separation will not require a stockholder vote but will be subject to customary closing conditions, including final approval of our Board of Directors, the receipt of a favorable opinion with respect to the tax-free nature of the transaction, and the effectiveness of a Form 10 registration statement with theU.S. Securities and Exchange Commission . Revenue and Cost of Revenue We derive our Technology Solutions revenue primarily through the distribution of peripherals, IT systems, system components, software, networking, communications and security equipment and CE and complementary products, and the delivery of servers and networking solutions for our design and integration solutions customers' data centers. In our Concentrix segment, we provide high value business outsourcing services and solutions to improve customer experience of our clients. Our Concentrix customer contracts typically consist of a master services agreement or statement of work, which contains the terms and conditions of each program or service we offer. Our agreements can range from less than one year to over five years and are subject to early termination by our customers or us for any reason, typically with 30 to 90 days' notice. In fiscal years 2019 and 2018, approximately 34% and 28% of our consolidated revenue, respectively, was generated from our international operations. As a result, our revenue growth has been impacted by fluctuations in foreign currency exchange rates. Upon 27
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completion of the planned separation of our Concentrix segment, we expect this
trend to reverse, with a greater proportion of our revenue generated in
The market for IT products and services is generally characterized by declining unit prices and short product life cycles. Our overall business is also highly competitive on the basis of price. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide. From time to time, we also participate in the incentive and rebate programs of our OEM suppliers. These programs are important determinants of the final sales price we charge to our reseller customers. To mitigate the risk of declining prices and obsolescence of our distribution inventory, our OEM suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them. We carefully manage our inventory to maximize the benefit to us of these supplier provided protections. A significant portion of our Technology Solutions cost of revenue is the purchase price we pay our OEM suppliers for the products we sell, net of any incentives, rebates, price protection and purchase discounts received from our OEM suppliers. Cost of products revenue also consists of provisions for inventory losses and write-downs, freight expenses associated with the receipt in and shipment out of our inventory, and royalties due to OEM vendors. In addition, cost of revenue includes the cost of material, labor and overhead for our systems design and integration solutions. In our Concentrix segment, cost of revenue consists primarily of personnel costs related to contract delivery.
Revenue and cost of revenue in our Technology Solutions segment relate to products, and revenue and cost of revenue in our Concentrix segment relate to services.
Margins The Technology Solutions industry in which we operate is characterized by low gross profit as a percentage of revenue, or gross margin, and low income from operations as a percentage of revenue, or operating margin. Our Technology Solutions gross margin has fluctuated annually due to changes in the mix of products we offer, customers we sell to, incentives and rebates received from our OEM suppliers, competition, seasonality, replacement of lower margin business, inventory obsolescence, and lower costs associated with increased efficiencies. Generally, when our revenue becomes more concentrated on limited products or customers, our Technology Solutions gross margin tends to decrease due to increased pricing pressure from OEM suppliers or reseller customers. Concentrix gross margins, which are higher than those in our Technology Solutions segment, can be impacted by the mix of customer contracts, additional lead time for programs to be fully scalable and transition and initial set-up costs. Our operating margin has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, changes in the relative mix of our Technology Solutions and Concentrix revenue, and the timing of our acquisitions and investments.
Economic and Industry Trends
Our Technology Solutions revenue is highly dependent on the end-market demand for IT and CE products. This end-market demand is influenced by many factors including the introduction of new IT and CE products and software by OEMs, replacement cycles for existing IT and CE products, seasonality and overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT and CE distribution industry and increased price-based competition. Business in our system design and solutions is highly dependent on the demand for cloud infrastructure, and the number of key customers and suppliers in the market. Our Technology Solutions business includes operations inthe United States ,Canada ,Japan andLatin America , so we are affected by demand for our products in those regions and the strengthening or weakening of local currencies relative to theU.S. Dollar. The customer experience services industry in which our Concentrix segment operates is competitive. Customers' performance measures are based on competitive pricing terms and quality of services. Accordingly, we could be subject to pricing pressure and may experience a decline in our average selling prices for our services. Our Concentrix business is largely concentrated inthe United States , theUnited Kingdom ,the Philippines ,India ,Canada ,China andJapan . Accordingly, we would be impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to theU.S. Dollar.
During the three-year period ended
Critical Accounting Policies and Estimates
The discussions and analysis of our consolidated financial condition and results
of operations are based on our Consolidated Financial Statements, which have
been prepared in conformity with GAAP. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of any contingent assets
and liabilities at the financial statement date, and reported amounts of revenue
and expenses during the reporting period. On an ongoing basis, we review and
evaluate our estimates and assumptions. Our estimates are based on our
historical experience and a variety of other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making our judgment about the carrying values of assets and liabilities that are
not readily available from other sources. Actual results could differ from these
estimates under different assumptions or conditions.
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We believe the following critical accounting policies involve the more significant judgments, estimates and/or assumptions used in the preparation of our Consolidated Financial Statements.
Revenue Recognition.
On
We generate revenue primarily from (i) the sale of various IT products through our Technology Solutions business unit and (ii) the provision of business outsourcing services focused on customer experience through our Concentrix business unit.
Revenue from our Technology Solutions segment is categorized as products revenue
in our Consolidated Statements of Operations. Revenue from our Concentrix
segment is categorized as services revenue in the Consolidated Statements of
Operations.
We recognize revenue from the sale of IT hardware and software as control is
transferred to customers, which is at the time when the product is shipped or
delivered. Products sold by us are delivered via shipment from our facilities,
drop-shipment directly from the vendor, or by electronic delivery of software
products. We account for a contract with a customer when it has written
approval, the contract is committed, the rights of the parties, including
payment terms, are identified, the contract has commercial substance and
consideration is probable of collection. Binding purchase orders from customers
together with agreement to our terms and conditions of sale by way of an
executed agreement or other signed documents are considered to be the contract
with a customer. In situations where arrangements include customer acceptance
provisions, revenue is recognized when we can objectively verify the products
comply with specifications underlying acceptance and the customer has control of
the goods. Revenue is presented net of taxes collected from customers and
remitted to government authorities. We generally invoice a customer upon
shipment, or in accordance with specific contractual provisions. Payments are
due as per contract terms and do not contain a significant financing component.
Provisions for sales returns and allowances are estimated based on historical
data and are recorded concurrently with the recognition of revenue. A liability
is recorded at the time of sale for estimated product returns based upon
historical experience and an asset is recognized for the amount expected to be
recorded in inventory upon product return. These provisions are reviewed and
adjusted periodically. Revenue is reduced for early payment discounts and volume
incentive rebates offered to customers, which are considered variable
consideration, at the time of sale based on an evaluation of the contract terms
and historical experience.
We recognize revenue on a net basis on certain contracts, where our performance
obligation is to arrange for the products or services to be provided by another
party or the rendering of logistics services for the delivery of inventory for
which we do not assume the risks and rewards of ownership, by recognizing the
margins earned in revenue with no associated cost of revenue. Such arrangements,
which are not material to our consolidated revenue or our "Products" or
"Services" revenue, include supplier service contracts, post-contract software
support services and extended warranty contracts.
We consider shipping and handling activities as costs to fulfill the sale of
products. Shipping revenue is included in net sales when control of the product
is transferred to the customer, and the related shipping and handling costs are
included in cost of products sold.
For the Concentrix segment, we recognize revenue from services contracts over
time as the promised services are delivered to clients for an amount that
reflects the consideration to which we are entitled in exchange for those
services. We account for a contract with a customer when it has written
approval, the contract is committed, the rights of the parties, including
payment terms, are identified, the contract has commercial substance and
consideration is probable of collection. Revenue is presented net of taxes
collected from customers and remitted to government authorities. We generally
invoice a customer after performance of services, or in accordance with specific
contractual provisions. Payments are due as per contract terms and do not
contain a significant financing component. Service contracts may be based on a
fixed price or on a fixed unit-price per transaction or other objective measure
of output. We determine whether the services performed during the initial phases
of an arrangement, such as setup activities, are distinct. In most cases, the
arrangement is a single performance obligation comprised of a series of distinct
services that are substantially the same and that have the same pattern of
transfer (i.e., distinct days of service). We record deferred revenue
attributable to certain process transition, setup activities where such
activities do not represent separate performance obligations. Billings related
to such transition activities are classified under contract liabilities and
subsequently recognized ratably over the period in which the related services
are performed. We apply a measure of progress (typically time-based) to any
fixed consideration and allocates variable consideration to the distinct periods
of service based on usage. As a result, revenue is generally recognized over the
period the services are provided on a usage basis. This results in revenue
recognition that corresponds with the benefit to the client of the services
transferred to date relative to the remaining services promised. Revenue on
fixed price contracts is recognized on a straight-line basis over the term of
the contract as services are provided. Revenue on unit-price transactions is
recognized using an objective measure of output including staffing hours or the
number of transactions processed by service agents. Client contract terms can
range from less than one year to more than five years.
Certain client contracts include incentive payments from the client upon
achieving certain agreed-upon service levels and performance metrics or service
level agreements that could result in credits or refunds to the client. Revenue
relating to such
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arrangements is accounted for as variable consideration when the likely amount of revenue to be recognized can be estimated to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Business Combinations. We allocate the fair value of purchase consideration to the assets acquired, liabilities assumed, and noncontrolling interests in the acquiree generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed and noncontrolling interests in the acquiree is recorded as goodwill and may involve engaging independent third-parties to perform an appraisal. When determining the fair values of assets acquired, liabilities assumed, and noncontrolling interests in the acquiree, we make significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, and discount rates. Fair value estimates are based on the assumptions we believe a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Acquisitions
We continually seek to augment organic growth in both our business segments with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. In our Technology Solutions business we seek to acquire new OEM relationships, enhance our supply chain and integration capabilities, the services we provide to our customers and OEM suppliers, and expand our geographic footprint. In our Concentrix segment we seek to enhance our capabilities and domain expertise in our key verticals, expand our geographic footprint and further expand into higher value service offerings. We are also strategically focused on further increasing our scale to support our customers.
Acquisition during fiscal year 2018
OnOctober 5, 2018 , we acquired 100% ofConvergys Corporation , ("Convergys"), a customer experience outsourcing company for a purchase price of$2.3 billion . This acquisition is related to our Concentrix segment and added scale, diversified our revenue base, expanded our service delivery footprint, and strengthened our leadership position as a top global provider of services to improve customer experience. Results of Operations The following table sets forth, for the indicated periods, data as percentages of total revenue: Fiscal Years Ended November 30, Statements of Operations Data: 2019 2018 Products revenue 80.27 % 87.63 % Services revenue 19.73 12.37 Total revenue 100.00 100.00 Cost of products revenue (75.40 ) (82.59 ) Cost of services revenue (12.40 ) (7.66 ) Gross profit 12.20 9.75 Selling, general and administrative expenses (8.77 ) (6.96 ) Operating income 3.43
2.78
Interest expense and finance charges, net (0.70 ) (0.43 ) Other income (expense), net 0.13 (0.05 ) Income before income taxes 2.86 2.31 Provision for income taxes (0.74 ) (0.79 ) Net income 2.11 % 1.52 % With the announcement of a plan to separate the Concentrix segment into a separate publicly-traded company in a transaction expected to be completed in the second half of 2020, our services revenue and cost of services revenue which represent revenue and cost of revenue of our Concentrix segment are expected to be discontinued following the separation. Further, selling, general and administrative expenses, interest expense and finance charges, net, other income (expense), net and provision for income-taxes are expected to decrease by amounts related to the Concentrix segment or impacted by the proposed separation, with related reductions in gross profit, operating income and net income. Additionally, our gross margin and operating margin are expected to decrease due to the discontinuance of the higher margins earned in the Concentrix segment. In addition, in the second half of 2020, we expect a decrease in our products revenue of approximately$1.2 billion due to a customer moving to a consignment model where we will provide integration services on an agency basis. 30
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Certain non-GAAP financial information
In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:
• Revenue in constant currency, which is revenue adjusted for the translation
effect of foreign currencies so that certain financial results can be
viewed without the impact of fluctuations in foreign currency exchange
rates, thereby facilitating period-to-period comparisons of our business
performance. Revenue in constant currency is calculated by translating the
revenue of fiscal year 2019 in the billing currency using their comparable
prior year's currency conversion rate. Generally, when the dollar either
strengthens or weakens against other currencies, the growth at constant
currency rates or adjusting for currency will be higher or lower than
growth reported at actual exchange rates.
• Non-GAAP operating income, which is operating income, adjusted to exclude
acquisition-related and integration expenses, restructuring costs and
amortization of intangible assets.
• Non-GAAP operating margin, which is non-GAAP operating income, as defined
above, divided by revenue.
• Adjusted earnings before interest, taxes, depreciation and amortization, or
adjusted EBITDA, which is non-GAAP operating income, as defined above, plus
depreciation.
• Non-GAAP diluted earnings per common share ("EPS"), which is diluted EPS
excluding the per share, tax effected impact of (i) acquisition-related and
integration expenses, (ii) restructuring costs, (iii) amortization of
intangible assets, (iv) a gain upon the settlement of contingent
consideration related to the acquisition of Westcon-Comstor Americas infiscal year 2017, and (v) a gain recorded upon realization of a contingent
asset related to the Westcon-Comstor Americas acquisition, and the per
share amount of the net impact of the adjustments related to the Tax Cuts
and Jobs Act of 2017.
We believe that providing this additional information is useful to the reader to
better assess and understand our base operating performance, especially when
comparing results with previous periods and for planning and forecasting in
future periods, primarily because management typically monitors the business
adjusted for these items in addition to GAAP results. Management also uses these
non-GAAP measures to establish operational goals and, in some cases, for
measuring performance for compensation purposes. As these non-GAAP financial
measures are not calculated in accordance with GAAP, they may not necessarily be
comparable to similarly titled measures employed by other companies. These
non-GAAP financial measures should not be considered in isolation or as a
substitute for the comparable GAAP measures and should be used as a complement
to, and in conjunction with, data presented in accordance with GAAP.
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Non-GAAP Financial Information:
Fiscal Years Ended November 30,
2019 2018
(in thousands, except per share amounts)
Consolidated
Revenue $ 23,757,293 $ 19,767,945
Foreign currency translation 143,530
Revenue in constant currency $ 23,900,823 $ 19,767,945
Operating income $ 813,761 $ 550,236
Acquisition-related and integration expenses 71,454 45,132
Amortization of intangibles 210,481 124,332
Non-GAAP operating income $ 1,095,696 $ 719,700
Depreciation (excluding accelerated depreciation
included in acquisition-related and integration
expenses above) 157,277 100,955
Adjusted EBITDA $ 1,252,973 $ 820,655
Operating margin 3.43 % 2.78 %
Non-GAAP operating margin 4.61 % 3.64 %
Diluted EPS $ 9.74 $ 7.17
Acquisition-related and integration expenses 1.39 1.02
Amortization of intangibles 4.09 2.97
Contingent consideration (0.37 ) -
Acquisition-related contingent gain (0.22 ) -
Income taxes related to the above (1) (1.38 ) (1.08 )
U.S. tax reform adjustment - 0.79
Non-GAAP diluted EPS $ 13.26 $ 10.87
Technology Solutions
Revenue $ 19,069,970 $ 17,323,163
Foreign currency translation 89,786
Revenue in constant currency $ 19,159,756 $ 17,323,163
Operating income $ 519,429 $ 405,475
Acquisition-related and integration expenses 981 7,642
Amortization of intangibles 43,875 50,007
Non-GAAP operating income $ 564,285 $ 463,124
Depreciation 22,454 20,681
Adjusted EBITDA $ 586,739 $ 483,805
Operating margin 2.72 % 2.34 %
Non-GAAP operating margin 2.96 % 2.67 %
Concentrix
Revenue $ 4,707,912 $ 2,463,151
Foreign currency translation 53,744
Revenue in constant currency $ 4,761,656 $ 2,463,151
Operating income $ 294,332 $ 144,761
Acquisition-related and integration expenses 70,473 37,490
Amortization of intangibles 166,606 74,325
Non-GAAP operating income $ 531,411 $ 256,576
Depreciation (excluding accelerated depreciation
included in acquisition-related and integration
expenses above) 134,823 80,274
Adjusted EBITDA $ 666,234 $ 336,850
Operating margin 6.25 % 5.88 %
Non-GAAP operating margin 11.29 % 10.42 %
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Table of Content (1) The tax effect of taxable and deductible non-GAAP adjustments was
calculated using the effective year-to date tax rate during the respective
fiscal years. The effective tax rate for fiscal year 2018 excludes the
impact of the transition tax on accumulated overseas profits and the
re-measurement of deferred tax assets and liabilities to the new
rate related to the enactment of the Tax Cuts and Jobs Act of 2017.
Fiscal Years Ended
Revenue
Fiscal Years Ended November 30, Percent Change
2019 2018 2019 to 2018
(in thousands)
Revenue $ 23,757,293 $ 19,767,945 20.2 %
Technology Solutions revenue 19,069,970 17,323,163 10.1 %
Concentrix revenue 4,707,912 2,463,151 91.1 %
Inter-segment elimination (20,589 ) (18,369 )
Our revenue includes sales of products and services. In our Technology Solutions
segment, we distribute a comprehensive range of products for the technology
industry and design and integrate data center equipment. The prices of our
products are highly dependent on the volumes purchased within a product
category. The products we sell from one period to the next are often not
comparable due to changes in product models, features and customer demand
requirements. The revenue generated by our Concentrix segment relates to
business outsourcing services focused on customer experience, process
optimization and back office automation. Inter-segment elimination represents
services generated between our reportable segments that are eliminated on
consolidation. Substantially all of the inter-segment revenue represents
services provided by the Concentrix segment to the Technology Solutions segment.
Revenue in our Technology Solutions segment increased in fiscal year 2019
compared to fiscal year 2018 primarily due to broad-based strength in system
components, IT systems, networking equipment and peripherals, primarily in the
United States , which was partially offset by a decrease driven by revenue that
is subject to net revenue presentation, primarily consisting of software, cloud
and security products. By product category, our sales of system components,
networking equipment, IT systems and peripherals, in fiscal year 2019, increased
by 32%, 14%, 9% and 3%, respectively, while sales of software decreased by
1%. On a constant currency basis, revenue in our Technology Solutions segment
increased by 10.6% during fiscal year 2019, compared to fiscal year 2018.
Concentrix segment revenue increased in fiscal year 2019, compared to fiscal
year 2018, primarily due to the impact of the acquisition of Convergys in
October 2018 , which was partially offset by the translation effect of foreign
currencies.
Gross Profit
Fiscal Years Ended November 30, Percent Change
2019 2018 2019 to 2018
(in thousands)
Gross profit $ 2,897,917 $ 1,926,899 50.4 %
Gross margin 12.20 %
9.75 %
Technology Solutions gross profit
16.1 %
Technology Solutions gross margin 6.07 % 5.75 %
Concentrix gross profit $ 1,748,448 $ 937,552 86.5 %
Concentrix gross margin 37.14 % 38.06 %
Inter-segment elimination (7,789 ) (7,233 )
Our Technology Solutions gross margin is affected by a variety of factors,
including competition, selling prices, mix of products and services, product
costs along with rebate and discount programs from our suppliers, reserves or
settlement adjustments, freight costs, inventory losses, acquisition of business
units and fluctuations in revenue. Concentrix margins, which are higher than
those in our Technology Solutions segment, can be impacted by resource location,
client mix and pricing, additional lead time for programs to be fully scalable,
and transition and initial set-up costs.
In fiscal year 2019, our gross profit increased due to increases in both the
Technology Solutions and Concentrix segments, compared to fiscal year 2018. The
increase in our gross margin over the prior fiscal year is due to an increase in
the Technology Solutions gross margin and an increase in the proportion of gross
profit generated in the Concentrix segment, primarily due to the acquisition of
Convergys .
Technology Solutions gross profit and margin increased in fiscal year 2019, as
compared to the prior year, primarily due to product mix, including higher
yielding project and integration-based transactions, and broad-based growth
across our product portfolio, primarily in the United States . This increase was
partially offset by net unfavorable foreign currency translation. The
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increase in gross margin during the fiscal year endedNovember 30, 2019 was also attributable to an increase in our revenue generated from sales of products and services where revenue is reported on a net basis by recognizing the margins earned in revenue with no associated cost of revenue. Concentrix gross profit increased in fiscal year 2019, as compared to the prior fiscal year, primarily due to the full year impact of the acquisition ofConvergys inOctober 2018 and client mix. This increase was partially offset by net unfavorable foreign currency translation. Concentrix gross margin during the year endedNovember 30, 2019 decreased compared to the prior year, primarily due to client mix.
Selling, General and Administrative Expenses
Fiscal Years Ended November 30, Percent Change
2019 2018 2019 to 2018
(in thousands)Selling, general and administrative
expenses$ 2,084,156 $ 1,376,664 51.4 % Percentage of revenue 8.77 % 6.96 % Technology Solutions selling, general and administrative expenses$ 637,829 $ 591,106 7.9 % Percentage of Technology Solutions revenue 3.34 % 3.41 % Concentrix selling, general and administrative expenses$ 1,454,116 $ 792,791 83.4 % Percentage of Concentrix revenue 30.89 % 32.19 % Inter-segment elimination $ (7,789 ) $ (7,233 ) Our selling, general and administrative expenses consist primarily of personnel costs such as salaries, commissions, bonuses, share-based compensation and temporary personnel costs. Selling, general and administrative expenses also include cost of warehouses, delivery centers and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of our non-technology related intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
Selling, general and administrative expenses increased, in both absolute dollars
and as a percentage of revenue, in fiscal year 2019, compared to the prior
fiscal year, primarily due to the full year impact of the
Selling, general and administrative expenses in our Technology Solutions segment increased in fiscal year 2019, compared to fiscal year 2018, primarily due to an increase in investments in our associates to support growth and incremental bad debt provision for specific customers, partially offset by a decrease in amortization of intangible assets and acquisition-related and integration expenses. Scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of segment revenue in the current year, compared to the prior year period. Concentrix selling, general and administrative expenses increased in fiscal year 2019, compared to the prior year, primarily due to the full year impact of the acquisition ofConvergys , an increase in the amortization of intangible assets by$92.5 million and an increase in acquisition-related and integration expenses of$33.0 million . These increases were partially offset by the impact of net favorable foreign currency translation. Scale efficiencies resulted in a decrease in selling, general and administrative expenses as a percentage of segment revenue in the current year, compared to the prior year period. Operating Income Fiscal Years Ended November 30, Percent Change 2019 2018 2019 to 2018 (in thousands) Operating income$ 813,761 $ 550,236 47.9 % Operating margin 3.43 %
2.78 %
Technology Solutions operating income
28.1 %
Technology Solutions operating margin 2.72 % 2.34 %
Concentrix operating income $ 294,332 $ 144,761 103.3 %
Concentrix operating margin 6.25 % 5.88 %
Operating income and margin in our Technology Solutions segment increased during
fiscal year 2019, compared to the prior year, due to broad-based growth, higher
operating income from our systems design and integration solutions business and
a decrease in the amortization of intangible assets and acquisition-related and
integration expenses.
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Operating income and margin in our Concentrix segment increased during fiscal year 2019, compared to the prior year, due to theConvergys acquisition and integration synergies. These increases were partially offset by higher acquisition-related and integration expenses and the amortization of intangible assets, as compared to the prior fiscal year.
Interest Expense and Finance Charges, Net
Fiscal Years Ended November 30, Percent Change
2019 2018 2019 to 2018
(in thousands)
Interest expense and finance charges, net $ 166,421 $ 84,675 96.5 %
Percentage of revenue 0.70 % 0.43 %
Amounts recorded in interest expense and finance charges, net, consist primarily
of interest expense paid on our lines of credit and term loans, fees associated
with third party accounts receivable flooring arrangements and the sale or
pledge of accounts receivable through our securitization facilities, offset by
income earned on our cash investments.
The increase in our interest expense and finance charges, net, compared to the
prior year, was due to higher interest expense as a result of the full year
interest impact of borrowings in the prior year to fund the Convergys
acquisitions and to support growth in our Technology Solutions segment. Our
interest expense was also unfavorably impacted by higher borrowing rates during
the first half of fiscal year 2019. This increase was partially offset by a
reduction in outstanding borrowings and declining borrowing rates in the second
half of fiscal year 2019. $2.0 billion of our outstanding borrowings of $3.0
billion at November 30, 2019 have been economically converted to fixed-rate debt
through interest rate swaps.
Other Income (Expense), Net
Fiscal Years Ended November 30, Percent Change
2019 2018 2019 to 2018
(in thousands)
Other income (expense), net
438 % Percentage of revenue 0.13 % (0.05 )% Amounts recorded as other income (expense), net include foreign currency transaction gains and losses, other than cash flow hedges, investment gains and losses, non-service component of pension costs, debt extinguishment gains and losses and other non-operating gains and losses, such as changes in the fair value of convertible debt conversion spread, settlements received from class actions lawsuits and realization of contingent assets. During the year endedNovember 30, 2019 , net other income (expense) increased from net other (expense) of$9.0 million in the prior year to a net other income of$30.4 million , primarily due to a gain of$19.0 million upon the settlement of contingent consideration related to our acquisition of Westcon-ComstorAmericas in fiscal year 2017, a gain of$11.1 million recorded upon realization of contingent sales-tax assets related to the Westcon-Comstor Americas acquisition, and net foreign currency exchange gains of$9.3 million in the current year compared to net foreign currency exchange losses of$ 19.2 million , mainly in our Latin American businesses, in the prior year. The losses and expenses in the prior year were partially offset by gains of$10.0 million related to changes in the fair value of the conversion spread of convertible debentures assumed in connection with the acquisition ofConvergys and extinguishment gains on settlement of certain of those debentures. Provision for Income Taxes Fiscal Years Ended November 30, Percent Change 2019 2018 2019 to 2018 (in thousands) Provision for income taxes$ 176,991 $ 156,596 13.0 % Percentage of income before income taxes 26.05 % 34.30 %
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.
Our income tax expense increased during fiscal year endedNovember 30, 2019 , as compared to the prior year, due to the increase in our income before taxes. The effective tax rate for year endedNovember 30, 2019 decreased, compared to the prior year, primarily due to the impact of the reduction in federal income tax rates due to Tax Cuts and Jobs Act of 2017 ("TCJA"), the mix of income earned in different tax jurisdictions, and the favorable impact of the non-taxable gain upon the settlement of contingent consideration related to the acquisition of Westcon-Comstor Americas in fiscal year 2017. Additionally, the effective tax rate decreased 35
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in fiscal year 2019, compared to the prior year, due to the discrete impact of a net tax charge of$33.1 million related to the TCJA in the prior year period. This charge included$59.8 million of transition tax expense for mandatory repatriation, partially offset by$26.7 million of tax benefit from the remeasurement of our net deferred tax balance to the newU.S. tax rate enacted under the TCJA.
See Note 15 of the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for further details.
Liquidity and Capital Resources
Cash Conversion Cycle
Three Months Ended
November 30, November 30,
2019 2018
(Amounts in thousands)
Days sales outstanding ("DSO")
Revenue (products and services) (a) $ 6,581,293 $ 5,544,046
Accounts receivable, including
receivable
from related parties (b) 3,926,709 3,640,496
(c) = (b)/((a)/the
number of days
Days sales outstanding during the period) 54 60
Days inventory outstanding ("DIO")
Cost of revenue (products and
services) (d) $ 5,786,754 $ 4,889,937
Inventories (e) 2,547,224 2,392,559
(f) = (e)/((d)/the
number of days
Days inventory outstanding during the period) 40 45
Days payable outstanding ("DPO")
Cost of revenue (products and
services) (g) $ 5,786,754 $ 4,889,937
Accounts payable, including
payable to
related parties (h) 3,149,443 3,048,102
(i) = (h)/((g)/the
number of days
Days payable outstanding during the period) 50 57
Cash conversion cycle ("CCC") (j) = (c)+(f)-(i) 44 48
Cash Flows
Our Technology Solutions business is working capital intensive. Our working
capital needs are primarily to finance accounts receivable and inventory. We
rely heavily on term loans, accounts receivable arrangements, our securitization
programs and our revolver programs for our working capital needs. We have
financed our growth and cash needs to date primarily through cash generated from
operations and financing activities. As a general rule, when sales volumes are
increasing, our net investment in working capital dollars typically increases,
which generally results in decreased cash flow generated from operating
activities. Conversely, when sales volume decreases, our net investment in
working capital dollars typically decreases, which generally results in
increases in cash flows generated from operating activities. We calculate CCC as
days of the last fiscal quarter's sales outstanding in accounts receivable plus
days of supply on hand in inventory, less days of the last fiscal quarter's
direct cost outstanding in accounts payable. Our CCC was 44 days and 48 days at
the end of fiscal years 2019 and 2018, respectively. The decrease in fiscal year
2019, compared to fiscal year 2018, was primarily due to the impact of the
acquisition of Convergys on October 5, 2018 , which was included in our revenue
and cost of revenue from the date of its acquisition, as well as our continued
focus to optimize working capital efficiency by efficient collections of
accounts receivable and managing inventory levels. Our DPO was also impacted by
the timing of payments of accounts payable.
To increase our market share and better serve our customers, we may further
expand our operations through investments or acquisitions. We expect that such
expansion would require an initial investment in working capital, personnel,
facilities and operations. These investments or acquisitions would likely be
funded primarily by our existing cash and cash equivalents, additional
borrowings, or the issuance of securities.
Net cash provided by operating activities was $549.9 million during fiscal year
2019, primarily due to net income of $500.7 million , adjustments for non-cash
items of $410.6 million , an increase in accounts payable of $98.4 million , and a
net change in other operating assets and liabilities of $46.5 million . These
cash inflows were partially offset by an increase in accounts receivable and
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receivables from vendors of$353.1 million and an increase in inventories of$153.1 million . The increase in accounts receivable, including receivables from vendors, inventories and accounts payable was driven by growth in our Technology Solutions segment. The adjustments for non-cash items consist primarily of amortization and depreciation, provision for doubtful accounts, stock-based compensation expense, a gain recorded upon the settlement of contingent consideration related to our Westcon-Comstor Americas acquisition in fiscal year 2017 and a deferred tax benefit. Excluding the impact of intercompany transactions,$93.1 million of our cash provided by operating activities was generated in our Technology Solutions segment and$456.8 million was generated by our Concentrix segment. Net cash provided by operating activities was$100.7 million in fiscal year 2018, primarily generated from our net income of$300.0 million , adjustments for non-cash items of$204.7 million , an increase in accounts payable of$382.0 million and the net change in other assets and liabilities of$95.5 million , partially offset by an increase in accounts receivable and receivable from vendors of$515.0 million , and an increase in inventories of$366.4 million . The increase in accounts payable and inventories was primarily due to growth in our distribution business especially inthe United States . The increase in accounts receivable was due to the growth in our Technology Solutions business. The adjustments for non-cash items primarily consist of$225.3 million of depreciation and amortization expense, stock-based compensation expense of$22.7 million . These non-cash expenses were partially offset by a deferred tax benefit of$47.1 million , including$26.7 million related to the remeasurement of deferred tax assets and liabilities to the newU.S. tax rate due to the enactment of the TCJA, and gains of$10.0 million related to changes in the fair value of the conversion spread of convertible debentures assumed in connection with the acquisition ofConvergys and extinguishment gains on settlement of certain of those debentures. Net cash used in investing activities in fiscal year 2019 was$146.8 million , primarily due to capital expenditures of$137.4 million , principally related to infrastructure investments to support the anticipated growth in our Concentrix segment and from$9.4 million of cash paid related to the settlement of employee stock-based awards assumed under theConvergys acquisition. Net cash used in investing activities in fiscal year 2018 was$1.2 billion , primarily due to payments of$1.1 billion , net of cash acquired, for the acquisition of theConvergys and$125.3 million invested in capital expenditures primarily to support growth in our Concentrix segment and our design and integration solutions business in the Technology Solutions segment. These outflows were partially offset by the sale of approximately$12.9 million of trading securities related to a non-qualified, unfunded executive deferred compensation plan acquired as part of theConvergys acquisition and terminated subsequently. Net cash used in financing activities in fiscal year 2019 was$631.7 million , primarily due to net repayments of$521.4 million under our borrowing arrangements. Cash generated from our operations was used to pay down revolving lines of credit. During fiscal year 2019, we drew the last tranche of$250.0 million under a term loan facility obtained in fiscal year 2018 for theConvergys acquisition, which was used for the settlement of the remaining amount of convertible debentures assumed as part of this acquisition, and the remainder used for working capital purposes. We also returned cash to stockholders through$76.6 million of dividend payments and$15.2 million of repurchases of our common stock.$14.0 million in cash was used to pay contingent consideration related to our Westcon-Comstor Americas acquisition. Net cash provided by financing activities in fiscal year 2018 was$1.0 billion , consisting primarily of proceeds of$1.1 billion from borrowings, net of repayments and debt discount and issuance costs. The net borrowings increase was to fund the acquisition ofConvergys and to support growth in our Technology Solutions segment. The cash inflow was partially offset by$66.0 million of repurchases of our common stock and dividend payments of$59.7 million . During the year, we obtained a term loan facility of$1.8 billion to fund theConvergys acquisition, the related refinancing or settlement ofConvergys' debt and payment of related fees and expenses. ByNovember 30, 2018 , we had drawn$1.6 billion of this term loan, of which approximately$1.2 billion was utilized to pay for the acquisition and approximately$313.8 million was utilized for settlement ofConvergys' assumed debt. We believe our current cash balances and credit availability are sufficient to support the operating activities for at least the next twelve months on a combined basis or as an operating entity after the separation of our Concentrix segment into an independent publicly-traded company.
Capital Resources
Our cash and cash equivalents totaled$225.5 million and$454.7 million as ofNovember 30, 2019 and 2018, respectively. Of our total cash and cash equivalents, the cash held by our foreign subsidiaries was$219.7 million and$301.1 million as ofNovember 30, 2019 and 2018, respectively. Our cash and cash equivalents held by foreign subsidiaries are no longer subject toU.S. federal tax on repatriation intothe United States . Repatriation of some foreign balances is restricted by local laws. Historically, we have fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change, and we repatriate the cash back tothe United States , we will report in our consolidated financial statements the impact of state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity withinthe United States to fund current and expected future working capital, investment and other general corporate funding requirements, including the impact of the planned separation of our Concentrix segment. 37
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We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations and our existing sources of liquidity, will be sufficient to satisfy our current and planned working capital and investment needs, including the impact of the planned separation of our Concentrix segment, for the next twelve months in all geographies. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities. Historically, we have renewed our accounts receivable securitization program and ourU.S. credit facility agreement described below on, or prior to, their respective expiration dates. We have no reason to believe that these and other arrangements will not be renewed or replaced as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company.
On-Balance Sheet Arrangements
Inthe United States , we have an accounts receivable securitization program to provide additional capital for our operations (the "U.S. AR Arrangement"). Under the terms of theU.S. AR Arrangement, which expires inMay 2020 , our subsidiary, which is the borrower under this facility, can borrow up to a maximum of$850.0 million based upon eligible trade accounts receivable. In addition, theU.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional$150.0 million . The effective borrowing cost under theU.S. AR Arrangement is a blended rate based upon the composition of the lenders that includes prevailing dealer commercial paper rates and a rate based upon LIBOR, provided that LIBOR shall not be less than zero. In addition, a program fee of 0.75% per annum based on the used portion of the commitment, and a facility fee of 0.35% per annum, is payable on the adjusted commitment of the lenders. Under the terms of theU.S. AR Arrangement, we and two of ourU.S. subsidiaries sell, on a revolving basis, our receivables to a wholly-owned bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in the receivables acquired by our bankruptcy-remote subsidiary as security. Any amounts received under theU.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets. As ofNovember 30, 2019 and 2018,$108.0 million and$615.0 million , respectively, was outstanding under theU.S. AR Arrangement. InCanada , we have an accounts receivable securitization program with a bank to provide additional capital for operations. Under the terms of this program,SYNNEX Canada Limited ("SYNNEX Canada") can borrow up toCAD100.0 million , or$75.3 million , in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis throughMay 2020 . The program includes an accordion feature that allows us to request an increase in the bank's commitment by an additionalCAD50.0 million , or$37.6 million . Any amounts received under this arrangement are recorded as debt on our Consolidated Balance Sheets and are secured by pledging all of the rights, title and interest in the receivables, to the bank. The effective borrowing cost is based on the weighted-average of the Canadian Dollar Offered Rate plus a margin of 2.00% per annum and the prevailing lender commercial paper rates. In addition,SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment.SYNNEX Canada pays a fee of 0.40% per annum for any unused portion of the commitment up toCAD60.0 million , or$45.2 million , and when the unused portion exceedsCAD60.0 million , or$45.2 million , a fee of 0.40% on the firstCAD25.0 million , or$18.8 million , of the unused portion and a fee of 0.55% per annum on the remaining unused commitment. As of bothNovember 30, 2019 and 2018, there was no outstanding balance under this arrangement. SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment ofJPY15.0 billion or$137.0 million . The credit agreement is comprised of aJPY7.0 billion , or$63.9 million , term loan and aJPY8.0 billion , or$73.1 million , revolving credit facility and expires inNovember 2021 . The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin, which is based on our consolidated leverage ratio, and currently equals 0.70% per annum. The unused line fee on the revolving credit facility is currently 0.10% per annum based on our consolidated current leverage ratio. The term loan can be repaid at any time prior to the expiration date without penalty. We have guaranteed the obligations of SYNNEXJapan under this facility. As ofNovember 30, 2019 and 2018, the balances outstanding under the term loan component of these facilities were$63.9 million and$61.7 million , respectively. Balances outstanding under the revolving credit facilities were$5.9 million and$20.3 million as ofNovember 30, 2019 and 2018, respectively. One of our subsidiaries inMexico maintains a United States Dollars denominated$40.0 million revolving credit facility with a financial institution (the "LATAM facility") that matures inFebruary 2020 . We guarantee the obligations under this credit facility. The interest rate on this facility ranges from 10.12% to 10.85%. There were no borrowings outstanding under the LATAM facility as of eitherNovember 30, 2019 or 2018. The Indian subsidiaries of our Concentrix segment have credit facilities with a financial institution to borrow up to an aggregate amount of$22.0 million . The interest rate under these facilities is the higher of the bank's minimum lending rate or LIBOR, plus a margin of 0.9% per annum. We guarantee the obligations under these credit facilities. These credit facilities can be terminated at any time by our Indian subsidiaries or the financial institution. There were no borrowings outstanding under these credit facilities as of eitherNovember 30, 2019 or 2018. 38
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Inthe United States , we have a senior secured credit agreement (as amended, theU.S. Credit Agreement) with a group of financial institutions. TheU.S. Credit Agreement includes a$600.0 million commitment for a revolving credit facility and a term loan in the original principal amount of$1.2 billion . We can request incremental commitments to increase the principal amount of the revolving line of credit or term loan by$500.0 million , plus an additional amount which is dependent upon our pro forma first lien leverage ratio, as calculated under theU.S. Credit Agreement. TheU.S. Credit Agreement matures inSeptember 2022 . The outstanding principal amount of the term loan is repayable in quarterly installments of$15.0 million , with the unpaid balance due in full on theSeptember 2022 maturity date. The term loan can be repaid at any time prior to the maturity date without penalty. Interest on borrowings under theU.S. Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 2.00% and the margin for base rate loans ranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) the Federal Funds Rate, plus a margin of 0.50%, (b) the rate of interest announced, from time to time, by the agent,Bank of America, N.A ., as its "prime rate," and (c) the Eurodollar Rate, plus 1.00%. The unused revolving credit facility commitment fee ranges from 0.175% to 0.30% per annum. The margins above the applicable interest rates and the revolving commitment fee for revolving loans are based on our consolidated leverage ratio, as calculated under theU.S. Credit Agreement. Our obligations under theU.S. Credit Agreement are secured by substantially all of the parent company's and itsUnited States domestic subsidiaries' assets on a pari passu basis with the interests of the lenders under theU.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of ourUnited States domestic subsidiaries. As ofNovember 30, 2019 and 2018, the balance outstanding under the term loan component of theU.S. Credit Agreement was$1.1 billion . As ofNovember 30, 2019 , the balance outstanding under the revolving line of credit component of theU.S. Credit Agreement was$25.8 million . As ofNovember 30, 2018 , there was no outstanding balance under the revolving line of credit component. In order to fund theConvergys acquisition, the related refinancing or settlement ofConvergys debt and payment of related fees and expenses, we entered into a secured term loan credit agreement onAugust 9, 2018 (the "U.S. Term Loan Credit Agreement") with a group of financial institutions, which provided for the extension of one or more term loans in an aggregate principal amount not to exceed$1.80 billion . TheU.S. Term Loan Credit Agreement matures inOctober 2023 . UntilNovember 30, 2018 , we had drawn$1.55 billion of term loans. During the fiscal year endedNovember 30, 2019 , we borrowed the remaining available amount of$0.25 billion under this facility, to settle part ofConvergys outstanding convertible debentures. The outstanding principal amount of the term loans is payable in quarterly installments of$22.5 million , with the unpaid balance due in full on the maturity date. The term loan can be repaid at any time prior to the maturity date without penalty. Interest on borrowings under theU.S. Term Loan Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 1.75% and the margin for base rate loan ranges from 0.25% to 0.75%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) 0.5% plus the greater of (x) the Federal Funds Rate in effect on such day and (y) the overnight bank funding rate in effect on such day, (b) the Eurodollar Rate plus 1.0% per annum, and (c) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate" in theU.S. During the period in which the term loans were available to be drawn, we paid term loan commitment fees. The margins above our applicable interest rates are, and the term loan commitment fee were, based on our consolidated leverage ratio as calculated under theU.S. Term Loan Credit Agreement. Our obligations under theU.S. Term Loan Credit Agreement are secured by substantially all of the parent company and certain of its domestic subsidiaries' assets on a pari passu basis with the interests of the lenders under the existingU.S. Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of our domestic subsidiaries. As ofNovember 30, 2019 and 2018, the balance outstanding under theU.S. Term Loan Credit Agreement was$1.73 billion and$1.55 billion , respectively.SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up toCAD50.0 million , or$37.6 million . Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from 0.50% to 2.25% depending on the base rate used. The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR orU.S. Base Rate. As of bothNovember 30, 2019 and 2018, there were no borrowings outstanding under this credit facility. We also maintain other local currency denominated lines of credit and accounts receivable factoring arrangements with financial institutions at certain locations outsidethe United States aggregating commitments of$27.4 million atNovember 30, 2019 . Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. Borrowings under these facilities are guaranteed by us or secured by eligible accounts receivable. As ofNovember 30, 2019 and 2018, the balances outstanding under these revolving credit facilities were$6.0 million and$5.0 million , respectively.
The maximum commitment amounts for local currency credit facilities have been
translated into United States Dollars at
Off-Balance Sheet Arrangements
We have financing programs inthe United States andJapan under which trade accounts receivable of certain customers may be sold to financial institutions. Available capacity under these programs is dependent upon the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions' willingness to purchase such receivables. AtNovember 30, 2019 and 2018, we had a total of$35.3 million and$36.5 million , respectively, of trade accounts receivable sold to and held by the financial institutions under these programs. 39
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Table of Content Covenant Compliance Our credit facilities have a number of covenants and restrictions that, among other things, require us to maintain specified financial ratios and satisfy certain financial condition tests. They also limit our ability to incur additional debt, make intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens, cancel debt owed to us, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As ofNovember 30, 2019 , we were in compliance with all material covenants for the above arrangements.
Contractual Obligations
Our contractual obligations consist of future payments due under our loans and repatriation tax under the TCJA, which are already recorded on our Consolidated Balance Sheet. In addition, our contractual obligations include interest on our debt and payments for our operating lease arrangements and guarantees. The following table summarizes our contractual obligations atNovember 30, 2019 : Payments Due by Period Less than 1 - 3 3 - 5 > 5 Total 1 Year Years Years Years (in thousands) Contractual Obligations: Principal debt payments$ 3,025,688 $ 298,969 $ 1,264,220 $ 1,462,499 $ - Interest on debt 360,706 113,671 198,827 48,208 - Repatriation tax under the TCJA 73,493 6,391 12,781 34,350 19,971 Non-cancellable operating leases 755,226 213,649 307,389 162,837 71,351 Total$ 4,215,113 $ 632,680 $ 1,783,217 $ 1,707,894 $ 91,322 Principal debt payments assumes the repayment of our revolving lines of credit within a year. Interest on debt, in the table above, includes estimated interest on our term loans and revolving credit facilities at rates of interest applicable at the end of our fiscal year. We are contingently liable under agreements, without expiration dates, to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by our customers. There have been no repurchases throughNovember 30, 2019 under these agreements and we are not aware of any pending customer defaults or repossession obligations. As we do not have access to information regarding the amount of inventory purchased from us still on hand with the customer at any point in time, our repurchase obligations relating to inventory cannot be reasonably estimated. As ofNovember 30, 2019 and 2018, accounts receivable subject to flooring arrangements were$69.6 million and$84.7 million , respectively. For more information on our third-party revolving short-term financing arrangements, see Note 9 -- Accounts Receivable Arrangements to the Consolidated Financial Statements included in Part II, Item 8 of this Report.
As of
As we are unable to reasonably predict the timing of settlement of these guarantees and the reserve for unrecognized tax benefits, the table above excludes such liabilities.
Related Party Transactions
We have a business relationship with MiTAC Holdings, a publicly-traded company inTaiwan , which began in 1992 when MiTAC Holdings became our primary investor through its affiliates. As of bothNovember 30, 2019 and 2018, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock. Mr.Matthew Miau , the Chairman Emeritus of our Board of Directors and a director, is the Chairman of MiTAC Holdings' and a director or officer of MiTAC Holdings' affiliates.
The shares owned by MiTAC Holdings are held by the following entities:
As of November 30, 2019
(shares in thousands)
MiTAC Holdings(1) 5,240
Synnex Technology International Corp.(2) 3,860
Total 9,100
(1) Shares are held via Silver Star Developments Ltd. , a wholly-ownedsubsidiary of MiTAC Holdings. Excludes 188 thousand shares held directly by
Mr. Miau , 217 thousand shares indirectly held byMr. Miau through a charitable remainder trust, and 187 shares held by his spouse.
(2) Synnex Technology International Corp. ("
is a separate entity from us and is a publicly-traded corporation in
Taiwan . Shares are held via Peer Development Ltd. , a wholly-owned
subsidiary of Synnex Technology International. MiTAC Holdings owns a
noncontrolling interest
40
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of 8.7% in
turn holds a noncontrolling interest of 14.4% in Synnex Technology
International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any
person(s), entity, or entities that hold a majority interest in MiTAC
Incorporated .
MiTAC Holdings generally has significant influence over us regarding matters
submitted to stockholders for consideration, including any merger or acquisition
of ours. Among other things, this could have the effect of delaying, deterring
or preventing a change of control over us.
We purchased inventories and services from MiTAC Holdings and its affiliates
totaling $173.4 million and $217.4 million during fiscal years 2019 and 2018,
respectively. Our sales to MiTAC Holdings and its affiliates during fiscal years
2019 and 2018 totaled $0.8 million and $2.4 million , respectively. In addition,
we made payments of $41 thousand to MiTAC Holdings and its affiliates for
reimbursement of rent and overhead costs for facilities used by us during fiscal
year ended November 30, 2019 . During fiscal year ended November 30, 2018 , we
received reimbursement of rent and overhead costs for MiTAC Holdings and its
affiliates amounting to $0.1 million .
Our business relationship with MiTAC Holdings and its affiliates has been
informal and is generally not governed by long-term commitments or arrangements
with respect to pricing terms, revenue or capacity commitments. We negotiate
pricing and other material terms on a case-by-case basis with MiTAC Holdings. We
have adopted a policy requiring that material transactions with MiTAC Holdings
or its related parties be approved by our Audit Committee, which is composed
solely of independent directors. In addition, Mr. Miau's compensation is
approved by the Nominating and Corporate Governance Committee , which is also
composed solely of independent directors.
Synnex Technology International is a publicly-traded corporation in Taiwan that
currently provides distribution and fulfillment services to various markets in
Asia and Australia , and is also our potential competitor. MiTAC Holdings and its
affiliates are not restricted from competing with us.
Recently Issued Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements see Note 2 -- Summary of Significant Accounting Policies to the Consolidated Financial Statements, which can be found under Item 8 of this Report.
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