Forward-Looking Statements

When used in this Quarterly Report on Form 10-Q or 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, expected benefits and developments of our services and operations, potential effects of the economic environment, anticipated benefits of our acquisitions, impact of our acquisitions on our financial position, the sale of our interest in China Civilink (Cayman), our revenue and operating results, economic and industry trends, thefts at our warehouses, our gross margins, our agreements with MiTAC International, our relationship with MiTAC International and Sun Microsystems, competition with Synnex Technology International, our estimates regarding our capital requirements and our needs for additional financing, concentration of products and customers, the expansion of our operations, our international operations, our strategic acquisitions of businesses and assets, effect of future expansion on our operations, adequacy of our cash resources to meet our capital needs, adequacy of our disclosure controls and procedures, dependency on personnel, pricing pressures, competition, our effective tax rates, impact of rules and regulations affecting public companies, impact of our accounting policies, and statements regarding our securitization program. 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 below, as well as the seasonality of the buying patterns of our customers, the concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT industry, fluctuations in general economic conditions and the risks set forth below 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, serving resellers, retailers and original equipment manufacturers, or OEMs, in multiple regions around the world. We provide services in distribution, contract assembly and global business services, or GBS. We operate in two segments, distribution services segment and GBS segment. Our distribution services segment distributes computer systems and complementary products to a variety of customers, including value-added resellers or VARs, system integrators and retailers, and provides assembly services to OEMs, including integrated supply chain management, build-to-order and configure-to-order system configurations, materials management and logistics. Our GBS segment offers a range of services to our customers that include customer management, software development, web hosting, web development, hosted software, domain name registration, and back office processing on a global platform. We deliver these services through various methods including voice, chat, web, email, and digital print. We also sell products complementary to these service offerings in China.

We bring synergy to our customers' business process services requirements. By bringing supply chain management, contract assembly and distribution expertise together under one service provider, the result is high quality products assembled at a lower cost with industry-leading components delivered efficiently and on time. Our business model is flexible and modular to accommodate the specific needs of our customers. To further enhance our business process services solutions, we provide value-added support services such as demand generation, pre-sales support, product marketing, print and fulfillment, back office outsourcing, post-sales technical support, web development, web hosting and domain name registration services.

We combine our core strengths in distribution, demand generation, supply chain management, and contract assembly in an effort to help our customers achieve efficient time to market, cost minimization, real-time linkages in the supply chain and aftermarket product support. As of August 31, 2009, we distributed approximately 15,000 technology products, as measured by active SKUs, from more than 100 IT OEM suppliers to more than 15,000 resellers, system integrators, and retailers throughout the United States, Canada and Mexico. As of August 31, 2009, we had over 7,000 full-time and temporary employees worldwide with operations in the United States, Canada, China, Mexico, Japan, the Philippines and the United Kingdom. From a geographic perspective, approximately 98% of our total revenue was from North America for the three and nine months ended August 31, 2009.

We purchase IT systems, peripherals, system components, packaged software and networking equipment from OEM suppliers such as Hewlett-Packard Company, or HP, Panasonic, Seagate and Lenovo and sell them to our reseller customers. We perform the same function for our purchases of licensed software products. Our reseller customers include VARs, corporate resellers, government resellers, system integrators, direct marketers and retailers. Products purchased from our largest OEM supplier, HP, accounted for approximately 35% of our total revenue for each of the three and nine months ended August 31, 2009.

The distribution and contract assembly industries in which we operate are characterized by low gross profit as a percentage of revenue, or gross margin, and low income from operations as a percentage of revenue, or operating margin. The market for IT products and services is generally characterized by declining unit prices and short product life cycles. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide.

In our distribution segment, we are highly dependent on the end-market demand for IT products and services. This end-market demand is influenced by many factors including the introduction of new IT products and software by OEMs, replacement cycles for existing IT products, overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT industry or increased price-based competition.

Recent Acquisitions and Divestitures

We seek to augment our services offering with strategic acquisitions of businesses and assets that complement and expand our GBS capabilities. We also divest businesses that we deem not strategic to our ongoing operations. Our historical acquisitions have brought us new reseller customers, retail customers and OEM suppliers, extended the geographic reach of our operations, particularly targeted in international markets, and 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.

In the first nine month period of fiscal year 2009, we made two acquisitions in our GBS segment. Through these acquisitions, we acquired web development services and complementary products for a total consideration of approximately $6.6 million.

The above acquisitions, individually and in the aggregate, did not meet the conditions of a material business combination and were not subject to the disclosure requirements of Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations."

On September 28, 2009, we signed a definitive agreement to sell our controlling interest in China Civilink (Cayman), which operates in China as HiChina Web Solutions, which provides domain name registration, web site hosting and design, to Alibaba.com Limited. Under the terms of the agreement, we will receive approximately $60 million for our estimated 79% controlling ownership in HiChina Web Solutions, subject to a 10% holdback. We have agreed to guarantee the obligations of the holding company that sold HiChina Web Solutions. HiChina Web Solutions is a part of our GBS segment. The transaction is expected to close before the end of calendar year 2009. The closing is contingent upon the completion of certain statutory and governmental requirements.

Building Acquisition

On July 30, 2009, we completed the purchase of a previously leased administrative and warehouse facility in Fremont, California. The facility is approximately one hundred twenty eight thousand square feet. The total purchase price for this facility was approximately $12.2 million.

Restructuring Charges

In fiscal year 2007, in connection with the acquisition of Redmond Group of Companies, or RGC, we announced a restructuring program in Canada under Emerging Issues Task Force, or EITF, No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," or EITF No. 95-3. During the three months ended August 31, 2009, we recorded an additional restructuring accrual of $0.6 million for the remaining lease obligations on the RGC facility. The balance outstanding for facility and exit costs as of August 31, 2009 and November 30, 2008 was $0.6 million and $0.3 million, respectively.

The property located in Ontario, Canada, which was held for sale, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," was sold during the nine months ended August 31, 2009 for $1.6 million at a loss of $0.05 million.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and estimates for the three and nine month periods ended August 31, 2009 from our disclosure in our Annual Report on Form 10-K for the fiscal year ended November 30, 2008. For a discussion of the critical accounting policies, please see the discussion in our Annual Report on Form 10-K for the fiscal year ended November 30, 2008.

Results of Operations

The following table sets forth, for the indicated periods, data as percentages
of revenue:



                                             Three Months Ended                               Nine Months Ended
                                   August 31, 2009         August 31, 2008         August 31, 2009         August 31, 2008
Statements of Operations
Data:
Revenue                                     100.00 %                100.00 %                100.00 %                100.00 %
Cost of revenue                             (94.46 )                (94.48 )                (94.17 )                (94.54 )

Gross profit                                  5.54                    5.52                    5.83                    5.46
Selling, general and
administrative expenses                      (3.58 )                 (3.59 )                 (3.92 )                 (3.62 )
Income from operations before
non-operating items, income
taxes and minority interest                   1.96                    1.93                    1.91                    1.84
Interest expense and finance
charges, net                                 (0.16 )                 (0.15 )                 (0.19 )                 (0.19 )
Other income (expense), net                   0.04                   (0.09 )                  0.03                   (0.06 )

Income before income taxes
and minority interest                         1.84                    1.69                    1.75                    1.59
Provision for income taxes                   (0.68 )                 (0.61 )                 (0.63 )                 (0.57 )
Minority interest                            (0.01 )                  0.00                   (0.01 )                 (0.01 )

Net income                                    1.15 %                  1.08 %                  1.11 %                  1.01 %

Three and Nine Months Ended August 31, 2009 and 2008

Revenue



                                                 Three Months Ended                                              Nine Months Ended
                                       August 31, 2009         August 31, 2008        % Change        August 31, 2009         August 31, 2008        % Change
                                                   (in thousands)                                                 (in thousands)
Revenue                               $       2,007,163       $       2,045,689           -1.9 %     $       5,548,108       $       5,672,335           -2.2 %
Distribution Revenue                          1,977,829               2,021,109           -2.1 %             5,461,922               5,604,101           -2.5 %
GBS Revenue                                      34,514                  29,320           17.7 %               101,812                  82,795           23.0 %
Inter-Segment Elimination                        (5,180 )                (4,740 )          9.3 %               (15,626 )               (14,561 )          7.3 %

In our distribution business, we sell in excess of 15,000 (as measured by active SKUs) technology products from more than 100 IT OEM suppliers to more than 15,000 resellers, system integrators, and retailers. 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 services such as demand generation, pre-sales support, product marketing, print and fulfillment, back office IT and development outsourcing, post-sales technical support, web hosting, web development and domain name registration. The programs and customer service requirements change frequently from one period to the next and are often not comparable.

Our decrease in distribution revenue year over year for the three and nine months ended August 31, 2009, was primarily attributable to softer demand due to the current economic environment and the adverse impact of foreign exchange translation of our Canadian distribution operations.

The increase in our GBS segment revenue for the three and nine months ended August 31, 2009 was mainly due to increased business and higher call volumes in our contact centers and additional revenue generated from our smaller acquisitions.

Gross Profit



                                                      Three Months Ended                                                Nine Months Ended
                                   August 31, 2009          August 31, 2008         % Change         August 31, 2009          August 31, 2008         % Change
                                                (in thousands)                                                    (in thousands)
Gross profit                      $         111,135        $         112,899            -1.6 %      $         323,310        $         309,554             4.4 %
Percentage of revenue                          5.54 %                   5.52 %           0.4 %                   5.83 %                   5.46 %           6.8 %

Our gross profit is affected by a variety of factors, including competition, the mix and various selling prices of products and services we sell, the mix of customers to whom we sell, our sources of revenue by division, rebate and discount programs from our suppliers, freight costs, reserves for inventory losses, fluctuations in revenue and overhead costs of our contract assembly business and demand for our GBS services.

Our gross profit for the three months ended August 31, 2009 as a percentage of revenue was consistent with the prior year period. The slight increase in gross margin was the result of differences in the product mix and geographic mix, between the two periods complemented by higher utilization of resources.

Our gross profit for the nine months ended August 31, 2009 increased as a percentage of revenue by 37 basis points over the prior year primarily due to product and geographic mix, improved management of freight expenses, increased utilization of resources, and favorable foreign currency impact on inventory purchases and inventory management.

No specific products or customers, or changes in pricing strategy individually or as a group, contributed significantly to the change in gross profit.

Selling, General and Administrative Expenses



                                                         Three Months Ended                                                Nine Months Ended
                                      August 31, 2009          August 31, 2008         % Change         August 31, 2009          August 31, 2008         % Change
                                                   (in thousands)                                                    (in thousands)
Selling, general and
administrative expenses              $          71,856        $          73,394            -2.1 %      $         217,633        $         205,597             5.9 %
Percentage of revenue                             3.58 %                   3.59 %          -0.3 %                   3.92 %                   3.62 %           8.3 %

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 fees. Selling, general and administrative expenses also include costs of our facilities, utility expense, professional fees, depreciation expense on our capital equipment and buildings, bad debt expense, amortization expense on our intangible assets and marketing expenses, offset in part by reimbursements from OEM suppliers.

Selling, general and administrative expenses decreased for the three months ended August 31, 2009 both on a dollar basis as well as percentage of revenue basis from prior year quarter mainly due to a year over year decrease in personnel expense of $2.6 million, a decrease in bad debt reserves and other overhead expenses of $1.4 million, offset by an increase in deferred compensation expense of $2.2 million and an increase of $0.6 million in additional restructuring accrual for our Canadian facility. The aggregate amount of year over year selling, general and administrative expenses increase was offset in part by foreign exchange rate translation impact on expenses.

Selling, general and administrative expenses increased for the nine months ended August 31, 2009 both on a dollar basis as well as percentage of revenue basis from the prior year period mainly due to an increase in bad debt reserve of $5.4 million. The remainder of the increase was due to an increase of $4.3 million in deferred compensation expenses, an increase of $1.4 million for rent expense, an increase in personnel expenses of $1.0 million and an increase of $0.6 million in an additional restructuring accrual for the Canadian facility, offset in part by foreign exchange rate translation. The increase in the compensation and other operating costs was also partly due to the impact of our acquisitions made during the previous year, and to support the operations, offset in part by savings from reducing expenditures.

Income from Operations before Non-Operating Items, Income Taxes and Minority Interest

                                                    Three Months Ended                                          Nine Months Ended
                                    August 31, 2009       August 31, 2008      % Change         August 31, 2009       August 31, 2008      % Change
                                               (in thousands)                                              (in thousands)
Income from operations before
non-operating items, income
taxes and minority interest        $          39,279     $          39,505         -0.6 %      $         105,677     $         103,957          1.7 %
Distribution income from
operations before
non-operating items, income
taxes and minority interest        $          34,823     $          36,898         -5.6 %      $          93,384     $          94,844         -1.5 %
GBS income from operations
before non-operating items,
income taxes and minority
interest                           $           4,456     $           2,607         70.9 %      $          12,293     $           9,113         34.9 %

Our income from operations before non-operating items, income taxes and minority interest as a percentage of revenue increased to 1.96% for the three months ended August 31, 2009 compared to 1.93% from the prior year quarter.

The distribution segment income from operations before non-operating items, income taxes and minority interest as percentage of distribution revenue was 1.76% in the three months ended August 31, 2009 compared to 1.83% in the prior year primarily due to higher deferred compensation expense and changes in product and geographic mix.

The distribution segment income from operations before non-operating items, income taxes and minority interest as a percentage of distribution revenue improved to the 1.71% for the nine months ended August 31, 2009 from the prior year of 1.69%, primarily due to the improvement in gross margin in North America distribution business and management of freight costs, offset by higher deferred compensation expenses.

The GBS segment income from operations before non-operating items, income taxes and minority interest as a percentage of GBS revenue increased to 12.91% for the three months ended August 31, 2009 from the prior year quarter of 8.89%, primarily due to increased volume of business and better utilization of resources in our contact centers.

The GBS segment income from operations before non-operating items, income taxes and minority interest as a percentage of GBS revenue increased to 12.07% for the nine months ended August 31, 2009 from the prior year of 11.01%, primarily due to increased volume of business and better utilization of resources in our contact centers.

Interest Expense and Finance Charges, Net



                                                       Three Months Ended                                                   Nine Months Ended
                                   August 31, 2009           August 31, 2008          % Change          August 31, 2009           August 31, 2008          % Change
                                                (in thousands)                                                       (in thousands)
Interest expense and finance
charges, net                      $           3,095         $           3,137             -1.3 %       $          10,161         $          10,614             -4.3 %
Percentage of revenue                          0.16 %                    0.15 %            6.7 %                    0.19 %                    0.19 %            0.0 %

Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our lines of credit, senior convertible notes, other debt, 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 and financing income from our Mexico operation.

Interest expense and finance charges, net, for the three months ended August 31, 2009 was consistent with the comparable quarter in the prior year. Lower interest expense resulting from lower borrowings and lower interest rates were offset by lower interest income from our Mexico project based operations.

The decrease in interest expense and finance charges, net, for the nine months ended August 31, 2009 compared to the prior year period was approximately $0.5 million as a result of lower borrowings and lower interest rates which was offset by a charge of approximately $0.9 million for the partial write-off of unamortized debt costs associated with the refinancing of our working capital lines in the United States in January 2009, in Canada in May 2009 and the repayment by our subsidiary SYNNEX de Mexico, S.A.d.e C.V. of its secured term loan in August 2009.

Other Income (Expense), Net



                                                     Three Months Ended                                                   Nine Months Ended
                                 August 31, 2009           August 31, 2008          % Change          August 31, 2009           August 31, 2008          % Change
                                               (in thousands)                                                      (in thousands)
Other income (expense), net      $            727         $          (1,787 )         -140.7 %       $           1,750         $          (3,252 )          153.8 %
Percentage of revenue                        0.04 %                    0.09 %          -55.6 %                    0.03 %                    0.06 %          -50.0 %

Amounts recorded as other income (expense), 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 (expense), net for the three months ended August 31, 2009 compared to the prior year quarter was due to increased gains of $2.2 million on trading securities related to our deferred compensation program and increased foreign exchange gains.

The increase in other income (expense), net for the nine months ended August 31, 2009 compared to the prior year period was due to increased gains of $5.3 million on trading securities related to our deferred compensation program offset by foreign exchange losses. For the nine months ended August 31, 2008 approximately $1.3 million other-than-temporary impairment loss was recorded on our cost and available-for-sale securities.

Provision for Income Taxes

Our effective tax rate in the three months ended August 31, 2009 was 36.8% and for the nine months ended August 31, 2009 was 35.8% compared with an effective tax rate of 35.9% and 35.8% in the three and nine months ended August 31, 2008, respectively. The increase in the effective tax rate was primarily due to the expiration of tax holidays and additional valuation allowances recorded in certain foreign jurisdictions.

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 . . .