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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Aug. 31, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Concentration of credit risk

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

The Company’s cash and cash equivalents and derivative instruments are transacted and maintained with financial institutions with high credit standing, and their compositions and maturities are regularly monitored by management. Through August 31, 2019, the Company had not experienced any credit losses on such deposits and derivative instruments.

Accounts receivable include amounts due from customers, including related party customers. Receivables from vendors, net, includes amounts due from original equipment manufacturer (“OEM”) vendors primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for potential credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of its receivable portfolio, the existence of a limited amount of credit insurance and specifically identified customer and vendor risks. Through August 31, 2019, such losses have been within management’s expectations.

One customer accounted for 21% and 19% of the Company’s total revenue during the three and nine months ended August 31, 2019. The same customer accounted for 16% and 17% (as adjusted) of the Company's total revenue during the three and nine months ended August 31, 2018, respectively. Products purchased from the Company’s largest OEM supplier, HP Inc., accounted for approximately 12% of total revenue during both the three and nine months ended August 31, 2019 and approximately 13% (as adjusted) of total revenue during both the three and nine months ended August 31, 2018.

As of August 31, 2019 and November 30, 2018, one customer comprised 21% and 11% (as adjusted), respectively, of the total accounts receivable balance.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is computed based on the weighted-average method. Inventories are comprised of finished goods and work-in-process. Finished goods include products purchased for resale, system components purchased for both resale and for use in the Company’s systems design and integration business and completed systems. Work-in-process inventories are not material to the Consolidated Financial Statements.

Reclassification

Reclassifications

Certain reclassifications have been made to prior period amounts in the Consolidated Balance Sheets, the Consolidated Statements of Cash Flows and the notes thereto to conform to current period presentation. These reclassifications had no effect on total current assets, total assets, total current liabilities, total liabilities or cash flows from operating, investing or financing activities as previously reported. In addition, refer below for the impact of reclassifications made due to adoption of new accounting pronouncements.

Recently adopted and issued accounting pronouncements

Recently adopted accounting pronouncements

In June 2018, the Financial Accounting Standard Board (the “FASB”) issued new guidance which simplifies the accounting for share-based compensation issued to non-employees by making the guidance substantially the same as the accounting for employee share-based compensation. The Company adopted the guidance during its first quarter ended February 28, 2019. The guidance did not have a material impact on the Company’s consolidated financial results for the three and nine months ended August 31, 2019, nor is it likely to have a material impact for the remainder of the fiscal year.

In January 2016, the FASB issued new guidance which amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. With respect to the Company’s consolidated financial statements, the most significant impact relates to the accounting for equity investments (other than those that are consolidated or accounted under the equity method) which are measured at fair value through earnings. The Company adopted the guidance as of December 1, 2018, by means of a cumulative-effect adjustment to the balance sheet, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. This resulted in a reclassification of net unrealized gains of $1,955 from accumulated other comprehensive income (loss) (“AOCI”) to retained earnings. The Company has elected to use the measurement alternative for non-marketable equity securities, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment. The adoption of this guidance increases the volatility of other income (expense), net, as a result of the remeasurement of equity securities; however, the adoption did not have a material impact on the Company’s consolidated financial results for the three and nine months ended August 31, 2019, nor is it likely to have a material impact for the remainder of the fiscal year.

In May 2014, the FASB issued a comprehensive new revenue recognition standard for contracts with customers with amendments in 2015 and 2016, codified as Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company adopted the guidance effective December 1, 2018 on a full retrospective basis to ensure a consistent basis of presentation within the Company’s consolidated financial statements for all periods reported. In addition, the Company elected the one year practical expedient for contract costs.

The primary impact of adoption in the Technology Solutions segment relates to the application of gross versus net indicators. In addition, the Company is recognizing revenue earlier on certain arrangements with acceptance provisions due to the determination of when transfer of control occurs. The Company also reclassified certain amounts on the consolidated balance sheet related to sales returns and allowances, from a reduction of accounts receivable to other accrued liabilities, as these amounts represent refund liabilities to customers. Similarly, the Company reclassified certain amounts for the Company's right to recover assets from customers related to sales returns, from inventories to other current assets. The Company also presented receivables from customers separately from other receivables. The impact of adoption is not material to the Concentrix segment and relates primarily to the capitalization of certain sales commissions that are assessed to be incremental for obtaining new contracts. Such costs are amortized over the period of expected benefit rather than being expensed as incurred as was the Company’s prior practice. Prior periods were not adjusted as the amounts were not material to the Company’s consolidated financial statements.

The effects of adoption on the Company’s Consolidated Balance Sheet as of November 30, 2018, the Company’s Consolidated Statements of Operations for the three and nine months ended August 31, 2018, and the Company’s Consolidated Statement of Cash Flows for the nine months ended August 31, 2018 were as follows:

	As of November 30, 2018
Consolidated Balance Sheet Caption	As reported		Adjustments for ASC Topic 606			As adjusted
Assets
Accounts receivable, net⁽¹⁾	$	3,855,431	$	(215,000	)	$	3,640,431
Receivables from vendors, net		—		351,744			351,744
Inventories		2,518,319		(125,760	)		2,392,559
Other current assets⁽¹⁾		261,536		52,080			313,616
Liabilities and Stockholders' Equity
Other accrued liabilities	$	613,449	$	59,186		$	672,635
Deferred tax liabilities		206,024		892			206,916
Retained earnings		2,195,635		2,986			2,198,621

(1)

Amounts “As adjusted” may not agree to the Consolidated Balance Sheet due to other reclassifications to conform to current period presentation.

	Three Months Ended August 31, 2018									Nine Months Ended August 31, 2018
Consolidated Statement of Operations	As reported			Adjustments for ASC Topic 606			As adjusted			As reported			Adjustments for ASC Topic 606			As adjusted
Revenue:
Products	$	4,419,097		$	(84,342	)	$	4,334,755		$	12,954,255		$	(207,664	)	$	12,746,591
Services		487,513			—			487,513			1,477,308			—			1,477,308
Total revenue		4,906,610			(84,342	)		4,822,268			14,431,562			(207,664	)		14,223,898
Cost of revenue:
Products		(4,165,118	)		81,289			(4,083,829	)		(12,228,350	)		204,239			(12,024,111	)
Services		(308,322	)		—			(308,322	)		(926,998	)		—			(926,998	)
Gross profit		433,170			(3,053	)		430,117			1,276,215			(3,425	)		1,272,790
Selling, general and administrative expenses		(316,274	)		—			(316,274	)		(923,449	)		—			(923,449	)
Operating income		116,896			(3,053	)		113,843			352,766			(3,425	)		349,341
Interest expense and finance charges, net		(20,058	)		—			(20,058	)		(53,884	)		—			(53,884	)
Other income (expense), net		(872	)		—			(872	)		(3,497	)		—			(3,497	)
Income before income taxes		95,966			(3,053	)		92,913			295,385			(3,425	)		291,960
Provision for income taxes		(26,675	)		702			(25,973	)		(107,968	)		787			(107,181	)
Net income	$	69,291		$	(2,351	)	$	66,940		$	187,417		$	(2,638	)	$	184,779
Earnings per common share:
Basic	$	1.75		$	(0.06	)	$	1.69		$	4.70		$	(0.06	)	$	4.64
Diluted	$	1.74		$	(0.06	)	$	1.68		$	4.67		$	(0.06	)	$	4.61

	Nine Months Ended August 31, 2018
Consolidated Statement of Cash Flows Caption	As reported			Adjustments for ASC Topic 606			As adjusted
Cash flows from operating activities:
Net income	$	187,417		$	(2,638	)	$	184,779
Adjustments to reconcile net income to cash used in operating activities:
Deferred income taxes		(27,785	)		(788	)		(28,573	)
Changes in operating assets and liabilities, net of acquisition of businesses:
Accounts receivables, net		(153,462	)		70,195			(83,267	)
Receivables from vendors, net		—			(55,829	)		(55,829	)
Inventories		115,245			(11,863	)		103,382
Other operating assets and liabilities		56,632			923			57,555
Net cash used in operating activities		(40,385	)		—			(40,385	)

Refer to Note 3 for additional information, including changes in accounting policies relating to revenue recognition.

Recently issued accounting pronouncements

In August 2018, the FASB issued new guidance to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The amendment requires the Company to disclose the weighted-average interest crediting rates used in cash balance pension plans. It also requires the Company to disclose the reasons for significant changes in the benefit obligation or plan assets including significant gains and losses affecting the benefit obligation for the period. This standard is effective for fiscal years ending after December 15, 2020, on a retrospective basis, and early adoption is permitted. The adoption is not expected to have a material impact on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued guidance to improve the effectiveness of fair value measurement disclosures by removing or modifying certain disclosure requirements and adding other requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Certain amendments should be applied prospectively, while all other amendments should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of the new guidance.

In February 2018, the FASB issued guidance that permits the Company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of 2017 to retained earnings. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the new guidance.

In June 2016, the FASB issued a new credit loss standard that replaces the incurred loss impairment methodology in current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. It is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal years beginning after December 15, 2018 is permitted. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company is currently evaluating the impact of the new guidance.

In February 2016, the FASB issued a new standard which revises various aspects of accounting for leases. The most significant impact to the Company’s Consolidated Financial Statements relates to the recognition by a lessee of a right-of-use asset and a lease liability for virtually all of its leases other than short-term leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will primarily depend on its classification. For income statement purposes, operating leases will result in a straight-line expense while finance leases will result in a front-loaded expense pattern. This accounting standard will be applicable to the Company at the beginning of its first quarter of fiscal year 2020 using a modified retrospective approach and early adoption is permitted. The Company expects that most of its operating lease commitments will be subject to the new standard and be recognized as operating lease liabilities and right-of-use assets upon adoption. The Company is currently evaluating the impact of the adoption of this new standard on its Consolidated Financial Statements.

Revenue Recognition

The Company generates revenue primarily from (i) the sale of various IT products through its Technology Solutions business unit and (ii) the provision of business outsourcing services focused on customer engagement through its Concentrix business unit. The Company accounts 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. The Company generally invoices a customer upon shipment, 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. Revenue is presented net of taxes collected from customers and remitted to government authorities. All revenue is generated from contracts with customers.

Products revenue represents revenue from the Company’s Technology Solutions segment and services revenue represents revenue from the Company’s Concentrix segment.

Technology Solutions

The Company recognizes revenues from the sale of IT hardware and software as control is transferred to customers, which is at the point in time when the product is shipped or delivered. Products sold by the Company are delivered via shipment from the Company’s facilities, drop-shipment directly from the vendor, or by electronic delivery of keys for software products. Binding purchase orders from customers together with agreement to the Company's 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 the Company can objectively verify the products comply with specifications underlying acceptance and the customer has control of the goods.

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 by the Company. 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.

The Company recognizes revenue on a net basis on certain contracts, where the Company’s 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 the Company does 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 the Company’s consolidated revenue or its “Products” or “Services” revenue, include supplier service contracts, post-contract software support services and extended warranty contracts.

The Company considers 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.

Concentrix

The Company recognizes revenue from services contracts over time as the promised services are delivered to customers for an amount that reflects the consideration to which the Company is entitled in exchange for those services. Service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output. The Company determines 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). The Company records 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. The Company applies 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 customer 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. Customer contract terms can range from less than one year to more than five years.

Certain customer contracts include incentive payments from the customer upon achieving certain agreed-upon service levels and performance metrics or service level agreements that could result in credits or refunds to the customer. Revenue relating to such 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.