UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X/
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
or
/ /
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to ___________.
Commission File Number: 0-25092
INSIGHT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
86-0766246
(IRS Employer
Identification No.)
6820 South Harl Avenue, Tempe, Arizona 85283
(Address of principal executive offices, Zip Code)
Registrant’s telephone number, including area code: (480) 333-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.01
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
n/a
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes X
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to post such files).
Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer X Accelerated filer Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. / /
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No X
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the
closing price of the registrant’s common stock as reported on The Nasdaq Global Select Market on June 30, 2017, the last business
day of the registrant’s most recently completed second fiscal quarter, was $1,410,322,331.
The number of shares outstanding of the registrant’s common stock on February 15, 2018 was 35,836,320.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to its 2018 Annual Meeting of Stockholders have been incorporated by
reference into Part III, Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K.
INSIGHT ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2017
TABLE OF CONTENTS
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART I
Business .................................................................................
Risk Factors ............................................................................
Unresolved Staff Comments .......................................................
Properties ...............................................................................
Legal Proceedings ....................................................................
Mine Safety Disclosures.............................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities .........................
Selected Financial Data .............................................................
Management’s Discussion and Analysis of Financial Condition
and Results of Operations ..........................................................
Quantitative and Qualitative Disclosures About Market Risk ............
Financial Statements and Supplementary Data .............................
Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ............................................
Controls and Procedures ............................................................
Other Information ....................................................................
PART III
Directors, Executive Officers and Corporate Governance ................
Executive Compensation ...........................................................
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ..............................
Certain Relationships and Related Transactions, and
Director Independence ..............................................................
Principal Accounting Fees and Services ........................................
ITEM 15.
ITEM 16.
PART IV
Exhibits, Financial Statement Schedules .....................................
Form 10-K Summary ...............................................................
EXHIBITS TO FORM 10-K ..............................................................................
SIGNATURES .............................................................................................
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INSIGHT ENTERPRISES, INC.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including statements in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report, are forward-
looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-
looking statements may include: projections of matters that affect net sales, gross profit, gross margin,
operating expenses, earnings from operations, non-operating income and expenses, net earnings or cash flows,
cash needs and the payment of accrued expenses and liabilities; the expected effects of seasonality on our
business; expectations of further consolidation in the Information Technology (“IT”) industry; our business
strategy and our strategic initiatives, including our efforts to grow our core business, develop and grow our
global cloud business and build scalable solutions; expectations regarding partner incentives; our expectations
about future benefits of our acquisitions and our plans related thereto, including potential expansion into wider
regions; the increasing demand for big data solutions; the availability of competitive sources of products for our
purchase and resale; our intentions concerning the payment of dividends; our acquisition strategy; our ability to
offset the effects of inflation and manage any increase in interest rates; projections of capital expenditures; our
plan to migrate EMEA’s IT system; the sufficiency of our capital resources, the availability of financing and our
needs or plans relating thereto; the effects of new accounting principles and expected dates of adoption; the
effect of indemnification obligations; projections about the outcome of ongoing tax audits; adequate provisions
for and our positions and strategies with respect to ongoing and threatened litigation; our exposure to derivative
counterparty concentration and non-performance risks; our ability to expand our client relationships; our
expectations that pricing pressures in the IT industry will continue; our plans to use cash flow from operations
for working capital, to pay down debt, repurchase shares of our common stock, make capital expenditures, and
fund acquisitions; our belief that our office facilities are adequate and that we will be able to extend our current
leases or locate substitute facilities on satisfactory terms; our expectations that working capital trends will return
to normalized levels; our belief that we have adequate provisions for losses; our expectation that we will not
incur interest payments under our inventory financing facility; our compliance with leverage ratio requirements;
our exposure to off-balance sheet arrangements; statements of belief; and statements of assumptions
underlying any of the foregoing. Forward-looking statements are identified by such words as “believe,”
“anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will,” “may” and variations of such words and
similar expressions and are inherently subject to risks and uncertainties, some of which cannot be predicted or
quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. There can be no assurances that results described in forward-
looking statements will be achieved, and actual results could differ materially from those suggested by the
forward-looking statements. Some of the important factors that could cause our actual results to differ
materially from those projected in any forward-looking statements include, but are not limited to, the following:
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actions of our competitors, including manufacturers and publishers of products we sell;
our reliance on our partners for product availability, competitive products to sell and marketing funds
and purchasing incentives, which can change significantly in the amounts made available and the
requirements year over year;
changes in the IT industry and/or rapid changes in technology;
risks associated with the integration and operation of acquired businesses;
possible significant fluctuations in our future operating results;
the risks associated with our international operations;
general economic conditions;
increased debt and interest expense and decreased availability of funds under our financing facilities;
the security of our electronic and other confidential information;
disruptions in our IT systems and voice and data networks;
failure to comply with the terms and conditions of our commercial and public sector contracts;
legal proceedings and client audits and failure to comply with laws and regulations;
accounts receivable risks, including increased credit loss experience or extended payment terms with
our clients;
our reliance on independent shipping companies;
our dependence on certain key personnel;
natural disasters or other adverse occurrences;
exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations;
and
intellectual property infringement claims and challenges to our registered trademarks and trade names.
Any forward-looking statements in this report, including those identified under “Risk Factors” in Part I, Item
1A of this report, should be considered in light of various important factors, including the risks and uncertainties
listed above, as well as others. Additionally, there are risks described from time to time in the reports that we
file with the Securities and Exchange Commission. We assume no obligation to update, and, except as may be
required by law, do not intend to update, any forward-looking statements. We do not endorse any projections
regarding future performance that may be made by third parties.
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PART I
Item 1. Business
Our Company
Insight Enterprises, Inc. (“Insight” or the “Company”) is a Fortune 500 global IT provider helping
businesses of all sizes – from small and medium sized firms to worldwide enterprises, governments,
schools and health care organizations – define, architect, implement and manage Intelligent Technology
SolutionsTM in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). We
empower our clients to manage their IT environments so they can drive meaningful business outcomes
today and transform their operations for tomorrow.
The Company is organized in the following three operating segments, which are primarily defined by
their related geographies:
Operating Segment* Geography
North America
United States and Canada
Consolidated Net Sales
77%
EMEA
APAC
Europe, Middle East and Africa
Asia-Pacific
20%
3%
% of 2017
* Additional detailed segment and geographic information can be found in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7 and in Note 20 to the Consolidated Financial Statements
in Part II, Item 8 of this report.
This year, 2018, marks 30 years of doing business for Insight. Across three decades, we have evolved
with the industry. Each strategic pivot has been made in pursuit of helping our clients run their
businesses smarter. Insight began operations in Arizona in 1988, incorporated in Delaware in 1991 and
completed its initial public offering in 1995. Our corporate headquarters are located in Tempe, Arizona.
From our original location in the United States, we expanded nationwide and then entered Canada in 1997
and the United Kingdom in 1998. Through a combination of acquisitions and organic growth, we
continued to increase our geographic coverage and expand our technical capabilities. Our major
acquisitions were as follows:
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2006 – Acquired Software Spectrum, Inc., and expanded our footprint in EMEA and APAC and
strengthened our software and related services capabilities;
2008 – Acquired Calence, LLC in North America and MINX Limited in the United Kingdom, and
enhanced our global technical expertise around higher-end networking and communications
technologies, as well as managed services and security;
2011 – Acquired Ensynch, Inc. (“Ensynch”) and enhanced our professional services capabilities
across the complete Microsoft solution set, including cloud migration and management;
2012 – Acquired Inmac GmbH and Micro Warehouse BV (“Inmac”) and expanded our hardware
capabilities into key markets in our existing European footprint, specifically in Germany and the
Netherlands;
2015 – Acquired BlueMetal Architects, Inc. (“BlueMetal”), an interactive design and technology
architecture firm, and strengthened our services capabilities in the area of application design,
mobility and big data;
2016 –Acquired Ignia, Pty Ltd (“Ignia”) and expanded our global footprint in the areas of application
design, digital solutions, cloud, mobility and business analytics, while also building on our ability to
bring solutions powered by Intelligent Technology Solutions to our clients in APAC; and
2017 – On January 6, 2017, we acquired Datalink Corporation (“Datalink”), a leading provider of IT
services and enterprise data center solutions based in Eden Prairie, Minnesota, and strengthened our
position as a leading IT solutions provider with deep technical expertise delivering data center
solutions to clients on premise or in the cloud. On September 26, 2017, we acquired Caase Group
B.V. (referred to herein as, “Caase.com”), a Dutch cloud service provider, and strengthened our
ability to deliver Intelligent Technology Solutions to our clients in the Netherlands, with a view to
expanding into the wider European region in the near future.
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Our Purpose and Values
Our purpose is: “We build meaningful connections to help businesses run smarter.” We live by our
core values of Hunger, Heart and Harmony, which set the tone for our business and define who we are.
Our core values are:
(cid:120) Hunger – Our insatiable desire to create new opportunities for our clients and our business is
apparent in everything we do.
(cid:120) Heart – We seek to impact the lives of the people we serve positively by always putting our
clients, partners and teammates first.
(cid:120) Harmony – We invite perspective, and we consistently celebrate each other’s unique
contributions as we work together to bring the best solutions to our clients.
We believe that these values strengthen the overall Insight experience for our clients, partners and
teammates (we refer to our customers as “clients,” our suppliers as “partners” and our employees as
“teammates”).
Our Market
The worldwide total addressable market for information technology is forecasted to be $3.7 trillion
annually according to Gartner, a leading IT research and advisory company. Based on our analysis of
Gartner market data, we believe the top 10 most comparable global solution providers represent less than
10% of the worldwide total addressable market. We believe our addressable worldwide market in the
indirect sales IT channel represents approximately $612 billion in annual sales and for the year ended
December 31, 2017, our net sales of $6.7 billion represented approximately 1% of that highly diverse
market. We believe that we are well positioned in this highly fragmented global market with locations in
20 countries and have the capabilities to provide clients with hardware, software provisioning and related
services and solutions across the globe.
Our Value Proposition
As the IT industry evolves, our value proposition to our clients continues to evolve. The increased
complexity across the technology ecosystem, combined with the continual emergence of new trends and
offerings, has made it difficult for most clients to effectively manage their IT environments. We consult
with our clients regarding their IT hardware and software product and services needs and help our clients
define, architect, implement and manage their IT solutions.
We are well positioned to participate in the market as IT continues to transform. Our value drivers
include:
(cid:120) Deep knowledge in client-relevant solution areas
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History of adapting our business model to respond to new technology trends, including the
cloud
(cid:120) Differentiated consulting, technology and managed services offerings
Ability to scale to serve clients of all sizes and across many verticals
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Strong partner relationships with top market positions
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(cid:120) Global footprint with local presence in key markets
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Flexible capital structure to support future growth, including additional acquisitions
We believe that Insight has a unique position in the market to gain profitable market share by offering
Intelligent Technology Solutions that empower our clients to manage their IT environments so they can
drive meaningful business outcomes today and transform their operations for tomorrow.
We believe that Insight’s unique advantages include:
(cid:120) Our global scale and coverage – we have the capabilities to serve clients across the globe
with hardware, software provisioning and related services and with integrated technology
solutions in multiple countries directly or through our partner network.
(cid:120) Our operational excellence and systems – we offer a broad selection of hardware and
software products with access to billions of dollars in virtual inventory and efficient supply
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chain execution, as well as product fulfillment and logistics capabilities, management tools and
technical expertise.
(cid:120) Our software DNA – we understand complex licensing requirements and have the know-how
to optimize our clients’ usage and compliance management through a portfolio of license
consulting and optimization services.
(cid:120) Our partner alignment – we have a multi-partner approach and have deep relationships
with leading product manufacturers, software publishers and distribution partners, as well as
emerging cloud and other technology partners, to service our global portfolio of commercial
and public sector clients with the integrated IT solutions that make the most sense for their IT
environments.
(cid:120) Our data center transformation skills – in support of our long-term strategy, in January
2017, we completed the acquisition of Datalink, a leading provider of IT services and
enterprise data center solutions, adding deep technical expertise and complementary services
offerings to our internally developed solutions and increasing our addressable market
opportunity in hybrid cloud and other high-growth data center categories.
(cid:120) Our next-generation tech skills – we quickly adapt to new technology trends and
innovation and, with our acquisition of BlueMetal in 2015, continued our evolution as thought
leaders in emerging technologies that help transform our clients’ businesses.
(cid:120) Our App development and Internet-of-Things (“IoT”) expertise – we were recognized
as Microsoft’s Worldwide Partner of the Year for IoT as well as Mobile App Development in
each of the past two years and, combined with our hardware and software expertise, we are
well-positioned to deliver holistic connected product and IoT solutions.
(cid:120) Our digital platform – we have customizable client portals, primarily in North America,
which allow clients to streamline procurement and processes through a self-service online tool,
drive standardization and optimize reconciliation. We also have a best-in-class digital
marketing engine to bring scalable solutions to the mid-market.
(cid:120) Our services solutions – we can scale to help organizations of all sizes and have well-
developed services capabilities focused on four solutions areas: supply chain optimization,
connected workforce, cloud and datacenter transformation and digital innovation, that
represent the ways we help our clients with the demands they face, as discussed in more
detail below.
Our Business Strategy
Our long-term strategy remains consistent and includes three components:
(cid:120) Grow our core business;
(cid:120) Grow services sales in our key solutions areas; and
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Accelerate with cloud.
Grow our core business. We believe that our core business is strong and continues to present
opportunities for growth. We believe that Insight is uniquely positioned to help our clients manage their
business effectively today and also transform to meet their changing needs tomorrow. Our balanced
portfolio of manufacturer and publisher brands, extensive e-commerce and logistics capabilities and
differentiated services capabilities allow us to tailor our offerings based on the size and complexity of the
needs of our clients. As a global provider of integrated solutions to business and government clients, we
believe we are well-positioned relative to our competitors in several markets. Our go-to-market model
leverages both centralized and local market sales and technical and support resources to efficiently serve
and advise our clients.
In each of our geographic operating segments we are focused on driving our growth objectives by
acquiring new clients and expanding our relationships with existing clients by increasing the types of
products and services they buy from us. In North America, we have a local market presence in key cities
where we have invested in sales, technical and service delivery resources to drive growth with existing
and new clients, particularly in the large account client space. In addition, we drive expansion in specific
service/solution areas with key partners. We are also concentrating our efforts on growing our business
with mid-sized and large clients in certain vertical markets, including federal government, state and local
governments, K-12 education, healthcare and service providers, and have invested in both local market
and centralized sales resources to drive these efforts. In EMEA, we are focused on increasing our share in
the mid-market and public sector by increasing sales of software and certain hardware categories across
the business. We continue to expand our services capabilities in the region and to leverage strategic
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partner relationships and service-delivery vendors to bring software, cloud and collaboration solutions to
our clients. Our APAC operating segment, which is largely comprised of software sales, is engaged in
growing sales in the mid-market and enterprise space and in the development of specialized software
services, particularly in the areas of software license optimization and cloud.
Grow services sales in our key solutions areas. The IT market has become more complex and
clients are looking for solutions providers to help them navigate the rapidly changing environment. We
believe that our core business plus our recent strategic acquisitions provide an integrated foundation that
we can leverage to better serve our clients. We have identified four key solutions areas that capitalize on
this foundation and include robust offerings to help our clients with the demands they face. Our services
capabilities provide significant value-add to our clients, driving stronger client relationships and higher
margins. Our key solutions areas are:
(cid:120) Supply Chain Optimization – We help our clients invest smarter so they can manage today
and transform for the future. By optimizing their supply chain, we can help our clients
maximize resources and do more today so they can invest in the future.
(cid:120) Connected Workforce – We help our clients’ employees work smarter so they can manage
and transform their businesses. By connecting their workforces, we help our clients create
meaningful employee experiences that fuel productivity as well as attract and retain essential
talent.
(cid:120) Cloud and Data Center Transformation – We help our clients run workloads smarter so they
can transform business. By defining and navigating cloud and data center platforms, we help
our clients optimize and modernize their business.
(cid:120) Digital Innovation – We help our clients innovate smarter so they can create meaningful
connections with their customers. By innovating their digital business, we help our clients
monetize existing offerings, create new revenue streams and drive differentiation across their
customer experience.
Accelerate with cloud. Private, public and hybrid cloud solutions provide flexible, reliable, secure
and affordable solutions for delivering critical IT functions, such as email, data security, Infrastructure as a
Service (“IaaS”) and more. Cloud solutions have become more mainstream, and adoption continues to
increase across markets and verticals. Key market imperatives in the adoption of cloud solutions are
speed to market, flexibility, scalability and availability. We have invested in, and will continue to invest in,
technical tools and resources to provide clients with the assessment, migration, integration and managed
services required to simplify the cloud adoption decision, whether that decision results in a private, public
or hybrid cloud environment.
We also continue to invest in our global cloud management platform, which serves as a marketplace
for our clients to buy and manage their cloud subscriptions with options that enhance their Software as a
Service (“SaaS”) and IaaS management capabilities.
Components of our cloud management platform include:
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A focus on small to medium-sized clients, providing them with the ability to learn, solve, buy, and
manage cloud products and services via our online experience.
A similar online experience and capabilities for our larger enterprise clients with added IT as a
Service Broker (ITaaSB) capabilities allowing larger IT organizations to centrally provide cloud
offerings while maintaining the manageability and visibility they require.
Additionally, we have a strong global position in the service provider and independent software vendor
(ISV) market. Building on our existing capabilities in this market, we have developed a cloud portfolio for
our service provider clients to resell to their customers, offering them revenue diversification with minimal
investment. We also plan to expand our cloud management platform capabilities and deliver cloud portal
platforms that provide e-commerce and subscription management capabilities to our service provider
clients.
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Our Offerings
Our offerings in North America and certain countries in EMEA and APAC include a suite of IT hardware,
software and services solutions. Our offerings in the remainder of our EMEA and APAC segments are
largely software and certain software-related services. On a consolidated basis, hardware, software and
services represented approximately 58%, 32% and 10%, respectively, of our net sales in 2017. This
compares to 54%, 37% and 9%, respectively, of our consolidated net sales in 2016, and 54%, 38% and
8%, respectively, of our consolidated net sales in 2015. Additional detailed sales mix information by
operating segment, including a discussion of changes in our classification of certain revenue streams
during 2017, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7 and in Note 20 to the Consolidated Financial Statements in Part II, Item 8 of
this report. Prior year results were reclassified to conform to the current year presentation, resulting in
3% of our consolidated net sales being reclassified from software to services in both 2016 and 2015.
These reclassifications had no effect on consolidated total net sales.
Services Solutions Offerings
We have developed solutions that integrate hardware, software and services to help businesses run
smarter within our key solutions areas. Our core solutions include:
Supply Chain Optimization – Growing pressure on IT budgets and increasing trends in outsourcing of
non-core functions are changing what clients choose to build versus buy. We provide outsourcing
services our clients desire, including management of client infrastructure and end-user operations to
drive IT return on investment.
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Product Life Cycle: Source, procure, stage, configure, integrate, test, deploy and maintain IT
products spanning endpoints to infrastructure.
Infrastructure Management: 24x7 remote management of clients’ server/storage/network
infrastructure through our ISO-certified Remote Network Operating Center (RNOC).
Connected Workforce – The consumerization of IT, increase in the millennial population and
proliferation of alternate work models is transforming the workplace. We provide our clients’
workforce with tools to enable and enhance employee productivity and retention.
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Insight Managed Office: Desktop and notebook devices coupled with cloud-based productivity
solutions, deployed through a modern, “over the air” deployment model, managed by Insight’s
24x7 Service Desk. In addition, we see growing demand for “Device-as-a-Service.”
Insight Managed Mobility: Tablet and cellular-based devices, paired with cloud-based
applications and Insight’s 24x7 Service Desk to deliver an end-to-end managed experience
where clients can outsource their highly complex mobility environments to Insight in an as-a-
service style model.
Insight Managed Collaboration: Offerings that allow clients to outsource their highly complex
voice, conferencing and collaboration/team applications, delivering cloud-based redeployment
of modern technologies managed for our clients with both Insight’s onsite and remote Service
Desk support professionals.
Insight Managed Deployment: Service level agreement-based outsourcing of distributed
devices and technology, or edge, deployment and support. This comprises multi-site
deployments, coupled with dedicated, onsite desktop support technicians coupled with 24x7
Service Desk.
Cloud and Data Center Transformation – Consumption-based models and technology convergence are
reinventing decades-old infrastructure business models. We optimize our clients’ public and private
infrastructure to enable customer and workforce objectives best suited to their workload and business
requirements.
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Hybrid Cloud: On-premise converged infrastructure (private cloud) augmented by off-premise
public cloud integrated, managed and secured.
Intelligent Network: Core WAN, LAN, wireless and security solutions to seamlessly connect
Hybrid Cloud, Branch Infrastructure and end users.
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Digital Innovation – When interacting with their customers, our clients face growing digital
engagement and a rapid shift toward social media. We help our clients leverage technology to better
engage their customers to build loyalty and increase profitability.
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Intelligent Endpoints: Digital signage, kiosk, tablet and smartphone endpoints integrated with
off-the-shelf software applications.
Intelligent Applications: Custom-developed applications to enable client-to-customer
engagement. These applications are increasingly cloud-based and mobile-centric.
(cid:120) Modern Applications: Custom-developed mobile, cloud and IoT applications. Typically, these
applications are specific to the client vertical market, e.g., healthcare, financial services or
retail.
We have invested in cloud, mobility, big data and security capabilities and expertise to enable our key
solutions areas and continuously seek to identify client-relevant technology solutions.
Cloud. Cloud computing represents an evolution in the IT world. Cloud-based SaaS, whereby clients
subscribe to software that is hosted either by the software publisher or a dedicated third-party hosting
company, is prevalent in the Connected Workforce and Cloud and Data Center Transformation solutions
highlighted above. In addition, public IaaS and converged infrastructure private cloud represent growing
portions of Hybrid Cloud solutions. We help clients assess readiness, architect appropriate solutions and
migrate to both public and private cloud infrastructures.
Mobility. Our clients must engage differently with their customers and fully engage their workforce
whether they are at work, at home or on-the-go. We help clients do so through solutions starting with
Insight Managed Mobility, an as-a-service like Enterprise Mobility Management (EMS) solution for
employees, and modern customer-facing solutions, such as mobile Point of Sale (mPOS) and mobile
commerce applications in the retail industry as well as mobile trading applications for brokerage
customers in the financial services industry.
Big Data. Our clients are inundated with data that they struggle to interpret. We help turn this data
into actionable insights with solutions such as weather-based predictive analytics to drive weekly
marketing campaigns for consumer products and patient-based intake and health outcomes analysis to
optimize nurse staffing. We expect the proliferation of sensors for IoT will fuel this data overload and
drive further demand for these solutions.
Security. All of these solutions must be delivered without compromising customer, company or
employee private information. We offer services for identity and access management, single-sign-on
(SSO) and mobile-device-management (MDM) to protect end users. In addition, we provide network
security and Security Incident Event Management (SIEM) solutions to secure our clients’ infrastructure.
Hardware Offerings
We offer products from hundreds of manufacturers, including such industry leaders as Cisco, HP Inc.,
Lenovo, Dell, Hewlett Packard Enterprise Company (“HPE”), EMC, Microsoft, NetApp, Apple and IBM. Our
scale and purchasing power, combined with our efficient, high-volume and cost effective direct sales and
marketing model, allow us to offer competitive prices. We believe that offering choices from multiple
partners enables us to better serve our clients by providing a variety of product solutions to address their
specific business needs.
In addition to our distribution facilities, we have “direct-ship” programs with many of our partners,
including manufacturers and distributors, allowing us to expand our product offerings without increasing
inventory, handling costs or inventory risk exposure. As a result, we are able to offer billions of dollars of
products in virtual inventory in fulfilling our performance obligations to our clients. Convenience and
product options among multiple brands are key competitive advantages compared to manufacturers’
direct selling programs, which are generally limited to their own brands and may not offer clients a
complete or best-in-class solution across all product categories.
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Software Offerings
Our clients acquire software applications from us in the form of licensing agreements with software
publishers or boxed products. We offer products from hundreds of publishers, including such industry
leaders as Microsoft, Adobe, VMware, Symantec, McAfee, Citrix, IBM Software and Red Hat, as well as
newer entrants, such as Box and 8x8.
As software publishers choose different models for implementing licensing agreements, businesses
must evaluate the alternatives to ensure that they select the appropriate agreements and comply with the
publishers’ licensing terms when purchasing and managing their software licenses. In addition to software
provisioning, we offer holistic software solutions, including software licensing optimization and
implementation consulting, to help our clients better understand their software needs, evaluate their
existing software and provide options to optimize their assets.
Our Information Technology Systems
We have committed significant resources to the IT systems that we own and use to manage our
business and believe that our success is dependent upon our ability to provide prompt and efficient service
to our clients based on the accuracy, quality and utilization of the information generated by our IT
systems. Because these systems affect our ability to manage our sales, client service, partner
relationships and programs, distribution, inventories and accounting systems and our voice and data
networks, we have built redundancy into certain systems, maintain system outage policies and procedures
and have comprehensive data backup. We are focused on driving improvements in sales productivity
through upgraded IT systems to support higher levels of client satisfaction and new client acquisition, as
well as garnering efficiencies in our business.
We operate under a single, standardized IT system across North America and APAC and a separate,
single IT system platform in all countries in our EMEA operations. We plan to migrate our EMEA
operations to the same IT system used in North America and APAC.
For a discussion of risks associated with our IT systems, see “Risk Factors – Disruptions in our IT
systems and voice and data networks could affect our ability to service our clients and cause us to incur
additional expenses,” in Part I, Item 1A of this report.
Our Competition
The IT hardware, software and services industry is very fragmented and highly competitive. Our
competition includes:
(cid:120) Direct marketers and resellers, such as CDW (North America and United Kingdom), Systemax
(Europe), Softchoice, Comparex, Connection, PCM, World Wide Technology, SHI,
SoftwareONE, Computacenter, SCC, Bechtle, Cancom and Crayon;
National and regional resellers, including value-added resellers, specialty retailers,
aggregators, distributors, and to a lesser extent, national computer retailers, computer
superstores, Internet-only computer providers, consumer electronics and office supply
superstores and mass merchandisers;
Product manufacturers, such as Dell, HP Inc., IBM, Lenovo and HPE;
Software publishers, such as IBM, Microsoft and Symantec;
Systems integrators, such as Compucom Systems, Inc.;
National and global service providers, such as IBM Global Services and HP Enterprise Services;
and
E-tailers, such as Amazon Web Services (AWS), Newegg, Buy.com and e-Buyer (United
Kingdom).
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The competitive landscape in the industry is continually changing as various competitors expand their
product and services offerings. In addition, emerging models such as cloud computing are creating new
competitors and opportunities in messaging, infrastructure, security, collaboration and other services
offerings, and, as with other areas, we compete both with resellers and directly with manufacturers,
publishers or other service providers for many of these offerings. Further, many of our manufacturer and
publisher partners are also our competitors, as many sell directly to business customers, particularly
larger corporate customers.
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For a discussion of risks associated with the actions of our competitors, see “Risk Factors – The IT
hardware, software and services industry is intensely competitive, and actions of our competitors,
including manufacturers and publishers of products we sell, can negatively affect our business,” in Part I,
Item 1A of this report.
Our Partners
We partner with market leaders offering the top technology brands as well as emerging entrants in the
marketplace. During 2017, we purchased products and software from approximately 5,400 partners.
Approximately 66% (based on dollar volume) of these purchases were directly from manufacturers or
software publishers, with the balance purchased through distributors. Purchases from Microsoft accounted
for approximately 26% of our aggregate purchases in 2017. No other partner accounted for more than
10% of purchases in 2017. Our top five partners as a group for 2017 were Microsoft, Cisco Systems, Tech
Data (a distributor), Dell and HP Inc., and approximately 60% of our total purchases during 2017 came
from this group of partners. Although brand names and individual products are important to our business,
we believe that competitive sources of supply are available in substantially all of our product categories
such that, with the exception of Microsoft, we are not dependent on any single partner for sourcing
products.
During 2017, sales of Microsoft, Dell and Cisco Systems products accounted for approximately 20%,
12% and 11%, respectively, of our consolidated net sales. No other manufacturer’s products accounted
for more than 10% of our consolidated net sales in 2017. Sales of product from our top five
manufacturers/publishers as a group (Microsoft, Dell, Cisco Systems, HP Inc. and Lenovo) accounted for
approximately 59% of Insight’s consolidated net sales during 2017.
We obtain incentives from certain product manufacturers, software publishers and distribution
partners based typically upon the volume of sales or purchases of their products and services. In other
cases, such incentives may be in the form of participation in our partner programs, which may require
specific services or activities with our clients, discounts, marketing funds, price protection or rebates.
Manufacturers and publishers may also provide mailing lists, contacts or leads to us. We believe that
these incentives (or partner funding) and other marketing assistance allow us to increase our marketing
reach and strengthen our relationships with leading manufacturers and publishers.
We are focused on understanding our partners’ objectives and developing plans and programs to grow
our mutual businesses. We have invested in our digital marketing capabilities over the past two years.
These digital marketing investments increase the effectiveness of our marketing campaigns and client
interactions. Our partners are taking notice, and we are emerging as a leader in our industry as we
consistently outpace our competition in digital marketing. We implemented business intelligence tools
that enable us to track performance in this area and demonstrate the return on our partners’ investments
with us. We measure partner satisfaction regularly and hold quarterly business reviews with our largest
partners to review business results from the prior quarter, discuss plans for the future and obtain
feedback. Additionally, we host annual partner forums in North America, EMEA and APAC to articulate our
plans for the upcoming year.
As we move into new service areas, we may become even more reliant on certain partner
relationships. For a discussion of risks associated with our reliance on partners, see “Risk Factors – We
rely on our partners for product availability, competitive products to sell and marketing funds and
purchasing incentives, which can change significantly in the amounts made available and the requirements
year over year,” in Part I, Item 1A of this report.
Our Teammates
As of December 31, 2017, we employed 6,697 teammates, of whom 2,512 were engaged in sales
related activities, 2,024 were engaged in management, support services and administration activities,
2,007 were skilled, certified consulting and service delivery professionals and 154 were engaged in
distribution activities. Our teammates in the United States are not represented by a labor union. Our
workforces in certain foreign countries, such as Germany, have worker representative committees or work
councils with which we maintain strong relationships. We believe our relations with our teammates are
good, and we have never experienced a labor related work stoppage.
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For a discussion of risks associated with our dependence on certain personnel, including sales
personnel, see “Risk Factors – We depend on certain key personnel,” in Part I, Item 1A of this report.
Our Seasonality
We experience some seasonal trends in our sales of IT hardware, software and services. For example:
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software sales are typically higher in our second and fourth quarters, particularly the second
quarter;
business clients, particularly larger enterprise businesses in the United States, tend to spend
more in our fourth quarter and less in the first quarter;
sales to the federal government in the United States are often stronger in our third quarter,
while sales in the state and local government and education markets are stronger in our
second quarter; and
sales to public sector clients in the United Kingdom are often stronger in our first quarter.
These trends create overall seasonality in our consolidated results such that sales and profitability are
expected to be higher in the second and fourth quarters of the year.
Our Backlog
The majority of our backlog historically has been and continues to be open cancelable purchase
orders. We do not believe that backlog as of any particular date is predictive of future results.
Our Intellectual Property
We do not maintain a traditional research and development group, but we do develop and seek to
protect a range of intellectual property, including trademarks, service marks, copyrights, domain name
rights, trade dress, trade secrets and similar intellectual property, relying for such protection on applicable
statutes and common law rights, trade-secret protection and confidentiality and license agreements, as
applicable, with teammates, clients, partners and others to protect our intellectual property rights. Our
principal trademark is a registered mark, and we also license certain of our proprietary intellectual
property rights to third parties. We have registered a number of domain names, applied for registration of
other marks in the United States and in certain international jurisdictions, and, from time to time, filed
patent applications. We believe our trademarks and service marks, in particular, have significant value,
and we continue to invest in the promotion of our trademarks and service marks and in our protection of
them.
For a discussion of risks associated with our intellectual property, see “Risk Factors – We may not be
able to protect our intellectual property adequately, and we may be subject to intellectual property
infringement claims,” in Part I, Item 1A of this report.
Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to such reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and the reports filed pursuant to Section 16(a) of the Exchange
Act are available free of charge on our web site at www.insight.com, as soon as reasonably practicable
after we electronically file them with, or furnish them to, the Securities and Exchange Commission. The
information contained on our web site is not included as a part of, or incorporated by reference into, this
Annual Report on Form 10-K.
Item 1A. Risk Factors
The IT hardware, software and services industry is intensely competitive, and actions of our
competitors, including manufacturers and publishers of products we sell, can negatively affect
our business. Competition in the industry is based on price, product availability, speed of delivery, credit
availability, quality and breadth of product lines, and, increasingly, on the ability to provide services and
tailor specific solutions to client needs. Many of our manufacturer and publisher partners are also our
competitors, as many sell directly to business customers, particularly larger corporate customers. In
addition to the manufacturers and publishers of products we sell, we compete with a large number and
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wide variety of providers and resellers of IT hardware, software and services. We believe our industry will
see further consolidation as product resellers and direct marketers combine operations or acquire or
merge with other resellers, service providers and direct marketers to increase efficiency, service
capabilities and market share. Moreover, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to enhance their product and
service offerings. Accordingly, it is possible that new competitors or alliances among competitors may
emerge and acquire significant market share.
The competitive landscape in which we operate continues to change as new technologies are
developed. While innovation helps our business as it creates new offerings for us to sell, it can also
disrupt our business model and create new and stronger competitors. For instance, while cloud-based
solutions present an opportunity for us, cloud-based solutions and technologies that deliver technology
solutions as-a-service could increase the amount of sales directly to customers rather than through
solutions providers like us, or could reduce the amount of hardware or software we sell, leading to a
reduction in our sales and/or profitability. Accordingly, we are dependent on continued innovations by our
current vendor partners and our ability to partner with new and emerging technology providers.
Generally, pricing is very aggressive in the industry, and we expect pricing pressures to
continue. There can be no assurance that we will be able to negotiate prices as favorable as those
negotiated by our competitors or that we will be able to offset the effects of price reductions with an
increase in the number of clients, higher net sales, cost reductions, greater sales of services, which are
typically at higher gross margins, or otherwise. Price reductions by our competitors that we either cannot
or choose not to match could result in an erosion of our market share and/or reduced sales or, to the
extent we match such reductions, could result in reduced operating margins or inventory impairment
charges, any of which could have a material adverse effect on our business, financial condition and results
of operations.
Some of our competitors in each of our operating segments may have greater technical, marketing
and other resources than we do. In addition, some of these competitors may be able to respond more
quickly to new or changing opportunities, technologies and client requirements. Many current and
potential competitors also may have greater name recognition and engage in more extensive promotional
activities, offer more attractive terms to their customers and adopt more aggressive pricing policies than
we do. Additionally, some of our competitors have higher margins and/or lower operating cost structures,
allowing them to price more aggressively. There can be no assurance that we will be able to compete
effectively with current or future competitors or that the competitive pressures we face will not have a
material adverse effect on our business, financial condition and results of operations.
We rely on our partners for product availability, competitive products to sell and marketing
funds and purchasing incentives, which can change significantly in the amounts made available
and the requirements year over year. We acquire products for resale both directly from
manufacturers and publishers and indirectly through distributors, and the loss of a significant partner
relationship could cause a disruption in the availability of products to us. There can be no assurance that
manufacturers and publishers will continue to sell or will not limit or curtail the availability of their product
to resellers like us. The loss of, or change in business relationship with, any of our key vendor partners
could negatively impact our business.
In addition, certain manufacturers, publishers and distributors provide us with substantial incentives in
the form of rebates, marketing funds, purchasing incentives, early payment discounts, referral fees and
price protections (collectively, “partner funding”). Partner funding is used to offset, among other things,
inventory costs, costs of goods sold, marketing costs and other operating expenses. Certain of these
funds are based on our volume of sales or purchases, growth rate of net sales or purchases and marketing
programs. If we do not meet the goals of these programs or if we are not in compliance with the terms of
these programs, there could be a material negative effect on the amount of incentives offered or paid to
us by manufacturers and publishers. We continue to experience adverse partner funding program
changes that reduce the incentives many partners make available to us and that change the requirements
for earning such incentives. If we are unable to react timely to remediate and respond to these changes
in partner funding programs of publishers and manufacturers, including the elimination of, or significant
reductions in, funding for some of the activities for which we have been compensated in the past, the
changes could have a material adverse effect on our business, financial condition and results of
operations. This is especially true in connection with the incentive programs of our largest partners:
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Microsoft, Dell, Cisco Systems, HP Inc. and Lenovo. There can be no assurance that we will continue to
receive such incentives in the future.
Changes in the IT industry and/or rapid changes in technology may reduce demand for the
IT hardware, software and services we sell or change who makes purchasing decisions for IT
hardware, software and services. Our results of operations are influenced by a variety of factors,
including the condition of the IT industry, shifts in demand for, or availability of, IT hardware, software,
peripherals and services, and industry innovation and the introduction of new products. The IT industry is
characterized by rapid technological change and the frequent introduction of new products and changing
delivery channels and models, which can decrease demand for current products and services and can
disrupt purchasing patterns. If we fail to react in a timely manner to such changes, we may experience
lower sales and, with respect to hardware, we may have to record write-downs of obsolete inventory. In
addition, in order to satisfy client demand, protect ourselves against product shortages, obtain greater
purchasing discounts and react to changes in original equipment manufacturers’ terms and conditions, we
may decide to carry inventory of products that may have limited or no return privileges. There can be no
assurance that we will be able to avoid losses related to inventory obsolescence on these products.
Additionally, if purchasing power within our clients shifts from centralized procurement functions to
business units or individual end users and we are unable to react timely to any such changes, these shifts
in purchasing power could have a material adverse effect on our business, financial conditions and results
of operations.
The cloud and “as-a-service” models are transforming the IT market and introducing new products,
services and competitors to the market. In many cases, these new distribution models allow enterprises
to obtain the benefits of commercially licensed, internally operated software with less complexity and
lower initial set-up, operational and licensing costs, which increases competition for us. There can be no
assurance that we will be able to adapt to, or compete effectively with, current or future distribution
channels or competitors or that the competitive pressures we face will not have a material adverse effect
on our business, financial condition and results of operations.
The integration and operation of acquired businesses may disrupt our business and create
additional expenses, and we may not achieve the anticipated benefits of the acquisitions.
Integration of an acquired business involves numerous risks, including assimilation of operations of the
acquired business and difficulties in the convergence of IT systems, the diversion of management’s
attention from other business concerns, risks of entering markets in which we have had no or only limited
direct experience, assumption of unknown or unquantifiable liabilities, the potential loss of key teammates
and/or clients, difficulties in completing strategic initiatives already underway in the acquired company,
and unfamiliarity with partners of the acquired company, each of which could have a material adverse
effect on our business, results of operations and financial condition. The continued integration activities of
the acquired businesses into our business is difficult and time consuming, and we may be unable to
achieve expected synergies and operating efficiencies over the long term. We cannot assure that these
risks or other unforeseen factors will not offset the intended benefits of the acquisitions, in whole or in
part.
Our future operating results may fluctuate significantly. Our operating results are highly
dependent upon our level of gross profit as a percentage of net sales, which fluctuates due to numerous
factors, including changes in prices from partners, changes in the amount and timing of partner funding,
volumes of purchases, changes in client mix, management of our cash conversion cycle, the relative mix
of products and services sold during the period, general competitive conditions, and strategic product and
services pricing and purchasing actions. As a result of significant price competition and our higher
concentration of large enterprise clients, our gross margins are low, and we expect them to continue to be
low in the future. Increased competition arising from industry consolidation and low demand for certain IT
products and services may hinder our ability to maintain or improve our gross margins. These low gross
margins magnify the impact of variations in revenue and operating costs on our operating results. In
addition, our expense levels are based, in part, on anticipated net sales and the anticipated amount and
timing of partner funding, and a portion of our operating expenses is relatively fixed. Therefore, we may
not be able to reduce spending quickly enough to compensate for any unexpected net sales shortfall, and
we may not be able to reduce our operating expenses as a percentage of revenue to mitigate any further
reductions in gross margins in the future. If we cannot proportionately decrease our cost structure, our
business, financial condition and results of operations could suffer. In addition, a reduction in the amount
of credit granted to us by our partners could increase our need for and cost of working capital and have a
material adverse effect on our business, financial condition and results of operations.
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There are risks associated with our international operations that are different than the risks
associated with our operations in the United States, and our exposure to the risks of a global
market could hinder our ability to maintain and expand international operations. Outside of the
United States, we have operation centers in Australia, Canada, France, Germany and the United Kingdom,
as well as sales offices throughout EMEA and APAC. In the regions in which we do not currently have a
physical presence, we serve our clients through strategic relationships. In implementing our international
strategy, we may face barriers to entry and competition from local companies and other companies that
already have established global businesses, as well as the risks generally associated with conducting
business internationally. The success and profitability of international operations are subject to numerous
risks and uncertainties, many of which are outside of our control, such as:
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political or economic instability;
changes in governmental regulation or taxation (foreign and domestic);
currency exchange fluctuations;
changes in import/export laws, regulations and customs and duties (foreign and domestic);
trade restrictions (foreign and domestic);
difficulties of conducting business, managing operations, and costs of staffing in certain
foreign countries;
(cid:120) work stoppages or other changes in labor conditions;
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taxes and other restrictions on repatriating foreign profits back to the United States;
extended payment terms;
seasonal reductions in business activity in some parts of the world; and
natural disasters, terrorism, civil unrest and other geopolitical uncertainties.
In addition, changes in policies and/or laws of the United States or foreign governments, including
data privacy restrictions, resulting in, among other changes, higher taxation, tariffs or similar protectionist
laws, currency conversion limitations, limitations on business operations, or the nationalization of private
enterprises could reduce the anticipated benefits of international operations and could have a material
adverse effect on our business, financial condition and results of operations.
We have currency exposure arising from both sales and purchases denominated in foreign currencies,
including intercompany transactions outside the United States, and we currently conduct limited hedging
activities. In addition, some currencies may be subject to limitations on conversion into other currencies,
which can limit the ability to otherwise react to rapid foreign currency devaluations. We cannot predict
with precision the effect of future exchange-rate fluctuations, and significant rate fluctuations could have a
material adverse effect on our business, financial condition and results of operations.
International operations also expose us to currency fluctuations as we translate the financial
statements of our foreign operations to U.S. dollars.
General economic conditions, including unfavorable economic conditions in a particular
region, business or industry sector, may lead our clients to delay or forgo investments in IT
hardware, software and services. Weak economic conditions generally or any broad-based reduction
in IT spending adversely affects our business, operating results and financial condition. A prolonged
slowdown in the global economy or similar crisis, or in a particular region or business or industry sector, or
tightening of credit markets, could cause our clients to have difficulty accessing capital and credit sources,
delay contractual payments, or delay or forgo decisions to upgrade or add to their existing IT
environments, license new software or purchase products or services (particularly with respect to
discretionary spending for hardware, software and services). Such events could have a material adverse
effect on our business, financial condition and results of operations. Economic or industry downturns
could result in longer payment cycles, increased collection costs and defaults in excess of our
expectations. A significant deterioration in our ability to collect on accounts receivable could also impact
the cost or availability of financing under our accounts receivable securitization program.
Our sales to our public sector customers are also impacted by government spending policies, budget
priorities and revenue levels. An adverse change in government spending policies (including budget cuts
at the federal, state and local level), budget priorities or revenue levels could cause our public sector
customers to reduce their purchases or to terminate or not renew their contracts with us. These possible
actions or the adoption of new or modified procurement regulations or practices could have a material
adverse effect our business, financial position and results of operations.
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In addition, there continues to be substantial uncertainty regarding the impact of the Referendum on
the United Kingdom’s Membership in the European Union (“EU”) (referred to as “Brexit”), advising for the
exit of the United Kingdom from the EU. Potential adverse consequences of Brexit such as global market
uncertainty, volatility in currency exchange rates, greater restrictions on imports and exports between the
United Kingdom and EU countries and increased regulatory complexities could have a negative impact on
our business, financial condition and results of operations.
The acquisition of Datalink has increased our outstanding debt and interest expense and
decreased the availability under our financing facilities, all of which could have a material
adverse effect on our results of operations and financial condition. To fund our acquisition of
Datalink in January 2017, we increased our borrowings under our senior revolving credit facility in the
form of an incremental Term Loan A. These additional borrowings will have the effect of increasing our
2018 interest expense and require escalating amortization payments with a balloon payment in 2021.
Additionally, our financing facilities have interest rates that vary based on market conditions and on our
leverage ratio, which increases our exposure to interest rate fluctuations and may result in greater
interest expense than we have forecasted.
Our financing facilities contain various covenants that we must comply with in order to avoid an
occurrence of an event of default. The covenants include limitations on the payment of dividends and the
requirement that we comply with maximum leverage and minimum fixed charge ratio requirements,
comply with a minimum receivables requirement and meet monthly, quarterly and annual reporting
requirements. Our ability to maintain compliance with our financial covenants and to make scheduled
payments on our financing facilities depends on our financial and operating performance. If we were
unable to maintain compliance or to repay the borrowed amounts, the lenders under our financing
facilities could declare an event of default and demand payment within a specified period of time.
Breaches in the security of our electronic and other confidential information could
materially adversely affect our financial condition and results of operations. We are dependent
upon automated information technology processes. Privacy, security, and compliance concerns have
continued to increase as technology has evolved to facilitate commerce and as cross-border commerce
increases. As part of our normal business activities, we collect and store certain confidential information,
including information about teammates and information about partners and clients which may be entitled
to protection under a number of regulatory regimes. In the course of normal and customary business
practice, we may share some of this information with vendors who assist us with certain aspects of our
business. Moreover, the success of our operations depends upon the secure transmission of confidential
and personal data over public networks, including the use of cashless payments. Any failure on the part
of us or our vendors to maintain the security of data we are required to protect, including via the
penetration of our network security and the misappropriation of confidential and personal information,
could result in business disruption, damage to our reputation, financial obligations to third parties, fines,
penalties, regulatory proceedings and private litigation with potentially large costs, and also result in
deterioration in our teammates’, partners’ and clients’ confidence in us and other competitive
disadvantages, and thus could have a material adverse effect on our business, financial condition and
results of operations. In the past, we have been subject to information security attacks. Although we do
not believe the attacks resulted in the misappropriation of sensitive data, we have been, and expect to
continue to be, subject to electronic data attacks and threats. Additionally, some of the hardware and
software products we resell could have defects or otherwise be the subject of security breaches and other
attacks. We would consider the consequences of such attacks to be the responsibility of the respective
manufacturers and publishers of such products, however, if such circumstances were to arise, we could be
subject to litigation.
Disruptions in our IT systems and voice and data networks could affect our ability to service
our clients and cause us to incur additional expenses. We believe that our success to date has
been, and future results of operations will be, dependent in large part upon our ability to provide prompt
and efficient service to our clients. Our ability to provide that level of service is largely dependent on the
ease of use, accuracy, quality and utilization of our IT systems, which affects our ability to manage our
sales, client service, distribution, inventories and accounting systems, and the reliability of our voice and
data networks and managed services offerings. If our current technology is determined to have a shorter
useful life or the value of our current system is impaired, we could incur additional depreciation expense
and/or impairment charges. The continuing development of our IT systems is crucial for our success.
Accordingly, some of our IT systems are subject to ongoing IT projects designed to streamline or optimize
the information systems. There is no guarantee that we will be successful in these efforts at all times or
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that there will not be implementation or integration difficulties. In addition, a substantial interruption in
our IT systems or in our voice and data networks, however caused, could occur and could have a material
adverse effect on our business, financial condition and results of operations.
The failure to comply with the terms and conditions of our commercial and public sector
contracts could result in, among other things, damages, fines or other liabilities. Sales to
commercial clients are based on stated contractual terms, the terms and conditions on our website or
terms contained in purchase orders on a transaction by transaction basis. Sales to public sector clients
are derived from sales to federal, state and local governmental departments and agencies, as well as to
educational institutions, through open market sales and various contracts and programs. Noncompliance
with contract terms, particularly to highly regulated public sector clients, or with government procurement
regulations and other requirements could result in fines or penalties against us or termination of contracts,
and, in the public sector, could also result in civil, criminal, and administrative liability. With respect to
our public sector clients, the government’s remedies may include suspension or debarment. In addition,
almost all of our contracts have default provisions, and substantially all of our contracts in the public
sector are terminable at any time for convenience of the contracting agency.
We are exposed to risks from legal proceedings and client audits and failure to comply with
the laws and regulations applicable to our operations could adversely impact our business,
results of operations or cash flows. We are party to various legal proceedings that arise in the
ordinary course of our business, which include commercial, employment, tort and other litigation.
Because of our significant sales to governmental entities, we also are subject to audits by federal, state,
international, national, provincial and local authorities in the ordinary course of our business. We also are
subject to audits by various vendor partners and large customers, including government agencies, relating
to purchases and sales under various contracts. In addition, we are subject to indemnification claims
under various contracts. Current and future litigation, infringement claims, governmental proceedings and
investigations, audits or indemnification claims that we face may result in substantial costs and expenses
and significantly divert the attention of our management regardless of the outcome. Additionally, our
operations are subject to numerous U.S. and foreign laws and regulations in a number of areas including
areas of labor and employment, advertising, e-commerce, tax, import and export requirements, anti-
corruption, data privacy requirements, anti-competition, and environmental, health, and safety.
Compliance with these laws, regulations and similar requirements may be onerous and expensive, and
they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and
doing business, and the risk of noncompliance. We have implemented policies and procedures designed to
help ensure compliance with applicable laws and regulations, but there can be no guarantee against
teammates, contractors, or agents violating such laws and regulations or our policies and procedures.
We are exposed to accounts receivable risks. We extend credit to our customers for a significant
portion of our net sales, typically on 30-day payment terms. We are subject to the risk that our
customers may not pay for the products they have purchased, or may pay at a slower rate than we have
historically experienced, the risk of which is heightened during periods of economic downturn or
uncertainty or, in the case of public sector customers, during periods of budget constraints.
We rely on independent shipping companies for delivery of products and are subject to
price increases or service interruptions from these carriers. We generally ship hardware products
to our customers by FedEx, United Parcel Service and other commercial delivery services and invoice
customers for delivery charges. If we are unable to pass on to our clients future increases in the cost of
commercial delivery services, our profitability could be adversely affected. Additionally, strikes, inclement
weather, natural disasters or other service interruptions by such shippers could adversely affect our ability
to deliver products on a timely basis. Such events could have a material adverse effect on our business,
financial condition and results of operations.
We depend on certain key personnel. We rely on key management teammates to execute our
strategy to grow profitable market share. The loss of one or more of these leaders, or a failure to attract
and retain new executives, could have a material adverse effect on our business, financial condition and
results of operations. We also believe that our future success will be largely dependent on our ability to
attract and retain highly qualified management, sales, service and technical teammates, and we make
significant investments in the training of our sales account executives, architects and services
engineers. If we are not able to retain such personnel or to train them quickly enough to meet changing
market conditions, we could experience a drop in the overall quality and efficiency of our sales and
15
INSIGHT ENTERPRISES, INC.
services teammates, and that could have a material adverse effect on our business, financial condition and
results of operations.
A natural disaster or other adverse occurrence at one of our primary facilities or customer
data centers could damage our business. We have warehouse and distribution facilities in the United
States and Canada and in the United Kingdom and Germany. If the warehouse and distribution
equipment at one of our distribution centers were to be seriously damaged by a natural disaster or other
adverse occurrence, we could utilize another distribution center or third-party distributors to ship products
to our customers. However, this may not be sufficient to avoid interruptions in our service and may not
enable us to meet all of the needs of our customers and would cause us to incur incremental operating
costs. In addition, we operate customer data centers and numerous sales offices which may contain both
business-critical data and confidential information of our customers. A natural disaster or other adverse
occurrence at any of the customer data centers or at any of our major sales offices could negatively
impact our business, results of operations or cash flows.
Changes in, interpretations of, or enforcement trends related to tax rules and regulations
may adversely affect our effective income tax rates or operating margins and we may be
required to pay additional tax assessments. We conduct business globally and file tax returns in
various U.S. and foreign tax jurisdictions. Our effective income tax rate could be adversely affected by
various factors, many of which are outside of our control, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
changes in pre-tax income in various jurisdictions in which we operate that have differing
statutory tax rates;
increases in corporate tax rates and the availability of deductions or credits in the United
States and elsewhere;
changes in tax laws, regulations, and/or interpretations of such tax laws in multiple
jurisdictions;
tax effects related to purchase accounting for acquisitions; and
resolutions of issues arising from tax examinations and any related interest or penalties.
On December 22, 2017, the U.S. government enacted comprehensive federal tax legislation commonly
referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act makes changes to the U.S.
corporate tax rate, business-related deductions and taxation of foreign earnings, among others, that will
generally be effective for taxable years beginning after December 31, 2017. By reducing the tax rate,
these changes have reduced the value of our net U.S. deferred tax assets, resulting in a significant one-
time charge in the current tax year. We are continuing to evaluate the Tax Act and its requirements, as
well as its application to our business and its impact on our effective tax rate. At this point, it is unclear
how many U.S. states will incorporate these federal law changes, or portions thereof, into their local laws.
Our implementation of new practices and processes designed to comply with, and benefit from, the Tax
Act and its rules and regulations could require us to make substantial changes to our business practices.
The determination of our worldwide provision for income taxes and other tax liabilities requires
estimation, judgment and complex calculations in situations where the ultimate tax determination may not
be certain. Our determination of tax liabilities is always subject to review or examination by tax
authorities in various jurisdictions. Any adverse outcome of such review or examination could have a
material adverse effect on our financial condition and results of operations.
We may not be able to protect our intellectual property adequately, and we may be subject
to intellectual property infringement claims. To protect our intellectual property, we rely on
copyright, trademark and trade secret laws, unpatented proprietary know-how, and patents, as well as
confidentiality, invention assignment, non-solicitation and non-competition agreements. There can be no
assurance that these measures will afford us sufficient protection of our intellectual property, and it is
possible that third parties may copy or otherwise obtain and use our proprietary information without
authorization or otherwise infringe on our intellectual property rights. The disclosure of our trade secrets
could impair our competitive position and could have a material adverse effect on our business, financial
condition and results of operations. In addition, our registered trademarks and trade names are subject
to challenge by third parties. This may affect our ability to continue using those marks and
names. Likewise, many businesses are actively investing in, developing and seeking protection for
intellectual property in the areas of search, indexing, e-commerce and other Web-related technologies, as
well as a variety of on-line business models and methods, all of which are in addition to traditional
research and development efforts for IT products and application software, and non-practicing entities
16
INSIGHT ENTERPRISES, INC.
continue to invest in acquiring patent portfolios for the purpose of turning the portfolios into income-
generating assets, whether through licensing campaigns or litigation. If there is a determination that we
have infringed the proprietary rights of others, we could incur substantial monetary liability, be forced to
stop selling infringing products or providing infringing services, be required to enter into costly royalty or
licensing agreements, if available, or be prevented from using the rights, which could force us to change
our business practices or hardware, software or services offerings in the future. These types of claims and
challenges could have a material adverse effect on our business, financial condition and results of
operations.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our principal executive offices are located in Tempe, Arizona. We believe that our facilities are
suitable and adequate for our present purposes, and we anticipate that we will be able to extend our
existing leases on terms satisfactory to us or, if necessary, to locate substitute facilities on acceptable
terms. At December 31, 2017, we owned or leased approximately 1.4 million square feet of office and
warehouse space, and, while approximately 69% of the square footage is in the United States, we own or
lease office and warehouse facilities in Canada and in 10 countries in EMEA and we lease office facilities in
five countries in APAC.
Information about significant sales, distribution, services and administration facilities in use as of
December 31, 2017 is summarized in the following table:
Operating Segment Location
North America
Tempe, Arizona, USA
Tempe, Arizona, USA
Addison, Illinois, USA
Eden Prairie, Minnesota, USA
Hanover Park, Illinois, USA
Plano, Texas, USA
Austin, Texas, USA
Liberty Lake, Washington, USA
Tampa, Florida, USA
Conway, Arkansas, USA
Winnipeg, Manitoba, Canada
Montreal, Quebec, Canada
Montreal, Quebec, Canada
Sheffield, United Kingdom
Sheffield, United Kingdom
Uxbridge, United Kingdom
Garching, Germany
Frankfurt, Germany
Frankfurt, Germany
Vélizy, France
Sydney, New South Wales,
Australia
Perth, Australia
EMEA
APAC
Primary Activities
Executive Offices, Sales
and Administration and
Network Operations Center
Client Support Center
Sales and Administration
Sales, Services and
Administration
Services, Distribution and
Administration
Sales and Administration
Sales and Administration
Sales and Administration
Sales and Administration
Sales and Administration
Sales and Administration
Sales and Administration
Distribution
Sales and Administration
Distribution
Sales and Administration
Sales and Administration
Sales and Administration
Distribution
Sales and Administration
Own or Lease
Own
Own
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Own
Lease
Own
Lease
Lease
Lease
Lease
Lease
Lease
Sales and Administration
Lease
Sales and Administration
Lease
In addition to those listed above, we have leased sales offices in various cities across North America,
EMEA and APAC. These properties are not included in the table above. Substantially all of our owned
properties secure our senior revolving credit facility (“revolving facility”). A portion of the client support
center that we own in Tempe, Arizona included in the table above is currently leased to Revana, formerly
17
INSIGHT ENTERPRISES, INC.
known as Direct Alliance Corporation, a discontinued operation that was sold to a third party in 2006. For
additional information on operating leases, see Note 7 to the Consolidated Financial Statements in Part II,
Item 8 of this report.
Item 3. Legal Proceedings
For a discussion of legal proceedings, see “Legal Proceedings” in Note 17 to the Consolidated Financial
Statements in Part II, Item 8 of this report, which is incorporated by reference herein.
Item 4. Mine Safety Disclosures
Not applicable.
18
INSIGHT ENTERPRISES, INC.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information
Our common stock trades under the symbol “NSIT” on The Nasdaq Global Select Market. The
following table shows, for the calendar quarters indicated, the high and low sales prices per share for our
common stock as reported on The Nasdaq Global Select Market.
Year 2017
Common Stock
High Price
Low Price
Fourth Quarter ................................................
$46.68
Third Quarter ..................................................
Second Quarter ...............................................
First Quarter ...................................................
47.95
53.19
46.00
Year 2016
Fourth Quarter ................................................
$41.81
Third Quarter ..................................................
Second Quarter ...............................................
First Quarter ...................................................
32.77
29.39
28.96
$35.26
37.91
39.67
35.44
$28.15
24.23
23.31
18.26
As of February 15, 2018, we had 35,836,320 shares of common stock outstanding held by 56
stockholders of record. This figure does not include an estimate of the number of beneficial holders whose
shares are held of record by brokerage firms and clearing agencies.
We have never paid a cash dividend on our common stock, and we currently do not intend to pay any
cash dividends in the foreseeable future. Our revolving facility and our accounts receivable securitization
financing facility contain restrictions on the payment of cash dividends.
Issuer Purchases of Equity Securities
We did not repurchase shares of our common stock during the quarter ended December 31, 2017.
See further information on our share repurchase programs in Note 16 to the Consolidated Financial
Statements in Part II, Item 8 of this report.
19
INSIGHT ENTERPRISES, INC.
Stock Price Performance Graph
Set forth below is a graph comparing the percentage change in the cumulative total stockholder return
on our common stock with the cumulative total return of the Nasdaq US Benchmark TR Index (Market
Index) and the Nasdaq US Benchmark Computer Hardware TR Index (Industry Index). The graph assumes
that $100 was invested on December 31, 2012 in our common stock and in each of the two Nasdaq indices,
and that, as to such indices, dividends were reinvested. We have not, since our inception, paid any cash
dividends on our common stock. Historical stock price performance shown on the graph is not necessarily
indicative of future price performance.
NSIT
Market Index
Industry Index
$300
$250
$200
$150
$100
$50
$0
Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017
Insight Enterprises, Inc.
Common Stock (NSIT)
Nasdaq US Benchmark TR
Index (Market Index)
Nasdaq US Benchmark
Computer Hardware TR
Index (Industry Index)
Dec. 31,
2012
Dec. 31,
2013
Dec. 31,
2014
Dec. 31,
2015
Dec. 31,
2016
Dec. 31,
2017
$ 100.00
$ 130.74 $ 149.05 $ 144.62 $ 232.82
$ 220.44
100.00
133.48
150.12
150.84
170.46
206.91
100.00
117.65
159.48
145.20
167.36
240.72
20
INSIGHT ENTERPRISES, INC.
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto in Part II, Item 8 and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in Part II, Item 7 of this report. The selected
consolidated financial data presented below under the captions “Consolidated Statements of Operations
Data” and “Consolidated Balance Sheet Data” as of and for each of the years in the five-year period ended
December 31, 2017 is derived from our audited consolidated financial statements. The consolidated
financial statements as of December 31, 2017 and 2016, and for each of the years in the three-year
period ended December 31, 2017, which have been audited by KPMG LLP, our independent registered
public accounting firm, are included in Part II, Item 8 of this report.
2017
Years Ended December 31,
2015
2016
(in thousands, except per share data)
2014
2013
Consolidated Statements of
Operations Data (1)
Net sales ............................................ $ 6,703,623 $ 5,485,515 $ 5,373,090 $ 5,316,229 $ 5,144,347
Costs of goods sold .............................. 5,785,053 4,742,413 4,656,758 4,603,826 4,445,460
Gross profit ..................................... 918,570 743,102 716,332 712,403 698,887
Operating expenses:
Selling and administrative expenses ..... 723,328 585,243 584,906 576,967 564,910
12,740
Severance and restructuring expenses ..
-
Loss on sale of foreign entity ...............
Acquisition-related expenses ...............
-
Earnings from operations .................. 179,265 148,832 126,519 131,003 121,237
9,002
3,646
3,329
4,580
-
4,447
4,433
-
-
4,907
-
-
(1,209)
19,174
(1,066)
8,628
(783)
7,224
(1,062)
6,019
(1,230)
6,337
Non-operating (income) expense:
Interest income ..................................
Interest expense ................................
Net foreign currency exchange loss
(gain) ..............................................
Other expense, net .............................
194
1,412
Earnings before income taxes ............ 159,098 139,458 119,176 124,372 114,524
43,503
71,021
Income tax expense .............................
Net earnings ................................... $
54,768
84,690 $
48,688
75,684 $
68,415
90,683 $
43,325
75,851 $
855
1,347
327
1,347
522
1,290
(393)
1,295
Net earnings per share:
Basic.............................................. $
Diluted ........................................... $
Shares used in per share calculations:
Basic..............................................
Diluted ...........................................
2.54 $
2.50 $
2.35 $
2.32 $
2.00 $
1.98 $
1.84 $
1.83 $
1.65
1.64
35,741
36,207
36,102
36,438
37,984
38,275
41,062
41,358
43,012
43,289
21
INSIGHT ENTERPRISES, INC.
2017
2016
2015
2014
2013
December 31,
(in thousands)
Consolidated Balance Sheet Data
Working capital ......................................... $ 804,369 $ 544,943 $ 543,534 $ 565,559 $ 526,423
Total assets .............................................. 2,685,651 2,219,300 2,014,017 1,947,838 1,868,611
Short-term debt, including capital leases
and other financing obligations(2) .................
Long-term debt, including capital leases and
other financing obligations(2) .......................
Stockholders’ equity ...................................
Cash dividends declared per common share ..
89,000
685,742
-
296,576
843,469
-
40,251
713,443
-
62,535
721,231
-
66,949
716,918
-
16,592
1,535
480
766
217
(1) Our consolidated statements of operations data includes results of the following acquisitions from
their respective dates of acquisition: Caase.com from September 26, 2017, Datalink from January
6, 2017, Ignia from September 1, 2016 and BlueMetal from October 1, 2015.
(2) Excludes obligations under our inventory financing facility of $319.5 million, $154.9 million,
$106.3 million, $122.8 million and $115.3 million as of December 31, 2017, 2016, 2015, 2014 and
2013, respectively. We do not include these obligations in total debt because we have not in the
past incurred, and in the future do not expect to incur, any interest payments due under this
facility. These amounts are classified separately as accounts payable-inventory financing facility
on our consolidated balance sheets. See Note 5 to the Consolidated Financial Statements in Part
II, Item 8 of this report.
22
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis of our financial condition and results of our operations should be
read in conjunction with the Consolidated Financial Statements and notes thereto included in Part II, Item
8 of this report. Our actual results could differ materially from those contained in forward-looking
statements due to a number of factors, including those discussed in “Risk Factors” in Part I, Item 1A and
elsewhere in this report. Additionally, any references to our “core” business exclude Datalink’s results
subsequent to the Datalink acquisition.
Overview
We are a Fortune 500 global IT provider helping businesses of all sizes – from small and medium sized
firms to worldwide enterprises, governments, schools and health care organizations – define, architect,
implement and manage Intelligent Technology SolutionsTM in North America; Europe, the Middle East and
Africa (“EMEA”); and Asia-Pacific (“APAC”). We empower our clients to manage their IT environments so
they can drive meaningful business outcomes today and transform their operations for tomorrow. Our
offerings in North America and certain countries in EMEA and APAC include hardware, software and
services. Our offerings in the remainder of our EMEA and APAC segments are largely software and certain
software-related services.
Full year 2017 financial and operational highlights included the following:
In North America:
(cid:120) We completed the acquisition of Datalink on January 6, 2017 and completed the IT
systems and back office integration activities by mid-year. We achieved expense
synergies ahead of our expectations and are pleased with the overall financial results of
the business in its first year as part of Insight;
(cid:120) We gained hardware market share from competitors according to third-party data,
reflecting strong growth in data center solutions as well as devices; and
(cid:120) We continued our focus on tight expense control across the business.
In EMEA:
(cid:120) We continued to transform into a cloud and solutions business, invested in technical and
pre-sales and service delivery teammates focused on cloud technologies and grew our
services sales by 15%;
(cid:120) We sold our non-strategic business in Russia;
(cid:120) We were named #1 in Microsoft Azure consumption in the region for 2017; and
(cid:120) We acquired Caase.com in the third quarter, which further enhances our technical
capabilities around Office 365 and Azure in the region.
In APAC:
(cid:120) We generated double digit gross profit growth; and
(cid:120) We invested significantly to support cloud and services sales in Australia, which we expect
will improve our growth trends in 2018.
On a consolidated basis, for the year ended December 31, 2017, our net sales of $6.7 billion increased
22% compared to 2016. This increase reflects growth of 20% in our core business and the addition of
Datalink to our results of operations beginning January 6, 2017. As a result, for the first time in the
Company’s history, net sales from the provision of services approximated 10%. Our gross profit increased
faster than sales, increasing by 24%, or $175.5 million, compared to 2016, also up 24% year over year
excluding the effects of fluctuating foreign currency exchange rates. Consolidated gross margin improved
approximately 20 basis points to 13.7% of net sales in 2017. This increase reflects solid growth in net
sales and gross profit in our core business combined with the addition of Datalink. Selling and
administrative expenses increased $138.1 million, or 24%, in 2017 compared to 2016. The year over
year change reflects the addition of Datalink and an increase of 5% in selling and administrative expenses
in our core business. We reported earnings from operations of $179.3 million in 2017, an increase of 20%
compared to the prior year, which represented 2.7% of net sales, consistent with the prior year. Our
effective tax rate in 2017 was 43.0%, driven by the effects of U.S. federal tax reform enacted in
December 2017. This higher tax rate in 2017 compares to our effective tax rate of 39.3% in 2016 and
23
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
36.4% in 2015. Net earnings and diluted net earnings per share were $90.7 million and $2.50,
respectively, in 2017. In 2016, we reported net earnings of $84.7 million and diluted net earnings per
share of $2.32. In 2015, we reported net earnings of $75.9 million and diluted net earnings per share of
$1.98.
The results of operations for 2017 include the following items:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the results of the acquisitions of Caase.com and Datalink, from their respective acquisition
dates;
the loss on the sale of our Russia business totaling $3.6 million;
transaction costs totaling $3.3 million, $2.5 million net of tax, associated with the acquisitions
of Caase.com and Datalink;
severance and restructuring expenses of $9.0 million, $7.3 million net of tax; and
incremental income tax expense related to U.S. federal tax reform of $13.4 million.
The results of operations for 2016 include the following items:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the results of the acquisition of Ignia effective September 1, 2016;
transaction costs totaling $4.4 million, $4.2 million net of tax, associated with the acquisitions
of Ignia and Datalink;
severance and restructuring expenses of $4.6 million, $3.3 million net of tax;
a gain of $338,000 on the sale of our Bloomingdale, Illinois real estate; and
the repurchase of approximately 1.9 million shares of the Company’s common stock for $50
million.
The results of operations for 2015 include the following items:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the results of the acquisition of BlueMetal effective October 1, 2015;
severance and restructuring expenses of $4.9 million, $4.3 million net of tax;
an impairment loss of $800,000 to further reduce the carrying amount of our previously
owned real estate in Bloomingdale, Illinois to its estimated fair value less costs to sell; and
the repurchase of approximately 3.3 million shares of the Company’s common stock for $91.8
million.
Throughout the “Overview” and “Results of Operations” sections of “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” we refer to changes in net sales, gross profit,
selling and administrative expenses and earnings from operations on a consolidated basis and in North
America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. In
computing these amounts and percentages, we compare the current period amount as translated into U.S.
dollars under the applicable accounting standards to the prior period amount in local currency translated
into U.S. dollars utilizing the weighted average translation rate for the current period.
Net of tax amounts referenced above were computed using the statutory tax rate for the taxing
jurisdictions in the operating segment in which the related expenses were recorded, adjusted for the
effects of valuation allowances on net operating losses in certain jurisdictions.
During 2017, we used $305.4 million in operating activities, including approximately $186.9 million,
net of cash and cash equivalents acquired, utilized to fund the acquisitions of Datalink and Caase.com.
We ended the year with $105.8 million of cash and cash equivalents and $307.9 million of debt
outstanding under our long-term debt facilities.
Details about segment results of operations can be found in Note 20 to the Consolidated Financial
Statements in Part II, Item 8 of this report.
Our discussion and analysis of financial condition and results of operations is intended to assist in the
understanding of our consolidated financial statements, including the changes in certain key items in those
consolidated financial statements from year to year and the primary factors that contributed to those
changes, as well as how certain critical accounting estimates affect our consolidated financial statements.
24
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Estimates
General
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”). For a summary of significant accounting policies, see Note 1 to the
Consolidated Financial Statements in Part II, Item 8 of this report. The preparation of these consolidated
financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets, liabilities, net sales and expenses. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results, however, may differ from our estimates. Members of our
senior management have discussed the critical accounting estimates and related disclosures with the Audit
Committee of our Board of Directors.
We consider the following to be our critical accounting estimates used in the preparation of our
consolidated financial statements:
Sales Recognition
Sales are recognized when title and risk of loss are passed to the client, there is persuasive evidence of
an arrangement for sale, delivery has occurred and/or services have been rendered, the sales price is fixed
or determinable and collectibility is reasonably assured. Our standard sales terms are F.O.B. shipping point
or equivalent, at which time title and risk of loss have passed to the client. However, because we either (i)
have a general practice of covering client losses while products are in transit despite title and risk of loss
contractually transferring at the point of shipment or (ii) have specifically stated F.O.B. destination
contractual terms with the client, delivery is not deemed to have occurred until the point in time when the
product is received by the client. We make provisions for estimated product returns that we expect to occur
under our return policy based upon historical return rates.
We leverage drop-shipment arrangements with many of our partners and suppliers to deliver products to
our clients without having to physically hold the inventory at our warehouses, thereby increasing efficiency
and reducing costs. We recognize revenue for drop-shipment arrangements on a gross basis when the
product is received by the client. We recognize revenue on a gross basis as the principal in the transaction
because we control the transaction as the primary obligor for product fulfillment in the arrangement, we
assume inventory risk if the product is returned by the client, we set the price of the product charged to the
client, we assume credit risk for the amounts invoiced, and we work closely with our clients to determine
their hardware and software specifications.
Revenue is recognized from software sales when clients acquire the right to use or copy software under
license, but in no case prior to the commencement of the term of the initial software license agreement,
provided that all other revenue recognition criteria have been met (i.e., evidence of the arrangement exists,
the fee is fixed or determinable and collectibility of the fee is probable).
We sell certain third-party service contracts and software maintenance and cloud or software-as-a-
service subscription products for which we are not the primary obligor. These sales do not meet the
criteria for gross sales recognition and, thus, are recorded on a net sales recognition basis. As we enter
into contracts with third-party service providers or vendors and our clients, we evaluate whether the
subsequent sales of such services should be recorded as gross sales or net sales. We determine whether
we act as a principal in the transaction and assume the risks and rewards of ownership or if we are simply
acting as an agent or broker. Under gross sales recognition, the selling price is recorded in sales and our
cost to the third-party service provider or vendor is recorded in costs of goods sold. Under net sales
recognition, the cost to the third-party service provider or vendor is recorded as a reduction to sales,
resulting in net sales equal to the gross profit on the transaction, and there are no costs of goods sold.
We recognize revenue for sales of services ratably over the time period over which the service will be
provided if there is no discernible pattern of recognition of the cost to perform the service. Billings for
such services that are made in advance of the related revenue recognized are recorded as deferred
revenue and recognized as revenue ratably over the billing coverage period. Revenue from certain
25
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
arrangements that allow for the use of a product or service over a period of time without taking
possession of software are also accounted for ratably over the time period over which the service will be
provided.
We recognize revenue for professional services engagements that are on a time and materials basis
based upon hours incurred as the services are performed and amounts are earned. Net sales for these
service engagements are not a significant portion of our consolidated net sales.
Additionally, we sell certain professional services contracts on a fixed fee basis. Revenues for fixed
fee professional services contracts are recognized based on the ratio of costs incurred to total estimated
costs. Net sales for these service contracts are not a significant portion of our consolidated net sales.
In certain arrangements, we may provide a combination of hardware and software products as well as
services. Services that are performed by us in conjunction with hardware and software sales that are
completed in our facilities prior to shipment of the product are recognized upon delivery, when title passes to
the client, for the hardware sale. Net sales of services that are performed at client locations are primarily
service-only contracts and are recorded as sales when the services are performed. The total consideration
for an arrangement with multiple deliverables is allocated to all deliverables that represent a separate unit
of accounting using the relative selling price method.
Partner Funding
We receive payments and credits from partners, including consideration pursuant to volume sales
incentive programs, volume purchase incentive programs and shared marketing expense programs.
Partner funding received pursuant to volume sales incentive programs is recognized as it is earned as a
reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive
programs is allocated as a reduction to inventories based on the applicable incentives earned from each
partner and is recorded in costs of goods sold as the related inventory is sold. Partner funding received
pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related
selling and administrative expenses in the period the program takes place if the consideration represents a
reimbursement of specific, incremental, identifiable costs. Consideration that exceeds the specific,
incremental, identifiable costs is classified as a reduction of costs of goods sold. Changes in estimates of
anticipated achievement levels under individual partner programs could have a material effect on our
results of operations and our cash flows.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for further
discussion of our accounting policies related to partner funding.
Valuation of Long-Lived Assets Including Purchased Intangible Assets and Goodwill
We review property, plant and equipment and purchased intangible assets for impairment whenever
events or changes in circumstances indicate the carrying value of an asset may not be recoverable. If
such events or changes in circumstances indicate a possible impairment, our asset impairment review
assesses the recoverability of the assets based on the estimated undiscounted future cash flows expected
to result from the use of the asset or the asset group plus net proceeds expected from disposition of the
asset or the asset group (if any) and compares that value to the carrying value. Such impairment test is
based on the lowest level for which identifiable cash flows are largely independent of the cash flows of
other groups of assets and liabilities. If the carrying value exceeds the undiscounted future cash flows, an
impairment loss is recognized for the difference between fair value and the carrying amount. This
approach uses our estimates of future market growth, forecasted net sales and costs, expected periods
the assets will be utilized and appropriate discount rates.
We perform an annual review of our goodwill in the fourth quarter of every year and between annual
tests if an event occurs or circumstances change that would more likely than not reduce the fair value of
the reporting unit below its carrying value. We continually assess whether any indicators of impairment
exist, and that assessment requires a significant amount of judgment. Events or circumstances that could
trigger an impairment review include a significant adverse change in legal factors or in the business
climate, unanticipated competition, significant changes in the manner of our use of the acquired assets or
the strategy for our overall business, significant negative industry or economic trends, significant declines
in our stock price for a sustained period or significant underperformance relative to expected historical or
26
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
projected future cash flows or results of operations. Any adverse change in these factors, among others,
could have a significant effect on the recoverability of goodwill and could have a material effect on our
consolidated financial statements.
The goodwill impairment test is performed at the reporting unit level. A reporting unit is an operating
segment or one level below an operating segment (referred to as a “component”). A component of an
operating segment is a reporting unit if the component constitutes a business for which discrete financial
information is available and management of the segment regularly reviews the operating results of that
component. When two or more components of an operating segment have similar economic
characteristics, the components may be aggregated and deemed a single reporting unit. An operating
segment shall be deemed to be a reporting unit if all of its components are similar, if none of its
components is a reporting unit, or if the segment comprises only a single component. Insight has three
reporting units, which are equivalent to our operating segments.
We may first perform a qualitative assessment to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is
necessary to perform a quantitative goodwill impairment test. Otherwise, the goodwill impairment test is
not required. In completing a quantitative test for a potential impairment of goodwill, we compare the
estimated fair value of each reporting unit in which the goodwill resides to its book value, including
goodwill. Management must apply judgment in determining the estimated fair value of our reporting
units. Multiple valuation techniques can be used to assess the fair value of the reporting unit, including
the market and income approaches. All of these techniques include the use of estimates and assumptions
that are inherently uncertain. Changes in these estimates and assumptions could materially affect the
determination of fair value or goodwill impairment, or both. These estimates and assumptions primarily
include, but are not limited to, an appropriate control premium in excess of the market capitalization of
the Company, future market growth, forecasted sales and costs and appropriate discount rates. Due to
the inherent uncertainty involved in making these estimates, actual results could differ from those
estimates. Management evaluates the merits of each significant assumption, both individually and in the
aggregate, used to determine the fair value of the reporting units. If the estimated fair value exceeds
book value, goodwill is considered not to be impaired. If the carrying amount of the reporting unit
exceeds its fair value, then an impairment charge is recognized for the amount by which the carrying
value exceeds the fair value. To ensure the reasonableness of the estimated fair values of our reporting
units, we perform a reconciliation of our total market capitalization to the estimated fair value of all of our
reporting units.
See further information on the carrying value of goodwill in Note 3 to the Consolidated Financial
Statements in Part II, Item 8 of this report.
Income Taxes
In December 2017, U.S. federal tax reform was enacted as part of the Tax Act. The change in tax law
required a remeasurement of our deferred tax balances. In addition, the change in tax law included
provisions requiring mandatory deemed repatriation of undistributed foreign earnings. Due to the
enactment date and complexities of the new law, we have not completed our accounting related to these
items. In accordance with Staff Accounting Bulletin 118, issued on December 22, 2017, we have
concluded that the U.S. income taxes attributable to the remeasurement of U.S. deferred income taxes,
the mandatory deemed repatriation provision and the state tax effects of these items are provisional
amounts.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely
than not to be realized. We consider past operating results, future market growth, forecasted earnings,
historical and projected taxable income, the mix of earnings in the jurisdictions in which we operate,
prudent and feasible tax planning strategies and statutory tax law changes in determining the need for a
valuation allowance. If we were to determine that it is more likely than not that we would not be able to
realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to earnings in the period such determination is made. Likewise, if we later determine
that it is more likely than not that all or part of the net deferred tax assets would be realized, then all or
part of the previously provided valuation allowance would be reversed.
27
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
We establish liabilities for potentially unfavorable outcomes associated with uncertain tax
positions taken on specific tax matters. These liabilities are based on management’s assessment of
whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
There may be differences between the anticipated and actual outcomes of these matters that may
result in subsequent recognition or derecognition of a tax position based on all the available
information at the time. If material adjustments are warranted, it could affect our effective tax rate.
Additional information about recent U.S. federal tax reform, the valuation allowance and
uncertain tax positions can be found in Note 11 to the Consolidated Financial Statements in Part II,
Item 8 of this report.
Contingencies
From time to time, we are subject to potential claims and assessments from third parties. We are
also subject to various government agency, client and partner audits. We continually assess whether or
not such claims have merit and warrant accrual. An accrual is made if it is both probable that a liability
has been incurred and the amount of the loss can be reasonably estimated. Such estimates are
subject to change and may affect our results of operations and our cash flows. Additional information
about contingencies can be found in Note 17 to the Consolidated Financial Statements in Part II, Item 8
of this report.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net sales for the years ended
December 31, 2017, 2016 and 2015:
Net sales ....................................................................................
Costs of goods sold .....................................................................
Gross profit ...........................................................................
100.0%
86.3
13.7
100.0%
86.5
13.5
100.0%
86.7
13.3
2017
2016
2015
Operating expenses:
Selling and administrative expenses .............................................
Severance and restructuring expenses, loss on sale of foreign
entity and acquisition-related expenses ......................................
Earnings from operations .........................................................
Non-operating expense, net .........................................................
Earnings before income taxes ..................................................
Income tax expense ....................................................................
10.8
10.7
10.9
0.2
2.7
0.3
2.4
1.0
0.1
2.7
0.2
2.5
1.0
0.0
2.4
0.2
2.2
0.8
Net earnings .......................................................................... 1.4% 1.5%
1.4%
During the year ended December 31, 2017, our consolidated net sales from the provision of services
was approximately 10% of net sales. Accordingly, for the year ended December 31, 2017, we began
reporting, on the face of our consolidated statement of operations, net sales from the provision of services
and the related costs of goods sold separately from net sales of products and the related costs of goods.
For comparability purposes, the presentation of net sales and costs of goods sold for the years ended
December 31, 2016 and 2015 has been revised to conform to the current year presentation. These
changes in presentation had no effect on previously reported total net sales, total costs of goods sold or
gross profit amounts.
In conjunction with this change in presentation, because fees earned from activities reported net are
considered services revenues, we reclassified certain revenue streams for which we act as the agent in the
transaction to net sales from services. Previously, we included these net revenue streams within our
software and, to a lesser extent, hardware sales mix categories based on the type of product being sold
(e.g., fees earned for the sale of software maintenance and certain software licenses were included in
software sales and fees earned for the sale of certain third-party provided training were included in
hardware sales when we historically disclosed and analyzed our sales mix). For comparability purposes,
the sales mix among our hardware, software and services categories for the years ended December 31,
28
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
2016 and 2015 have been reclassified to conform to the current year presentation. Such reclassifications
had no effect on previously reported net sales amounts.
Our gross profit across the business and related to product versus services sales are, and will continue
to be, impacted by partner incentives, which can change significantly in the amounts made available and
the related product or services sales being incentivized by the partner. These changes could impact our
results of operations to the extent we are unable to remediate and respond to them.
2017 Compared to 2016
Net Sales. Net sales increased 22%, or $1.2 billion, in 2017 compared to 2016. Net sales of
products (hardware and software) increased 21% and net sales of services increased 36% in 2017
compared to 2016 (as reclassified). Our net sales by operating segment for 2017 and 2016 were as
follows (dollars in thousands):
North America ........................................ $ 5,181,734
1,355,416
EMEA .....................................................
APAC .....................................................
166,473
Consolidated ........................................... $ 6,703,623
2017
2016
$ 3,971,828
1,338,560
175,127
$ 5,485,515
% Change
30%
1%
(5%)
22%
Net sales in North America increased 30%, or $1.2 billion, in 2017 compared to 2016, including 17%
year over year growth in our core business driven by higher volume of sales from new and existing clients,
and the addition of Datalink, which reported $524.3 million in net sales in 2017. Net sales of hardware,
software and services increased 37%, 14% and 40%, respectively, year over year. The improvement in
net sales in the hardware category reflects higher volume of sales to large enterprise clients and was due
primarily to strong growth in data center solutions as well as client devices. Strong growth in our core
business was complemented by the addition of Datalink, which accounted for approximately 29% of the
year over year growth in the hardware category. The increase in the software category was also affected
by the acquisition of Datalink, which accounted for approximately 70% of the year over year increase.
The increase in services net sales reflects the addition of Datalink to our business, offset partially by
declines in technical services projects in our core business in 2017 compared to 2016. Services net sales
during 2017 also reflected the continued trend toward higher sales of cloud-based offerings and a higher
mix of software maintenance sales that are recorded on a net sales recognition basis, with net sales equal
to the gross profit on the transaction. Our net sales by offering category for North America for 2017 and
2016 (as reclassified), were as follows (dollars in thousands):
Sales Mix
Hardware.................................. $
Software...................................
Services....................................
$
North America
2017
3,352,355 $
1,310,118
519,261
5,181,734 $
2016
(As Reclassified)
2,454,889
1,146,808
370,131
3,971,828
% Change
37%
14%
40%
30%
In North America, fees earned from activities reported on a net basis of $270,000 and $87,984,000
that were previously reported as part of our hardware and software product categories, respectively, in
2016, were reclassified to services to conform to the current year presentation.
29
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net sales in EMEA increased 1%, or $16.9 million, in 2017 compared to 2016. Excluding the effects of
fluctuating foreign currency exchange rates, net sales increased 2% in 2017 compared to 2016. Net sales
of hardware and services were up 11% and 15%, respectively, year over year, while net sales of software
declined 7% year to year. The increase in hardware net sales was due primarily to higher volume sales of
client devices, storage and networking solutions to public sector clients. The increase in services net sales
was due primarily to increased sales of license consulting services and partner delivered services to new
and existing clients across the region. In addition, a higher volume of sales of software maintenance and
cloud subscription products that are recorded on a net sales recognition basis, with net sales equal to the
gross profit on the transaction, are included in the services category. The decrease in software net sales
was driven by a single significant transaction during the prior year period affecting the year over year
comparison. Our net sales by offering category for EMEA for 2017 and 2016 (as reclassified), were as
follows (dollars in thousands):
EMEA
Sales Mix
Hardware .................................. $
Software ...................................
Services ....................................
$
2017
2016
(As Reclassified)
481,505
536,500 $
710,452
108,464
1,355,416 $
762,427
94,628
1,338,560
% Change
11%
(7%)
15%
1%
In EMEA, fees earned from activities reported on a net basis of $48,586,000 that were previously
reported as part of our software product category in 2016 were reclassified to services to conform to the
current year presentation.
Net sales in APAC decreased 5%, or $8.7 million, in 2017 compared to 2016. Excluding the effects of
fluctuating foreign currency exchange rates, net sales decreased 7% in 2017 compared to 2016.
Increases in hardware and services net sales year over year were offset by a decrease in software net
sales during 2017 compared to 2016, resulting from the timing of a single client agreement in the public
sector that historically transacted in the fourth quarter but instead transacted in the first quarter of 2018
this year. The growth in hardware net sales was primarily due to our continued expansion of hardware
offerings in this market. The growth in services net sales resulted from the contributions of Ignia, as well
as a higher volume of sales of software maintenance and cloud subscriptions products that are recorded
on a net sales recognition basis in 2017 compared to 2016. Our net sales by offering category for APAC
for 2017 and 2016 (as reclassified), were as follows (dollars in thousands):
APAC
Sales Mix
Hardware .................................. $
Software ...................................
Services ....................................
$
2017
2016
(As Reclassified)
18,916
27,907 $
101,412
37,154
166,473 $
132,718
23,493
175,127
% Change
48%
(24%)
58%
(5%)
In APAC, fees earned from activities reported on a net basis of $9,000 and $10,991,000 that were
previously reported as part of our hardware and software product categories, respectively, in 2016, were
reclassified to services to conform to the current year presentation.
Net sales by category for North America, EMEA and APAC were as follows for 2017 and 2016 (as
reclassified):
Sales Mix
2017
2016
2017
2016
2017
2016
North America
EMEA
APAC
Hardware ................
Software .................
Services ..................
65%
25%
10%
100%
62%
29%
9%
100%
40%
52%
8%
100%
36%
57%
7%
100%
17%
61%
22%
100%
11%
76%
13%
100%
30
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Gross Profit. Gross profit increased 24%, or $175.5 million, in 2017 compared to 2016, with gross
margin increasing approximately 20 basis points to 13.7% of net sales. Our gross profit and gross profit
as a percent of net sales by operating segment for 2017 and 2016 were as follows (dollars in thousands):
North America ........................................ $ 691,677
190,310
EMEA ....................................................
36,583
APAC ....................................................
Consolidated .......................................... $ 918,570
2017
% of Net
Sales
13.3%
14.0%
22.0%
13.7%
2016
$ 525,481
185,687
31,934
$ 743,102
% of Net
Sales
13.2%
13.9%
18.2%
13.5%
North America’s gross profit in 2017 increased 32% compared to 2016, and as a percentage of net
sales, gross margin increased by approximately 10 basis points year over year. The year over year
increase in gross margin was primarily attributable to a net increase in product margin, which includes
partner funding and freight, of 30 basis points year over year. The net increase in product margin was
due primarily to improvements in hardware and software product margin during 2017 compared to 2016
due to the acquisition of Datalink, which includes sales of data center products at higher gross margins
then in our core business. The positive effect of the Datalink acquisition was partially offset by lower
product margin in our core business due to a higher mix of business with large enterprise clients, where
margins tend to be lower than other client groups. Services margin improvement year over year of 11
basis points was driven by an increase in margin generated by sales of warranty services during 2017
compared to 2016, which was driven by the acquisition of Datalink. These increases in margin were offset
partially by a decrease in margin from lower fees from enterprise software agreements of 23 basis points
during 2017 compared to 2016. The year over year comparison was also affected by a $2.2 million
insurance settlement recognized during 2016 as a reduction of cost of sales due to the nature of the
related insured loss previously recorded.
EMEA’s gross profit in 2017 increased 2% compared to 2016. Excluding the effects of fluctuating
foreign currency exchange rates, gross profit was up 4% in 2017 compared to 2016. As a percentage of
net sales, gross margin increased by approximately 10 basis points year over year. The year over year
improvement in gross margin was primarily attributable to a 60 basis point increase in services margin
due to a higher volume of higher margin services net sales during 2017 compared to 2016 as well as the
positive effect on services margin that resulted from the higher volume of sales that were recorded on a
net sales recognition basis in 2017 compared to 2016. The improvement in gross margin resulting from
higher margin services net sales was partially offset by a net decrease in product margin, which includes
partner funding and freight, of 50 basis points during 2017 compared to 2016. The decline in product
margin primarily resulted from lower margins on large enterprise and public sector deals transacted during
2017.
APAC’s gross profit increased 15% in 2017 compared to 2016, with gross margin increasing to 22.0%
in 2017 from 18.2% in 2016. Excluding the effects of fluctuating foreign currency exchange rates, gross
profit increased 13% in 2017 compared to 2016. The improvement in gross margin in 2017 compared to
2016 was due primarily to the positive effect on services margin that results from the higher volume of
sales that are recorded on a net sales recognition basis, an increase in the mix of higher margin services
net sales and the margin contribution from increases in hardware net sales during 2017 compared to
2016.
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses increased $138.1
million in 2017 compared to 2016. Selling and administrative expenses increased approximately 10 basis
points as a percentage of net sales in 2017 compared to 2016.
31
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Selling and administrative expenses as a percent of net sales by operating segment for 2017 and 2016
were as follows (dollars in thousands):
North America ........................................ $
EMEA ....................................................
APAC ....................................................
Consolidated .......................................... $
530,792
164,305
28,231
723,328
2017
% of Net
Sales
10.2%
12.1%
17.0%
10.8%
2016
401,316
160,269
23,658
585,243
$
$
% of Net
Sales
10.1%
12.0%
13.5%
10.7%
North America’s selling and administrative expenses increased 32%, or $129.5 million, in 2017
compared to 2016, and increased approximately 10 basis points year over year as a percentage of net
sales to 10.2% of net sales in 2017. The increase in expenses reflects the addition of Datalink to our
North America business effective January 2017 and an increase in selling and administrative expenses in
our core business of approximately 5% compared to 2016. The addition of Datalink was the primary
driver for the $62.4 million increase in salaries and wages, contract labor and teammate benefit expenses
for 2017 compared to 2016, as well as year over year increases in travel and entertainment, facilities and
marketing expenses. Depreciation and amortization expense also increased approximately $6.0 million
year over year, as amortization expense of $11.5 million, associated with the intangible assets acquired
from Datalink, was offset partially by the year over year effect of intangible assets acquired in previous
acquisitions being fully amortized in the third quarter of 2016. Additionally, increased sales and gross
profit in 2017 compared to 2016, resulted in a $37.0 million increase in variable compensation year over
year.
EMEA’s selling and administrative expenses increased 3%, or $4.0 million, in 2017 compared to 2016,
and increased approximately 10 basis points to 12.1% of net sales in 2017. Excluding the effects of
fluctuating foreign currency exchange rates, selling and administrative expenses increased 4% compared
to 2016. The increase in expenses was primarily driven by a $3.1 million increase in salaries and wages
and teammate benefits expenses due to increased headcount. This year over year increase in selling and
administrative expenses was offset partially by a decrease in amortization expense during 2017 compared
to 2016, as intangible assets acquired in previous acquisitions were fully amortized in the third quarter of
2016.
APAC’s selling and administrative expenses increased 19%, or $4.6 million, in 2017 compared to
2016, and increased approximately 350 basis points to 17.0% of net sales in 2017. Excluding the effects
of fluctuating foreign currency exchange rates, selling and administrative expenses increased 16%
compared to 2016. The year over year increase was primarily driven by increased selling and
administrative expenses as a result of the acquisition of Ignia, effective September 1, 2016, which
accounted for over half of the year over year increase in selling and administrative expenses.
Additionally, salaries and wages expenses increased as we invested to support growth in cloud and
services sales.
Severance and Restructuring Expenses. During 2017, North America, EMEA and APAC recorded
severance expense, net of adjustments, totaling $4.0 million, $4.9 million and $104,000, respectively.
The North America charges related to severance actions taken to realign roles and responsibilities
subsequent to the acquisition of Datalink in January 2017, as well as a headcount reduction as part of cost
reduction initiatives in the fourth quarter of 2017. The EMEA charges primarily related to headcount
reductions in France, Germany and the Netherlands as part our cost reduction and restructuring initiatives
in EMEA. The APAC charges primarily related to severance actions taken subsequent to the acquisition of
Ignia. Current period charges were offset by adjustments for changes in estimates of previous accruals as
cash payments were made during 2017. During 2016, North America, EMEA and APAC recorded
severance expense, net of adjustments, totaling $3.0 million, $1.5 million and $118,000, respectively.
See Note 8 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion
of severance and restructuring activities.
Acquisition-related Expenses. During 2017, we incurred $3.2 million in direct third-party
transaction costs related to the acquisition of Datalink in North America and $106,000 in such costs
related to the acquisition of Caase.com in EMEA. Comparatively, during 2016, we incurred $4.3 million in
such costs related to the acquisition of Datalink in North America and $169,000 in such costs related to
32
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
the acquisition of Ignia in APAC. See Note 21 to the Consolidated Financial Statements in Part II, Item 8
of this report for further discussion of acquisitions.
Non-Operating (Income) Expense.
Interest Income. Interest income for 2017 and 2016 was generated from interest earned on cash
and cash equivalent bank balances. The slight increase in interest income year over year is primarily due
to higher interest rates earned on such balances and to higher average interest-bearing cash and cash
equivalent balances during 2017.
Interest Expense. Interest expense primarily relates to borrowings under our financing facilities and
imputed interest under our inventory financing facility. Interest expense increased 122%, or $10.5
million, in 2017 compared to 2016 due primarily to borrowings under our Term Loan A (“TLA”) as well as
higher borrowing rates and higher average daily balances under our other financing facilities, in 2017
compared to 2016, while imputed interest under our inventory financing facility increased $3.3 million
from 2016 to 2017 to $6.7 million. For a description of our various financing facilities, see Notes 5 and 6
to the Consolidated Financial Statements in Part II, Item 8 of this report.
Net Foreign Currency Exchange Gains/Losses. These gains/losses result from foreign currency
transactions, including foreign currency derivative contracts and intercompany balances that are not
considered long-term in nature. The change in net foreign currency exchange gains/losses is due
primarily to the underlying changes in the applicable exchange rates, partially mitigated by our use of
foreign exchange forward contracts to offset the effects of fluctuations in foreign currencies on certain of
our non-functional currency assets and liabilities.
Other Expense, Net. Other expense, net, consists primarily of bank fees associated with our cash
management activities and was relatively flat in 2017 compared to 2016.
Income Tax Expense. Our effective tax rate for 2017 was 43.0% compared to 39.3% in 2016. The
increase in the tax rate from 2016 to 2017 was primarily due to the effect of U.S. federal tax reform that
was enacted in December 2017, which accounted for 8.4% of our effective tax rate. The effective tax rate
in 2017 was higher than the federal statutory rate of 35.0% primarily due to the effect of U.S. federal tax
reform enacted during the fourth quarter of 2017, as previously noted, as well as state income taxes, net
of federal income tax benefits, and increases in the valuation allowances in certain foreign jurisdictions.
These increases in our effective tax rate in 2017 were offset partially by lower taxes on earnings in foreign
jurisdictions. See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report for
further discussion of income tax expense.
2016 Compared to 2015
As previously noted, the sales mix among our hardware, software and services categories for the
years ended December 31, 2016 and 2015 have been reclassified to conform to changes made to the
current year presentation, as reflected in the following results of operations discussion for these periods.
These changes in classification had no effect on previously reported total net sales, total costs of goods
sold or gross profit amounts.
Net Sales. Net sales increased 2%, or $112.4 million, in 2016 compared to 2015. Net sales of
products (hardware and software) increased 1% and net sales of services increased 14% in 2016 (as
reclassified) compared to 2015 (as reclassified). Our net sales by operating segment for 2016 and 2015
were as follows (dollars in thousands):
North America ........................................ $ 3,971,828
EMEA .....................................................
1,338,560
175,127
APAC .....................................................
Consolidated ........................................... $ 5,485,515
2016
2015
$ 3,823,528
1,371,137
178,425
$ 5,373,090
% Change
4%
(2%)
(2%)
2%
33
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net sales in North America increased 4%, or $148.3 million, in 2016 compared to 2015. Net sales of
hardware and services (as reclassified) increased 5% and 12%, respectively, year over year, while net
sales of software (as reclassified) decreased 1% year to year. The improvement in net sales in the
hardware category was due primarily to higher sales of client devices, servers and storage products. The
increase in services net sales reflects the BlueMetal acquisition in October 2015 as well as organic growth
in technical services projects. Services net sales during 2016 also reflected the continued trend toward
higher sales of cloud-based offerings and a higher mix of software maintenance sales that are recorded on
a net sales recognition basis, with net sales equal to the gross profit on the transaction. Our net sales by
offering category for North America for 2016 (as reclassified) and 2015 (as reclassified), were as follows
(dollars in thousands):
North America
Sales Mix
Hardware.................................. $
2016
(As Reclassified)
2,454,889 $
2015
(As Reclassified)
2,336,764
Software...................................
Services ...................................
1,146,808
370,131
$
3,971,828 $
1,157,168
329,596
3,823,528
% Change
5%
(1%)
12%
4%
In North America, fees earned from activities reported on a net basis of $270,000 and $87,984,000
that were previously reported as part of our hardware and software product categories, respectively, in
2016, and fees earned from activities reported on a net basis of $24,000 and $74,101,000 that were
previously reported as part of our hardware and software product categories, respectively, in 2015, were
reclassified to services to conform to the current year presentation.
Net sales in EMEA decreased 2%, or $32.6 million, in 2016 compared to 2015. Excluding the effects
of fluctuating foreign currency exchange rates, net sales increased 4% in 2016 compared to 2015. Net
sales of software (as reclassified) were up 1% year over year, while net sales of hardware and services
(as reclassified) were down 9% and 1%, respectively, year to year. The increase in software net sales in
2016 compared to 2015 was driven by increased volume with large enterprise clients. The decrease in
services net sales was due primarily to the relative impact year over year of the volume of sales of
software maintenance and cloud subscription products that are recorded on a net sales recognition basis,
offset partially by increased sales of license consulting services and partner delivered third-party services
to new and existing clients across the region. Our net sales by offering category for EMEA for 2016 (as
reclassified) and 2015 (as reclassified), were as follows (dollars in thousands):
Sales Mix
Hardware..................................
Software...................................
Services ...................................
$
$
EMEA
Years Ended December 31,
2015
(As Reclassified)
531,308
481,505 $
2016
(As Reclassified)
762,427
94,628
1,338,560 $
756,373
83,456
1,371,137
% Change
(9%)
1%
13%
(2%)
In EMEA, fees earned from activities reported on a net basis of $48,586,000 and $43,388,000 that
were previously reported as part of our software product category in 2016 and 2015, respectively, were
reclassified to services to conform to the current year presentation.
34
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net sales in APAC decreased 2%, or $3.3 million, in 2016 compared to 2015. Excluding the effects of
fluctuating foreign currency exchange rates, net sales in 2016 remained flat compared to 2015. An
increase in services and hardware net sales year over year was offset by a decrease in software net sales
during 2016 compared to 2015. Our net sales by offering category for APAC for 2016 (as reclassified) and
2015 (as reclassified), were as follows (dollars in thousands):
APAC
Sales Mix
Hardware .................................. $
Software ...................................
Services....................................
2016
(As Reclassified)
2015
(As Reclassified)
% Change
18,916 $
132,718
23,493
$
175,127 $
14,327
149,607
14,491
178,425
32%
(11%)
62%
(2%)
In APAC, fees earned from activities reported on a net basis of $9,000 and $10,991,000 that were
previously reported as part of our hardware and software product categories, respectively, in 2016, and
fees earned from activities reported on a net basis of $6,000 and $8,439,000 that were previously
reported as part of our hardware and software product categories, respectively, in 2015, were reclassified
to services to conform to the current year presentation.
Net sales by category for North America, EMEA and APAC were as follows for 2016 (as reclassified)
and 2015 (as reclassified):
Sales Mix
2016
2015
2016
2015
2016
2015
North America
EMEA
APAC
Hardware ................
Software .................
Services ..................
62%
29%
9%
100%
61%
30%
9%
100%
36%
57%
7%
100%
39%
55%
6%
100%
11%
76%
13%
100%
8%
84%
8%
100%
Gross Profit. Gross profit increased 4%, or $26.8 million, in 2016 compared to 2015, with gross
margin increasing approximately 20 basis points to 13.5% of net sales. Our gross profit and gross profit
as a percent of net sales by operating segment for 2016 and 2015 were as follows (dollars in thousands):
North America ........................................ $ 525,481
185,687
EMEA ....................................................
APAC ....................................................
31,934
Consolidated .......................................... $ 743,102
2016
% of Net
Sales
13.2%
13.9%
18.2%
13.5%
2015
$ 501,563
186,287
28,482
$ 716,332
% of Net
Sales
13.1%
13.6%
16.0%
13.3%
North America’s gross profit in 2016 increased 5% compared to 2015, and as a percentage of net
sales, gross margin increased by approximately 10 basis points year over year. The year over year
increase in gross margin was primarily attributable to increases in supplier discounts year over year as we
took advantage of early pay discounts offered by certain of our partners, which generated a 6 basis point
improvement in margin year over year. During 2016, we also recognized a $2.2 million insurance
settlement as a reduction of cost of sales due to the nature of the related insured loss previously
recorded. The insurance settlement accounted for 6 basis points of the year over year margin expansion
during 2016 compared to 2015. Although an increase in higher margin consulting services sales
generated a 15 basis point improvement in gross margin year over year, the increase was partially offset
by a decline in margin generated by sales of warranty services of 12 basis points year to year.
EMEA’s gross profit remained flat in 2016 compared to 2015. Excluding the effects of fluctuating
foreign currency exchange rates, gross profit was up 7% in 2016 compared to 2015. As a percentage of
net sales, gross margin increased by approximately 30 basis points year over year. The year over year
increase in gross margin was primarily attributable to the positive effect on gross margin that results from
the higher volume of sales that are recorded on a net sales recognition basis within the net sales line item.
Changes in the mix and size of transactions and an increase in partner funding earlier in 2016 also
contributed to the margin improvement during 2016 compared to 2015. In addition, we recognized an
35
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
increase in margin resulting from higher fees from enterprise software agreements during 2016 compared
to 2015.
APAC’s gross profit increased 12% in 2016 compared to 2015, with gross margin increasing to 18.2%
in 2016 from 16.0% in 2015. Excluding the effects of fluctuating foreign currency exchange rates, gross
profit increased 14% in 2016 compared to 2015. The improvement in gross margin in 2016 compared to
2015 was due primarily to the positive effect on margin that results from the higher volume of sales that
are recorded on a net sales recognition basis, an increase in the mix of higher margin services net sales,
higher partner funding and an increase in hardware sales during 2016 compared to 2015.
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses increased $337,000 in
2016 compared to 2015. Selling and administrative expenses decreased approximately 20 basis points as
a percentage of net sales in 2016 compared to 2015.
Selling and administrative expenses as a percent of net sales by operating segment for 2016 and 2015
were as follows (dollars in thousands):
North America ........................................ $
EMEA ....................................................
APAC ....................................................
Consolidated .......................................... $
401,316
160,269
23,658
585,243
2016
% of Net
Sales
10.1%
12.0%
13.5%
10.7%
2015
$
$
396,603
165,879
22,424
584,906
% of Net
Sales
10.4%
12.1%
12.6%
10.9%
North America’s selling and administrative expenses increased 1%, or $4.7 million, in 2016 compared
to 2015, but decreased approximately 30 basis points year to year as a percentage of net sales to 10.1%
of net sales in 2016. Teammate benefits expense, including healthcare expenses, increased $6.0 million
year over year due to an increase in healthcare claims, and variable compensation increased $4.6 million
as a result of the increase in net sales and gross profit year over year. These increases in expenses
during 2016 compared to 2015 were partially offset by a decline in the provision for losses on accounts
receivable of $3.4 million in 2016 compared to 2015 due to favorable collection results and a decrease in
salaries and wages and contract labor of $2.7 million resulting from cost reduction initiatives implemented
earlier in 2016 across our North America business. Our results for 2015 included a non-cash charge of
$800,000 to reduce the carrying amount of our real estate held for sale to its estimated fair value less
costs to sell.
EMEA’s selling and administrative expenses decreased 3%, or $5.6 million, in 2016 compared to 2015,
and decreased approximately 10 basis points to 12.0% of net sales in 2016. Excluding the effects of
fluctuating foreign currency exchange rates, selling and administrative expenses increased 3% compared
to the prior year. The increase in expenses (excluding the effects of fluctuating foreign currency exchange
rates) was primarily driven by increased salaries and wages and teammate benefits expenses attributed to
higher average cost per head in conjunction with our investments in sales and services related headcount
to support services and cloud growth across the region.
APAC’s selling and administrative expenses increased 6%, or $1.2 million, in 2016 compared to 2015,
and increased approximately 90 basis points to 13.5% of net sales in 2016. Excluding the effects of
fluctuating foreign currency exchange rates, selling and administrative expenses increased 7% compared
to the prior year. The year over year increase is primarily driven by higher variable compensation as a
result of the increase in gross profit year over year and increased selling and administrative expenses as a
result of the acquisition of Ignia, a business technology consulting and managed services provider,
effective September 1, 2016.
Severance and Restructuring Expenses. During 2016, North America, EMEA and APAC recorded
severance expense, net of adjustments, totaling $3.0 million, $1.5 million and $118,000, respectively.
The North America charges related to a headcount reduction as part of cost reduction initiatives early in
2016 noted previously, while the EMEA charges related to significant restructuring activities, primarily in
the United Kingdom, Germany and France, as we worked to reduce our selling and administrative
expenses in EMEA. Current period charges were offset by adjustments for changes in estimates of
36
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
previous accruals as cash payments were made during 2016. During 2015, North America and EMEA
recorded severance expense, net of adjustments, totaling $1.1 million and $3.8 million, respectively.
APAC did not record any severance expense in 2015. See Note 8 to the Consolidated Financial Statements
in Part II, Item 8 of this report for further discussion of severance and restructuring activities.
Acquisition-related Expenses. During 2016, we incurred $169,000 in direct third-party transaction
costs related to the acquisition of Ignia and $4.3 million in such costs related to the acquisition of Datalink
that was completed on January 6, 2017. See Note 21 to the Consolidated Financial Statements in Part II,
Item 8 of this report for further discussion of acquisitions.
Non-Operating (Income) Expense.
Interest Income. Interest income for 2016 and 2015 was generated from interest earned on cash
and cash equivalent bank balances. The increase in interest income year over year is primarily due to
higher interest rates earned on such balances and to higher average interest-bearing cash and cash
equivalent balances during 2016.
Interest Expense. Interest expense primarily relates to borrowings under our financing facilities and
imputed interest under our inventory financing facility. Interest expense increased 19% in 2016
compared to 2015 due primarily to higher borrowing rates and higher average daily balances under our
debt facilities in 2016 compared to 2015, while imputed interest under our inventory financing facility
remained flat from 2015 to 2016 at $3.4 million. For a description of our various financing facilities, see
Notes 5 and 6 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Net Foreign Currency Exchange Gains/Losses. These gains/losses result from foreign currency
transactions, including foreign currency derivative contracts and intercompany balances that are not
considered long-term in nature. The change in net foreign currency exchange gains/losses is due
primarily to the underlying changes in the applicable exchange rates, partially mitigated by our use of
foreign exchange forward contracts to offset the effects of fluctuations in foreign currencies on certain of
our non-functional currency assets and liabilities.
Other Expense, Net. Other expense, net, consists primarily of bank fees associated with our cash
management activities.
Income Tax Expense. Our effective tax rate for 2016 was 39.3% compared to 36.4% in 2015. The
increase in the tax rate from 2015 to 2016 was primarily due to the effect of a change in tax law that was
enacted in December 2016 related to the taxation of foreign currency translation gains or losses arising
from qualified business units and the effect of non-deductible acquisition-related expenses incurred in
2016. The effective tax rate in 2016 was higher than the federal statutory rate of 35.0% primarily due to
the increases in the valuation allowances in certain foreign jurisdictions and state taxes in the United
States as well as the tax law change during the fourth quarter of 2016 and the effect of non-deductible
acquisition-related expenses incurred in 2016, as noted previously. These increases in our effective tax
rate in 2016 were offset partially by lower taxes on earnings in foreign jurisdictions. See Note 11 to the
Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of income tax
expense.
37
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
The following table sets forth certain consolidated cash flow information for 2017, 2016 and 2015 (in
thousands):
2017
2016
2015
Net cash (used in) provided by operating activities .... $
(305,426)
$
96,128
$
181,102
Net cash used in investing activities .........................
Net cash provided by (used in) financing activities .....
Foreign currency exchange effect on cash and cash
equivalent balances .........................................
(Decrease) increase in cash and cash equivalents ......
Cash and cash equivalents at beginning of year .........
(204,645)
397,121
15,899
(97,051)
202,882
(21,185)
(58,230)
(1,809)
14,904
187,978
(57,637)
(83,328)
(16,683)
23,454
164,524
Cash and cash equivalents at end of year ................. $
105,831
$
202,882
$
187,978
Cash and Cash Flow
Our primary uses of cash during 2017 were to fund working capital requirements, pay down our debt
balances, fund capital expenditures and acquire Caase.com and Datalink. Operating activities used
$305.4 million in cash in 2017. Both the 2017 and 2016 results are affected by individually significant
transactions at each year end, whereby a single significant receivable was collected from a client in the
fourth quarter of the year for which the related payment to the supplier was due and paid in January of
the following year, as discussed in more detail below. During 2017, we had net combined borrowings on
our long-term debt facilities of $269.3 million and acquired Caase.com and Datalink for $6.0 million and
$180.9 million, respectively, net of cash and cash equivalents acquired. Capital expenditures were $19.2
million in 2017, a 57% increase from 2016, reflecting higher IT investments in our core ERP systems and
e-commerce and digital marketing platforms year over year. Cash and cash equivalent balances in 2017
were positively affected by $15.9 million as a result of foreign currency exchange rates.
We anticipate that cash flows from operations, together with the funds available under our financing
facilities, will be adequate to support our cash and working capital requirements for operations as well as
other strategic investments over the next 12 months. We expect existing cash and cash flows from
operations to continue to be sufficient to fund our operating cash activities and cash commitments for
investing and financing activities, such as capital expenditures, repurchases of our common stock and
debt repayments, for at least the next 12 months.
Net cash (used in) provided by operating activities. Cash flows from operating activities reflect
our net earnings, adjusted for non-cash items such as depreciation, amortization, stock-based
compensation expense and write-offs and write-downs of assets, as well as changes in asset and liability
balances. Net earnings for 2017 was also adjusted for the loss on sale of our Russia business, which
included a non-cash charge for the release of our cumulative translation adjustment balance upon sale of
the foreign entity. As noted previously, our net sales grew 22% in 2017 and in particular, our North
America net sales grew 30%. This level of growth required significant working capital investments as we
experienced higher demand for inventory positions with key clients and, at the same time, our accounts
receivable balances began to age as collection efforts did not keep up with the growth. The 2017 results
also reflect the collection of a single significant receivable from a client in the fourth quarter of 2016 for
which the related payment to the supplier of approximately $160 million was due and paid in January
2017, as noted previously. Further impacting our operating cash flows was the fact that we report cash
flows associated with trade payables financed under our inventory financing facility in the financing section
of our statement of cash flows. In 2017, and most notably in the fourth quarter, we expanded the use of
that facility with certain vendors. Had we not leveraged the facility during 2017, the net borrowings under
our inventory financing facility of $141.0 million that are reflected as cash flows provided by financing
activities would have been included within trade payables, which are reflected in the operating activities
section of our statement of cash flows. The increase in inventories was primarily attributable to an
increase in inventory levels at December 31, 2017 to support specific client engagements. The decrease
in deferred revenue was a result of revenue recognition in 2017 on a number of larger client transactions
in North America for which monies had been collected from clients prior to December 31, 2016, in advance
of meeting the criteria for revenue recognition.
38
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
In 2016, the increases in accounts receivable and accounts payable reflected increased sales and
associated costs of goods sold, respectively, in 2016 compared to 2015. However, the 2016 results were
also affected by a single significant receivable collected from a client in the fourth quarter of 2016 for
which the related payment to the supplier of approximately $160 million was due and paid in January
2017, as noted previously. In the fourth quarter of 2015, we had a similar experience with a significant
receivable collected in the quarter for which the payment to the supplier of approximately $60 million was
not made until the first quarter of 2016. Excluding the effects of these two individually significant timing
differences, cash flow from operations would have been nominal for 2016. Additionally, the increase in
accounts payable reflected as cash provided by operating activities in 2016 was affected by the increased
use of our inventory financing facility in 2016 to facilitate the purchase of inventory from various
suppliers. Increases in accounts payable under this facility were reflected as cash provided by financing
activities, as discussed below. Had these purchases been made without using the inventory financing
facility during 2016, the net borrowings under our inventory financing facility of $48.6 million that were
reflected as cash flows from financing activities would have been reflected as an increase in accounts
payable, which would have been an increase in cash provided by operating activities. We used more
working capital in the fourth quarter of 2016 compared to the fourth quarter of 2015, as our sales growth
was weighted to the last two months of the current year. The $50.1 million increase in other assets was
primarily a result of our deferral of costs for certain payments made or payable to partners at December
31, 2016, in advance of our being able to recognize the related revenue. The $28.9 million increase in
inventories was primarily attributable to an increase in inventory levels at December 31, 2016, to support
specific client engagements and hardware sale transactions in transit to clients as of December 31, 2016
such that delivery was not deemed to have occurred until the product was received by the client in early
January 2017.
In 2015, the increases in accounts receivable and accounts payable reflected increased sales and
associated costs of goods sold, respectively, in 2015 compared to 2014. However, the 2015 results were
also affected by the single significant receivable collected from a client in the fourth quarter of 2015 for
which the related payment to the supplier of approximately $60 million was due and paid in January 2016,
as noted previously. The increase in other assets was primarily a result of our deferral of costs for certain
payments made or payable to partners at December 31, 2015, in advance of our being able to recognize
the related revenue. As a result, cash flows from operating activities in 2015 exceeded our historical
average annual cash flow generation of $80 million to $120 million.
Our consolidated cash flow operating metrics for the quarters ended December 31, 2017, 2016 and
2015 were as follows:
Days sales outstanding in ending accounts receivable (“DSOs”) (a) ..................
Days inventory outstanding (“DIOs”) (b) ......................................................
Days purchases outstanding in ending accounts payable (“DPOs”) (c)...............
Cash conversion cycle (days) (d) .................................................................
94
13
(72)
35
90
12
(88)
14
87
10
(77)
20
2017
2016
2015
(a) Calculated as the balance of accounts receivable, net at the end of the period divided by daily net sales. Daily net
sales is calculated as net sales for the quarter divided by 92 days.
(b) Calculated as average inventories (excluding inventories not available for sale) divided by daily costs of goods sold.
Average inventories is calculated as the sum of the balances of inventories at the beginning of the period plus
inventories at the end of the period divided by two. Daily costs of goods sold is calculated as costs of goods sold
for the quarter divided by 92 days.
(c) Calculated as the sum of the balances of accounts payable – trade and accounts payable – inventory financing
facility at the end of the period divided by daily costs of goods sold. Daily costs of goods sold is calculated as costs
of goods sold for the quarter divided by 92 days.
(d) Calculated as DSOs plus DIOs, less DPOs.
Our cash conversion cycle was 35 days in the fourth quarter ended December 31, 2017, compared to
14 days in the fourth quarter of 2016. Our 2016 cash conversion cycle was below our target range of 20
to 25 days as a result of unusually high DPOs associated with the $160 million payment timing difference
in North America at the end of the prior year period, as discussed below. Our 2017 cash conversion cycle
was above our target range due to the increases in our inventory and accounts receivable balances noted
above. We expect working capital trends to return to normalized levels and have action plans in place to
improve our cash flow efficiency in 2018.
39
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Our cash conversion cycle was 14 days in the fourth quarter ended December 31, 2016, a decrease of
six days from the fourth quarter of 2015, due primarily to an 11 day increase in DPOs driven by a single
significant payment to a supplier in North America that was due and paid in January 2017. Although the
payment to the supplier was not due until after year-end, we collected on the accounts receivable from
the client in the fourth quarter of 2016 under normal credit terms. Both the 2016 and 2015 results are
affected by individually significant transactions at each year end; however, the magnitude of the 2016
transaction had a greater effect on DPOs. The computation of DPOs for the quarter ended December 31,
2016 includes a payable to a supplier of $160 million, and the computation of DPOs for the quarter ended
December 30, 2015 includes a payable to a supplier of $60 million, both of which do not have
corresponding accounts receivable outstanding as of the end of the respective periods.
Our cash conversion cycle was 20 days in the fourth quarter ended December 31, 2015, a decrease of
four days from the fourth quarter of 2014, due primarily to an increase in DPOs in North America driven
by a single significant payment to a supplier that was due and paid in January 2016, after the resolution of
certain invoicing issues with the supplier. Although we did not pay the supplier until after year-end, we
collected on the accounts receivable from the client in the fourth quarter of 2015 under normal credit
terms.
We expect that cash flow from operations will be used, at least partially, to fund working capital as we
typically pay our partners on average terms that are shorter than the average terms we grant to our
clients in order to take advantage of supplier discounts. We intend to use cash generated in 2018 in
excess of working capital needs to support our capital expenditures for the year, to repurchase shares of
our common stock and to pay down our debt balances. We also may use cash to fund potential
acquisitions.
Net cash used in investing activities. Capital expenditures of $19.2 million, $12.3 million and
$13.4 million in 2017, 2016 and 2015, respectively, were primarily related to technology and facility
enhancements. We expect total capital expenditures in 2018 to be between $15.0 million and $20.0
million, primarily for technology-related upgrade projects and the integration of prior acquisitions.
During 2017 we acquired Caase.com and Datalink for $6.0 million and $180.9 million, respectively,
net of cash and cash equivalents acquired. During 2016, we acquired Ignia for $10.8 million, net of cash
acquired, and during 2015, we acquired BlueMetal for $44.2 million, net of cash acquired.
Net cash provided by (used in) financing activities. During 2017, we had net combined
borrowings on our long-term debt under our revolving facility, TLA and accounts receivable securitization
facility (“ABS facility”) of $269.3 million and had net borrowings under our inventory financing facility of
$141.0 million. During 2016, we made net combined repayments on our long-term debt under our
revolving facility and our ABS facility of $49.5 million and had net borrowings under our inventory
financing facility of $48.6 million. In 2016, we also funded $50.0 million of repurchases of our common
stock. During 2015, we had net combined borrowings on our long-term debt under our revolving facility
and our ABS facility of $28.0 million and made net repayments under our inventory financing facility of
$16.5 million. In 2015, we also funded $91.8 million of repurchases of our common stock.
Financing Facilities
As of December 31, 2017, our long-term debt balance includes $25.0 million outstanding under our
$250.0 million ABS facility and $117.5 million outstanding under our $350.0 million revolving facility. In
connection with the acquisition of Datalink on January 6, 2017, we amended our revolving facility to
expand the facility by $175.0 million in the form of a TLA that requires amortization payments in years
one through five. As of December 31, 2017, we had $166.3 million outstanding under our TLA. See Note
6 to the Consolidated Financial Statements in Part II, Item 8 of this report for a description of our
amendment to our revolving facility in connection with our acquisition of Datalink.
As of December 31, 2017, the current portion of our long-term debt relates to our capital leases and
other financing obligations as well as the amortization payments due in 2018 under our TLA. Our
objective is to pay our debt balances down while retaining adequate cash balances to meet overall
business objectives.
40
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
While the ABS facility has a stated maximum amount, the actual availability under the ABS facility is
limited by the quantity and quality of the underlying accounts receivable. As of December 31, 2017,
qualified receivables were sufficient to permit access to the full $250.0 million under the ABS facility.
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under our
revolving facility, our TLA and our ABS facility is limited by certain financial covenants, particularly a
maximum leverage ratio. The maximum leverage ratio is calculated as aggregate debt outstanding
divided by the sum of the Company’s trailing twelve month net earnings (loss) plus (i) interest expense,
excluding non-cash imputed interest on our inventory financing facility, (ii) income tax expense (benefit),
(iii) depreciation and amortization, (iv) non-cash stock-based compensation, (v) extraordinary or non-
recurring non-cash losses or expenses and (vi) certain cash restructuring and acquisition-related charges
and synergies, not to exceed a specified cap (“adjusted earnings”). The maximum leverage ratio
permitted under the facilities was increased to 3.50 times trailing twelve-month adjusted earnings in
connection with the acquisition of Datalink in January 2017. We anticipate that we will be in compliance
with our maximum leverage ratio requirements, which will decrease to 3.25 in 2018, over the next four
quarters. However, a significant drop in the Company’s adjusted earnings would limit the amount of
indebtedness that could be outstanding at the end of any fiscal quarter to a level that would be below the
Company’s consolidated maximum facility amounts. Based on the maximum permitted leverage ratio as
of December 31, 2017, the Company’s debt balance that could have been outstanding under our revolving
facility, TLA and ABS facility was the full amount of the maximum borrowing capacity of $766.3 million.
Our revolving facility, our TLA and our ABS facility contain various covenants customary for
transactions of this type, including limitations on the payment of dividends and the requirement that we
comply with maximum leverage and minimum fixed charge ratio requirements, comply with a minimum
receivable requirement and meet monthly, quarterly and annual reporting requirements. If we fail to
comply with these covenants, the lenders would be able to demand payment within a specified time
period. At December 31, 2017, we were in compliance with all such covenants. Further, the terms of the
ABS facility identify various circumstances that would result in an “amortization event” under the facility.
As of December 31, 2017, no such “amortization event” had occurred.
We also have an agreement with a financial intermediary to facilitate the purchase of inventory from
various suppliers under certain terms and conditions. These amounts are classified separately as accounts
payable - inventory financing facility in our consolidated balance sheets.
The aggregate availability for vendor purchases under our inventory financing facility is $325,000,000.
From time to time and at our option, we may request to increase the aggregate amount available under
the inventory financing facility by up to an aggregate of $25,000,000, subject to customary conditions.
The facility matures on June 23, 2021. Additionally, the facility may be renewed under certain
circumstances described in the agreement for successive 12-month periods. Interest does not accrue on
accounts payable under this facility provided the accounts payable are paid within stated vendor terms
(typically 60 days).
Notes 5 and 6 to the Consolidated Financial Statements in Part II, Item 8 of this report also include: a
description of our financing facilities; amounts outstanding; amounts available and weighted average
borrowings and interest rates during the year.
Undistributed Foreign Earnings
Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income taxation
upon repatriation to the United States. As a result of the U.S. federal tax reform enacted in December
2017, all undistributed foreign earnings are deemed distributed. We provided for U.S. income and
withholding taxes on the earnings deemed distributed from all of our foreign subsidiaries during 2017. As
of December 31, 2017, we had approximately $87.1 million in cash and cash equivalents in certain of our
foreign subsidiaries. As of December 31, 2017, the majority of our foreign cash resides in the
Netherlands, Canada and Australia. Certain of these cash balances will be remitted to the United States
by paying down intercompany payables generated in the ordinary course of business or though actual
dividend distributions.
41
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Off-Balance Sheet Arrangements
We have entered into off-balance sheet arrangements, which include guaranties and indemnifications.
These arrangements are discussed in Note 17 to the Consolidated Financial Statements in Part II, Item 8
of this report. We believe that none of our off-balance sheet arrangements have, or are reasonably likely
to have, a material current or future effect on our financial condition, sales or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
At December 31, 2017, our contractual obligations for continuing operations were as follows (in
thousands):
Total
Long-term debt (a).................................... $ 308,750
Capital lease obligations, including interest
payments.............................................
5,436
Inventory financing facility (b) .................... 319,468
Operating lease obligations (c).................... 75,499
Severance and restructuring obligations (d)..
4,640
Other contractual obligations (e) ................. 40,418
Total ...................................................... $ 754,211
Payments due by period
Less than
1 Year
$ 13,125
1-3
Years
$ 64,375
3-5
Years
$ 231,250
More than 5
Years
$
-
3,620
319,468
18,601
4,640
12,631
$ 372,085
1,816
-
28,739
-
20,519
$ 115,449
-
-
16,136
-
5,074
$ 252,460
-
-
12,023
-
2,194
$ 14,217
(a) Reflects the $25.0 million outstanding at December 31, 2017 under our ABS facility as due in June 2019, the date
at which the facility matures, $117.5 million outstanding at December 31, 2017 under our revolving facility as
due in June 2021, the date at which the facility matures, and $166.3 million outstanding at December 31, 2017
under our TLA. The TLA requires amortization payments of 5%, 7.5%, 10%, 12.5% and 15% of the original
principal balance in years one through five, respectively, to be paid quarterly through March 31, 2021, with the
remaining balance of $107.2 million due at maturity on June 23, 2021. See further discussion in Note 6 to the
Consolidated Financial Statements in Part II, Item 8 of this report.
(b) As of December 31, 2017, this amount has been included in our contractual obligations table above as being due
in less than 1 year due to the 30- to 120-day stated vendor terms. See further discussion in Note 5 to the
Consolidated Financial Statements in Part II, Item 8 of this report.
(c) Amounts in the table above exclude non-cancellable rental income of approximately $1.6 million due in less than
one year and a total of approximately $1.6 million due in years one through three.
(d) As a result of approved severance and restructuring plans, we expect future cash expenditures related to
employee termination benefits. See further discussion in Note 8 to the Consolidated Financial Statements in
Part II, Item 8 of this report.
(e) The table above includes:
I. Estimated interest payments of $603,000 in 2018 and $301,000 in the first six months of 2019, based
on the current debt balance at December 31, 2017 of $25.0 million under our ABS facility, multiplied by
the floating interest rate applicable at December 31, 2017 of 2.41% per annum.
II. Estimated interest payments of $4.1 million in 2018, 2019 and 2020 and $2.1 million in the first six
months of 2021, based on the current debt balance at December 31, 2017 of $117.5 million under our
revolving facility, multiplied by the floating interest rate applicable at December 31, 2017 of 3.49% per
annum.
III. Estimated interest payments of $5.7 million in 2018, $5.2 million in 2019, $4.5 million in 2020 and $2.0
million in the first six months of 2021, based on the current debt balance at December 31, 2017 of
$166.3 million under our TLA, multiplied by the floating interest rate applicable at December 31, 2017
of 3.57% per annum.
IV. Amounts totaling $197,000 through 2018 for other contractual obligations.
V. We estimate that we will owe $7.5 million in future years in connection with the obligations to perform
asset-retirement activities that are conditional on a future event.
The table above excludes $4.3 million of unrecognized tax benefits, including $287,000 related to
accrued interest, as we are unable to reasonably estimate the ultimate amount or timing of settlement.
See further discussion in Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Although we set purchase targets with our partners tied to the amount of supplier reimbursements we
receive, we have no material contractual purchase obligations with our partners.
42
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Acquisitions
Our strategy includes the possible acquisition of or investments in other businesses to expand or
complement our operations or to add certain services capabilities. The magnitude, timing and nature of
any future acquisitions or investments will depend on a number of factors, including the availability of
suitable candidates, the negotiation of acceptable terms, our financial capabilities and general economic
and business conditions. Financing for future transactions would result in the utilization of cash,
incurrence of additional debt, issuance of stock or some combination of the three. See Note 21 to the
Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of our acquisitions of
Caase.com on September 26, 2017 and Datalink on January 6, 2017 and the amendment to our revolving
facility to fund, in part, the acquisition of Datalink.
Inflation
We have historically not been adversely affected by inflation, as technological advances and
competition within the IT industry have generally caused the prices of the products we sell to decline and
product life cycles tend to be short. This requires our growth in unit sales to exceed the decline in prices
in order to increase our net sales. We believe that most price increases could be passed on to our clients,
as prices charged by us are not set by long-term contracts; however, as a result of competitive pressure,
there can be no assurance that the full effect of any such price increases could be passed on to our clients.
Recently Issued Accounting Standards
The information contained in Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this
report concerning a description of recent accounting pronouncements, including our expected dates of
adoption and the estimated effects on our results of operations and financial condition, is incorporated by
reference herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information contained in Note 12 to the Consolidated Financial Statements in Part II, Item 8 of
this report concerning a description of market risk management, including interest rate risk and foreign
currency exchange risk, is incorporated by reference herein.
43
INSIGHT ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item 8. Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firm ....................................
Consolidated Balance Sheets –
December 31, 2017 and 2016 ........................................................................
Consolidated Statements of Operations –
For each of the years in the three-year period ended December 31, 2017 .............
Consolidated Statements of Comprehensive Income –
For each of the years in the three-year period ended December 31, 2017 .............
Consolidated Statements of Stockholders’ Equity –
For each of the years in the three-year period ended December 31, 2017 .............
Consolidated Statements of Cash Flows –
For each of the years in the three-year period ended December 31, 2017 .............
Notes to Consolidated Financial Statements .........................................................
Page
45
48
49
50
51
52
53
44
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Insight Enterprises, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Insight Enterprises, Inc. and
subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2017, and the related notes (collectively, the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December
31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23,
2018, expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 1990.
/s/ KPMG LLP
Phoenix, Arizona
February 23, 2018
45
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Insight Enterprises, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Insight Enterprises, Inc.’s and subsidiaries (the “Company”) internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In
our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31,
2017 and 2016, the related consolidated statements of operations, comprehensive income, stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the
related notes (collectively, the “consolidated financial statements”), and our report dated February 23,
2018 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying item 9A(a), Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
46
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Phoenix, Arizona
February 23, 2018
/s/ KPMG LLP
47
INSIGHT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
December 31,
2017
2016
Current assets:
Cash and cash equivalents ............................................................... $ 105,831
Accounts receivable, net .................................................................. 1,814,560
Inventories .................................................................................... 194,529
36,956
Inventories not available for sale ......................................................
Other current assets ....................................................................... 152,467
Total current assets ........................................................................ 2,304,343
75,252
Property and equipment, net .....................................................................
Goodwill ................................................................................................. 131,431
Intangible assets, net ............................................................................... 100,778
17,064
Deferred income taxes .............................................................................
56,783
Other assets ...........................................................................................
$2,685,651
$ 202,882
1,436,742
148,203
68,619
127,159
1,983,605
70,910
62,645
20,707
52,347
29,086
$2,219,300
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable—trade ..................................................................... $ 899,075
Accounts payable—inventory financing facility ........................................
319,468
Accrued expenses and other current liabilities ........................................ 175,860
16,592
Current portion of long-term debt ........................................................
88,979
Deferred revenue ...............................................................................
Total current liabilities .................................................................... 1,499,974
$1,070,259
154,930
151,895
480
61,098
1,438,662
Long-term debt ....................................................................................... 296,576
Deferred income taxes .............................................................................
717
44,915
Other liabilities ........................................................................................
1,842,182
40,251
900
26,044
1,505,857
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 3,000 shares authorized; no shares
issued ...........................................................................................
Common stock, $0.01 par value, 100,000 shares authorized; 35,829 and
35,484 shares issued and outstanding in 2017 and 2016, respectively ...
358
Additional paid-in capital ..................................................................... 317,155
Retained earnings .............................................................................. 550,220
Accumulated other comprehensive loss – foreign currency translation
adjustments ................................................................................... (24,264)
843,469
$2,685,651
Total stockholders’ equity ................................................................
-
-
355
309,650
459,537
(56,099)
713,443
$2,219,300
See accompanying notes to consolidated financial statements.
48
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net sales:
Years Ended December 31,
2017
2016
2015
Products ................................................................................. $6,038,744 $4,997,263 $4,945,547
Services .................................................................................
427,543
5,485,515 5,373,090
664,879
Total net sales ...................................................................... 6,703,623
488,252
Costs of goods sold:
Products ................................................................................. 5,512,402
Services ................................................................................. 272,651
Total costs of goods sold ........................................................ 5,785,053
Gross profit .......................................................................... 918,570
4,571,462
170,951
4,742,413
743,102
4,513,353
143,405
4,656,758
716,332
Operating expenses:
Selling and administrative expenses ........................................... 723,328
9,002
Severance and restructuring expenses .......................................
Loss on sale of foreign entity .....................................................
3,646
Acquisition-related expenses .....................................................
3,329
Earnings from operations ....................................................... 179,265
Non-operating (income) expense:
Interest income .......................................................................
(783)
(1,209)
Interest expense ......................................................................
7,224
19,174
(393)
855
Net foreign currency exchange loss (gain) ...................................
Other expense, net ..................................................................
1,295
1,347
119,176
Earnings before income taxes ................................................. 159,098
Income tax expense ....................................................................
43,325
68,415
Net earnings ........................................................................ $ 90,683 $ 84,690 $ 75,851
(1,066)
8,628
522
1,290
139,458
54,768
585,243
4,580
-
4,447
148,832
584,906
4,907
-
-
126,519
Net earnings per share:
Basic ................................................................................... $
Diluted ................................................................................ $
2.54 $
2.50 $
2.35 $
2.32 $
2.00
1.98
Shares used in per share calculations:
Basic ...................................................................................
Diluted ................................................................................
35,741
36,207
36,102
36,438
37,984
38,275
See accompanying notes to consolidated financial statements.
49
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Years Ended December 31,
2017
2016
2015
Net earnings .............................................................................. $ 90,683 $ 84,690 $ 75,851
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ....................................
(26,707)
Total comprehensive income ........................................................ $ 122,518 $ 68,627 $ 49,144
(16,063)
31,835
See accompanying notes to consolidated financial statements.
50
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Balances at December 31, 2014 ........... 40,147 $
Common Stock Treasury Stock
Shares Par Value Shares Amount Capital
- $337,167
- $
401
Additional
Paid-in
Accumulated
Other
Comprehensive Retained
Total
Stockholders’
Loss
Earnings Equity
$
(13,329) $396,992
$ 721,231
adjustments, net of tax .............
Net earnings .................................
-
-
Balances at December 31, 2015 ........... 37,106
-
-
371
-
-
316,686
(26,707)
-
(40,036)
-
75,851
408,721
(3,300) (91,843)
-
553
-
91,843 (27,688)
(33) 3,300
-
-
(2,268)
8,922
-
-
-
-
-
(2,222)
11,058
-
-
-
-
-
-
-
-
-
(1,891) (50,000)
-
235
-
50,000 (16,107)
(19) 1,891
Issuance of common stock under
employee stock plans, net of
shares withheld for payroll
taxes .......................................
Stock-based compensation
259
expense ...................................
-
Tax benefit from stock-based
compensation ...........................
Repurchase of treasury stock ..........
Retirement of treasury stock ........... (3,300)
Foreign currency translation
-
-
Issuance of common stock under
employee stock plans, net of
shares withheld for payroll
taxes .......................................
Stock-based compensation
269
expense ...................................
-
Tax benefit from stock-based
compensation ...........................
Repurchase of treasury stock ..........
Retirement of treasury stock ........... (1,891)
Foreign currency translation
-
-
adjustments, net of tax .............
Net earnings .................................
-
-
Balances at December 31, 2016 ........... 35,484
Issuance of common stock under
employee stock plans, net of
shares withheld for payroll
taxes ....................................... 345
Stock-based compensation
expense ...................................
Foreign currency translation
adjustments, net of tax .............
Net earnings .................................
-
-
-
Balances at December 31, 2017 ........... 35,829 $
3
-
-
-
3
-
-
-
-
-
355
3
-
-
-
358
-
-
309,650
(16,063)
-
(56,099)
-
84,690
459,537
-
-
-
-
-
-
-
-
-
-
(5,321)
12,826
-
-
-
-
(5,318)
12,826
-
-
- $
-
-
- $317,155 $
-
-
31,835
-
-
90,683
(24,264) $550,220 $
31,835
90,683
843,469
-
-
-
-
-
-
-
-
-
(64,122)
-
-
-
-
-
-
-
-
-
(33,874)
(2,265)
8,922
553
(91,843)
-
(26,707)
75,851
685,742
(2,219)
11,058
235
(50,000)
-
(16,063)
84,690
713,443
See accompanying notes to consolidated financial statements.
51
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2017
2016
2015
Cash flows from operating activities:
Net earnings ................................................................................... $
Adjustments to reconcile net earnings to net cash (used in) provided by
operating activities:
90,683 $ 84,690 $
75,851
Depreciation and amortization of property and equipment ..................
Amortization of intangible assets .....................................................
Non-cash real estate impairment ....................................................
Provision for losses on accounts receivable .......................................
Write-downs of inventories .............................................................
Write-off of property and equipment ...............................................
Non-cash stock-based compensation ...............................................
Deferred income taxes ...................................................................
Loss on sale of foreign entity ..........................................................
Gain on sale of real estate ..............................................................
25,787
16,812
-
5,245
2,776
418
12,826
19,139
3,646
-
27,493
10,637
-
2,452
2,934
-
11,058
10,517
-
(338)
26,649
11,308
800
6,761
3,997
535
8,922
5,174
-
-
Changes in assets and liabilities:
Increase in accounts receivable ....................................................
Increase in inventories ................................................................
Decrease (increase) in other assets ..............................................
(Decrease) increase in accounts payable .......................................
(Decrease) increase in deferred revenue .......................................
(Decrease) increase in accrued expenses and other liabilities ...........
Net cash (used in) provided by operating activities .....................
Cash flows from investing activities:
(208,065) (168,966)
(50,712)
(50,130)
(14,046)
4,982
(237,457) 193,582
10,633
12,278
96,128
(27,184)
(988)
(305,426)
(47,206)
(9,214)
(26,714)
113,594
2,927
7,718
181,102
Acquisitions, net of cash and cash equivalents acquired .....................
Purchases of property and equipment ..............................................
Proceeds from sale of foreign entity.................................................
Proceeds from sale of real estate, net ..............................................
Net cash used in investing activities ..........................................
(186,932)
(19,230)
1,517
-
(204,645)
(10,297)
(12,266)
-
1,378
(21,185)
(44,221)
(13,416)
-
-
(57,637)
Cash flows from financing activities:
Borrowings on senior revolving credit facility ....................................
Repayments on senior revolving credit facility ..................................
Borrowings on accounts receivable securitization financing facility .......
Repayments on accounts receivable securitization financing facility .....
Borrowings under Term Loan A .......................................................
Repayments under Term Loan A .....................................................
Repayments under other financing agreements ................................
Payments on capital lease obligations ..............................................
Net borrowings (repayments) under inventory financing facility ..........
Payment of debt issuance costs ......................................................
Payment of payroll taxes on stock-based compensation through
175,000
1,151,216
686,410
772,218
(1,033,716) (772,218) (686,410)
1,897,100
3,961,389
2,802,000
(1,869,100)
(3,975,889) (2,851,500)
-
-
-
-
(543)
(223)
(16,454)
-
(8,750)
(5,636)
(1,089)
48,603
(3,360)
(1,309)
(445)
141,037
(1,123)
(2,265)
shares withheld .........................................................................
Repurchases of common stock ........................................................
(91,843)
(83,328)
Net cash provided by (used in) financing activities ......................
(16,683)
Foreign currency exchange effect on cash and cash equivalent balances .....
23,454
(Decrease) increase in cash and cash equivalents ....................................
Cash and cash equivalents at beginning of year .......................................
164,524
Cash and cash equivalents at end of year ................................................ $ 105,831 $ 202,882 $ 187,978
(2,219)
(50,000)
(58,230)
(1,809)
14,904
187,978
(5,318)
-
397,121
15,899
(97,051)
202,882
See accompanying notes to consolidated financial statements.
52
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Operations and Summary of Significant Accounting Policies
Description of Business
We are a Fortune 500 global information technology (“IT”) provider helping businesses of all sizes –
from small and medium sized firms to worldwide enterprises, governments, schools and health care
organizations – define, architect, implement and manage Intelligent Technology SolutionsTM. We empower
our clients to manage their IT environments so they can drive meaningful business outcomes today and
transform their operations for tomorrow. Our company is organized in the following three operating
segments, which are primarily defined by their related geographies:
Operating Segment Geography
North America
United States and Canada
EMEA
APAC
Europe, Middle East and Africa
Asia-Pacific
Our offerings in North America and certain countries in EMEA and APAC include hardware, software
and services. Our offerings in the remainder of our EMEA and APAC segments are largely software and
certain software-related services. A discussion of changes in our classification of certain revenue streams
during 2017, can be found in Note 20. Prior year results were reclassified to conform to the current year
presentation. These reclassifications had no effect on consolidated total net sales.
Acquisitions
Effective September 26, 2017, we acquired Caase Group B.V. (referred to herein as, “Caase.com”), a
Dutch cloud service provider, for a purchase price, net of cash acquired, of approximately $6,038,000,
subject to a final working capital adjustment. The acquisition was funded using cash on hand.
Effective January 6, 2017, we acquired Datalink Corporation (“Datalink”), a leading provider of IT
services and enterprise data center solutions based in Eden Prairie, Minnesota, for a cash purchase price
of $257,456,000, which included cash and cash equivalents acquired of $76,597,000. The acquisition was
funded using cash on hand and borrowings under our revolving facility in the form of an incremental Term
Loan A (“TLA”).
Effective September 1, 2016, we acquired Ignia Pty Ltd (“Ignia”), a business technology consulting
and managed services provider headquartered in Perth, Australia, with an additional office in Melbourne,
for a cash purchase price, net of cash acquired, of approximately $10,804,000. The acquisition was
funded using cash on hand.
Effective October 1, 2015, we acquired BlueMetal Architects, Inc. (“BlueMetal”), an interactive design
and technology architecture firm based in the Boston area with offices in Chicago and New York, for a cash
purchase price, net of cash acquired, of approximately $44,221,000. The acquisition was funded using
borrowings under our accounts receivable securitization financing facility.
Our results of operations include the results of Caase.com, Datalink, Ignia and BlueMetal from their
respective acquisition dates. (See Note 21 for a discussion of our acquisitions.)
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly
owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation. References to “the Company,” “Insight,” “we,” “us,” “our” and other similar words refer to
Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements. Additionally, these estimates and assumptions affect the reported
amounts of net sales and expenses during the reporting period. Actual results could differ from those
estimates. On an ongoing basis, we evaluate our estimates, including those related to sales recognition,
anticipated achievement levels under partner funding programs, assumptions related to stock-based
compensation valuation, allowances for doubtful accounts, valuation of inventories, litigation-related
obligations, valuation allowances for deferred tax assets and impairment of long-lived assets, including
purchased intangibles and goodwill, if indicators of potential impairment exist.
Cash and Cash Equivalents
We consider all highly liquid investments with maturities at the date of purchase of three months or less
to be cash equivalents.
Book overdrafts represent the amount by which outstanding checks issued, but not yet presented to
our banks for disbursement, exceed balances on deposit in applicable bank accounts and a legal right of
offset with our positive cash balances in other financial institution accounts does not exist. Our book
overdrafts, which are not directly linked to a credit facility or other bank overdraft arrangement, do not
result in an actual bank financing, but rather constitute normal unpaid trade payables at the end of a
reporting period. These amounts are included within our accounts payable balance in our consolidated
balance sheets. The changes in these book overdrafts are included within the changes in accounts
payable line item as a component of cash flows from operating activities in our consolidated statements of
cash flows.
Allowance for Doubtful Accounts
We establish an allowance for doubtful accounts to reflect our best estimate of probable losses
inherent in our accounts receivable balance. The allowance is based on our evaluation of the aging of the
receivables, historical write-offs and the current economic environment. We write off individual accounts
against the reserve when we no longer believe that it is probable that we will collect the receivable
because we become aware of a client’s or partner’s inability to meet its financial obligations. Such
awareness may be as a result of bankruptcy filings, or deterioration in the client’s or partner’s operating
results or financial position.
Inventories
We state inventories, principally purchased IT hardware, at the lower of weighted average cost (which
approximates cost under the first-in, first-out method) or net realizable value. We evaluate inventories
for excess, obsolescence or other factors that may render inventories unmarketable at normal margins.
Write-downs are recorded so that inventories reflect the approximate net realizable value and take into
account contractual provisions with our partners governing price protection, stock rotation and return
privileges relating to obsolescence. Because of the large number of transactions and the complexity of
managing the price protection and stock rotation process, estimates are made regarding write-downs of
the carrying amount of inventories. Additionally, assumptions about future demand, market conditions
and decisions by manufacturers/publishers to discontinue certain products or product lines can affect our
decision to write down inventories.
Inventories not available for sale relate to product sales transactions in which we are warehousing the
product and will be deploying the product to our clients’ designated locations subsequent to period-end.
Additionally, we may perform services on a portion of the product prior to shipment to our clients and will
be paid a fee for doing so. Although these product contracts are non-cancelable with customary credit
terms beginning the date the inventories are segregated in our warehouse and invoiced to the client and
the warranty periods begin on the date of invoice, these transactions do not meet the sales recognition
criteria under GAAP. Therefore, we do not record sales and the inventories are classified as inventories
not available for sale on our consolidated balance sheet until the product is delivered. If clients remit
payment before we deliver the product to them, we record the payments received as deferred revenue on
our consolidated balance sheet until such time as the product is delivered.
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Equipment
We record property and equipment at cost. We capitalize major improvements and betterments, while
maintenance, repairs and minor replacements are expensed as incurred. Depreciation or amortization is
provided using the straight-line method over the following estimated economic lives of the assets:
Leasehold improvements .............................
Furniture and fixtures .................................
Equipment ...............................................
Software ...................................................
Buildings ...................................................
Estimated Economic Life
Shorter of underlying lease term or asset life
2 – 7 years
3 – 5 years
3 – 10 years
29 years
Costs incurred to develop internal-use software during the application development stage, including
capitalized interest, are recorded in property and equipment at cost. External direct costs of materials and
services consumed in developing or obtaining internal-use computer software and payroll and payroll-
related costs for teammates who are directly associated with and who devote time to internal-use
computer software development projects, to the extent of the time spent directly on the project and
specific to application development, are capitalized.
Reviews are regularly performed to determine whether facts and circumstances exist which indicate that
the useful life is shorter than originally estimated or the carrying amount of assets may not be recoverable.
When an indication exists that the carrying amount of long-lived assets may not be recoverable, we assess
the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the
related asset or group of assets over their remaining lives against their respective carrying amounts. Such
impairment test is based on the lowest level for which identifiable cash flows are largely independent of
the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the
carrying amount over the estimated fair value of those assets.
Goodwill
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of
net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting
unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of the reporting unit below its
carrying value. We may first perform a qualitative assessment to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the
case, it is necessary to perform a quantitative goodwill impairment test. Otherwise, the goodwill
impairment test is not required. The quantitative goodwill impairment review process compares the fair
value of the reporting unit in which goodwill resides to its carrying value. The Company has three reporting
units, which are the same as our operating segments. Multiple valuation techniques can be used to assess
the fair value of the reporting unit. All of these techniques include the use of estimates and assumptions
that are inherently uncertain. Changes in these estimates and assumptions could materially affect the
determination of fair value or goodwill impairment, or both.
Intangible Assets
We amortize intangible assets acquired in business combinations using the straight-line method over
the following estimated economic lives of the intangible assets from the date of acquisition:
Customer relationships .........................................
2 – 11 years
Tradenames and Restrictive Covenant Agreements ...
9 months – 3 years
Estimated Economic Life
We regularly perform reviews to determine if facts and circumstances exist which indicate that the useful
lives of our intangible assets are shorter than originally estimated or the carrying amount of these assets
may not be recoverable. When an indication exists that the carrying amount of intangible assets may not be
recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash
flows associated with the related asset or group of assets over their remaining lives against their respective
carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based
on the excess of the carrying amount over the estimated fair value of those assets.
Trade Credits
Trade credit liabilities arise from aged unclaimed credit memos, duplicate payments, payments for
returned product or overpayments made to us by our clients, and, to a lesser extent, from goods received
by us from a partner for which we were never invoiced. Trade credit liabilities are included in accrued
expenses and other current liabilities in our consolidated balance sheets. We derecognize the liability only
if it has been extinguished, upon either (1) our payment of the liability to relieve our obligation or (2) our
legal release from the related obligation, which is recorded as a reduction of costs of goods sold.
Self-Insurance
We are self-insured in the United States for medical insurance up to certain annual stop-loss limits and
workers’ compensation claims up to certain deductible limits. We establish reserves for claims, both
reported and incurred but not reported, using currently available information as well as our historical
claims experience.
Treasury Stock
We record repurchases of our common stock as treasury stock at cost. We also record the subsequent
retirement of these treasury shares at cost. The excess of the cost of the shares retired over their par value
is allocated between additional paid-in capital and retained earnings. The amount recorded as a reduction of
paid-in capital is based on the excess of the average original issue price of the shares over par value. The
remaining amount is recorded as a reduction of retained earnings.
Sales Recognition
Sales are recognized when title and risk of loss are passed to the client, there is persuasive evidence of
an arrangement for sale, delivery has occurred and/or services have been rendered, the sales price is fixed
or determinable and collectibility is reasonably assured. Our standard sales terms are F.O.B. shipping point
or equivalent, at which time title and risk of loss have passed to the client. However, because we either (i)
have a general practice of covering client losses while products are in transit despite title and risk of loss
contractually transferring at the point of shipment or (ii) have specifically stated F.O.B. destination
contractual terms with the client, delivery is not deemed to have occurred until the point in time when the
product is received by the client. We make provisions for estimated product returns that we expect to occur
under our return policy based upon historical return rates.
We leverage drop-shipment arrangements with many of our partners and suppliers to deliver products to
our clients without having to physically hold the inventory at our warehouses, thereby increasing efficiency
and reducing costs. We recognize revenue for drop-shipment arrangements on a gross basis when the
product is received by the client. We recognize revenue on a gross basis as the principal in the transaction
because we control the transaction as the primary obligor for product fulfillment in the arrangement, we
assume inventory risk if the product is returned by the client, we set the price of the product charged to the
client, we assume credit risk for the amounts invoiced, and we work closely with our clients to determine
their hardware and software specifications.
We record the freight we bill to our clients as net sales and the related freight costs we pay as costs of
goods sold. We report sales net of any sales-based taxes assessed by governmental authorities that are
imposed on and concurrent with sales transactions.
Revenue is recognized from software sales when clients acquire the right to use or copy software under
license, but in no case prior to the commencement of the term of the initial software license agreement,
provided that all other revenue recognition criteria have been met (i.e., evidence of the arrangement exists,
the fee is fixed or determinable and collectibility of the fee is probable).
We sell certain third-party service contracts, software maintenance and cloud or software-as-a-service
subscription products for which we are not the primary obligor. These sales do not meet the criteria for
gross sales recognition, and thus are recorded on a net sales recognition basis. As we enter into contracts
with third-party service providers or vendors and our clients, we evaluate whether the subsequent sales of
such services should be recorded as gross sales or net sales. We determine whether we act as a principal
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
in the transaction and assume the risks and rewards of ownership or if we are simply acting as an agent
or broker. Under gross sales recognition, the selling price is recorded in sales and our cost to the third-
party service provider or vendor is recorded in costs of goods sold. Under net sales recognition, the cost
to the third-party service provider or vendor is recorded as a reduction to sales, resulting in net sales
equal to the gross profit on the transaction, and there are no costs of goods sold.
We recognize revenue for sales of services ratably over the time period over which the service will be
provided if there is no discernible pattern of recognition of the cost to perform the service. Billings for
such services that are made in advance of the related revenue recognized are recorded as deferred
revenue and recognized as revenue ratably over the billing coverage period. Revenue from certain
arrangements that allow for the use of a product or service over a period of time without taking
possession of software are also accounted for ratably over the time period over which the service will be
provided.
We recognize revenue for professional services engagements that are on a time and materials basis
based upon hours incurred as the services are performed and amounts are earned. Net sales for these
services engagements are not a significant portion of our consolidated net sales.
Additionally, we sell certain professional services contracts on a fixed fee basis. Revenues for fixed
fee professional services contracts are recognized based on the ratio of costs incurred to total estimated
costs. Net sales for these service contracts are not a significant portion of our consolidated net sales.
In certain arrangements, we may provide a combination of hardware and software products and the
provision of services. Services that are performed by us in conjunction with hardware and software sales
that are completed in our facilities prior to shipment of the product are recognized upon delivery, when title
passes to the client, for the hardware sale. Net sales of services that are performed at client locations are
primarily service-only contracts and are recorded as sales when the services are performed. The total
consideration for an arrangement with multiple deliverables is allocated to all deliverables that represent a
separate unit of accounting using the relative selling price method.
Costs of Goods Sold
Costs of goods sold include product costs, direct costs incurred associated with delivering services,
outbound and inbound freight costs and provisions for inventory reserves. These costs are reduced by
provisions for supplier discounts and certain payments and credits received from partners, as described
under “Partner Funding” below.
Selling and Administrative Expenses
Selling and administrative expenses include salaries and wages, bonuses and incentives, stock-based
compensation expense, employee-related expenses, facility-related expenses, marketing and advertising
expense, reduced by certain payments and credits received from partners related to shared marketing
expense programs, as described under “Partner Funding” below, depreciation of property and equipment,
professional fees, amortization of intangible assets, provisions for losses on accounts receivable and other
operating expenses.
Partner Funding
We receive payments and credits from partners, including consideration pursuant to volume sales
incentive programs, volume purchase incentive programs and shared marketing expense programs.
Partner funding received pursuant to volume sales incentive programs is recognized as it is earned as a
reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive
programs is allocated as a reduction to inventories based on the applicable incentives earned from each
partner and is recorded in cost of goods sold as the related inventory is sold. Partner funding received
pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related
selling and administrative expenses in the period the program takes place if the consideration represents a
reimbursement of specific, incremental, identifiable costs. Consideration that exceeds the specific,
incremental, identifiable costs is classified as a reduction of costs of goods sold. The amount of partner
funding recorded as a reduction of selling and administrative expenses in our statements of operations
totaled $53,227,000, $48,114,000 and $45,146,000 in 2017, 2016 and 2015, respectively.
57
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Concentrations of Risk
Credit Risk
Although we are affected by the international economic climate, management does not believe
material credit risk concentration existed at December 31, 2017. We monitor our clients’ financial
condition and do not require collateral. Sales to the U.S. federal government, which are diversified across
multiple agencies and departments, collectively accounts for approximately 9% of our 2017 net sales.
Excluding these sales to the federal government, we are not reliant on any one client. No single client
accounted for more than 4% of our consolidated net sales in 2017.
Supplier Risk
Purchases from Microsoft accounted for approximately 26% of our aggregate purchases in 2017. No
other partner accounted for more than 10% of purchases in 2017. Our top five partners as a group for
2017 were Microsoft, Cisco Systems, Tech Data (a distributor), Dell and HP Inc., and approximately 60%
of our total purchases during 2017 came from this group of partners. Although brand names and
individual products are important to our business, we believe that competitive sources of supply are
available in substantially all of our product categories such that, with the exception of Microsoft, we are
not dependent on any single partner for sourcing products.
Advertising Costs
Advertising costs are expensed as they are incurred. Advertising expense of $47,053,000,
$37,565,000 and $33,568,000 was recorded in 2017, 2016 and 2015, respectively. These amounts were
predominantly offset by partner funding earned pursuant to shared marketing expense programs recorded
as a reduction of selling and administrative expenses, as discussed in “Partner Funding” above.
Stock-Based Compensation
Stock-based compensation is measured based on the fair value of the award on the date of grant and
the corresponding expense is recognized over the period during which an employee is required to provide
service in exchange for the reward. Stock-based compensation expense is classified in the same line item
of our consolidated statements of operations as other payroll-related expenses specific to the employee.
Compensation expense related to service-based restricted stock units (“RSUs”) is recognized on a
straight-line basis over the requisite service period for the entire award. Compensation expense related to
performance-based RSUs is recognized on a straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in-substance, multiple awards (i.e., a graded
vesting basis).
Foreign Currencies
We use the U.S. dollar as our reporting currency. The functional currencies of our foreign subsidiaries
are the local currencies. Accordingly, assets and liabilities of the subsidiaries are translated into U.S. dollars
at the exchange rate in effect at the balance sheet dates. Income and expense items are translated at the
average exchange rate for each month within the year. The resulting translation adjustments are recorded
directly in accumulated other comprehensive income, net of tax – foreign currency translation adjustments
as a separate component of stockholders’ equity. Net foreign currency transaction gains/losses, including
transaction gains/losses on intercompany balances that are not of a long-term investment nature and non-
functional currency cash balances, are reported as a separate component of non-operating (income) expense
in our consolidated statements of operations.
Derivative Financial Instruments
We enter into forward foreign exchange contracts to mitigate the risk of non-functional currency
monetary assets and liabilities on our consolidated financial statements. These forward contracts are not
designated as hedge instruments. The fair value of all derivative assets and liabilities are recorded gross
in the other current assets and accrued expenses and other current liabilities sections of our consolidated
balance sheets. Gains/losses are recorded net in non-operating (income) expense in our consolidated
statements of operations.
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable earnings in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the enactment date.
We recognize net deferred tax assets to the extent that we believe these assets are more likely than
not to be realized. In making such a determination, we consider all available positive and negative
evidence, including future reversals of existing taxable temporary differences, projected future taxable
income, tax-planning strategies and results of recent operations. If we determine that we would be able
to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes.
We record uncertain tax positions on the basis of a two-step process whereby (1) we determine
whether it is more likely than not that the tax positions will be sustained on the basis of the technical
merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition
threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be
realized upon ultimate settlement with the related tax authority. Interest and penalties related to
unrecognized tax benefits are recognized within the income tax expense line in our consolidated
statements of operations. Accrued interest and penalties are included within the related tax liability line in
our consolidated balance sheets.
Net Earnings Per Share (“EPS”)
Basic EPS is computed by dividing net earnings available to common stockholders by the weighted
average number of common shares outstanding during each year. Diluted EPS is computed on the basis
of the weighted average number of shares of common stock plus the effect of dilutive potential common
shares outstanding during the period using the treasury stock method. Dilutive potential common shares
include outstanding RSUs. A reconciliation of the denominators of the basic and diluted EPS calculations
follows (in thousands, except per share data):
Years Ended December 31,
2017
2016
2015
Numerator:
Net earnings ...................................................................... $
90,683
$
84,690
$
75,851
Denominator:
Weighted-average shares used to compute basic EPS .............
Dilutive potential common shares due to dilutive
35,741
36,102
37,984
RSUs, net of tax effect ..................................................
Weighted-average shares used to compute diluted EPS...........
466
36,207
336
36,438
291
38,275
Net earnings per share:
Basic ............................................................................. $
Diluted .......................................................................... $
2.54
2.50
$
$
2.35
2.32
$
$
2.00
1.98
In 2017, 2016 and 2015, approximately 40,000, 36,000 and 1,000, respectively, of our RSUs were not
included in the diluted EPS calculations because their inclusion would have been anti-dilutive. These
share-based awards could be dilutive in the future.
Recently Issued Accounting Standards
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard
Update (“ASU”) No. 2017-04, “Simplifying the Test for Goodwill Impairment.” The new standard requires
an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment.
Instead, impairment will be measured using the difference between the carrying amount and the fair value
of the reporting unit. The new standard is effective for annual and interim periods beginning after
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 15, 2019, and early adoption is permitted. We adopted this new standard when we performed
our annual goodwill impairment analysis for 2017 in the fourth quarter of 2017 and applied it
prospectively. The adoption of this standard did not have a material effect on our consolidated financial
statements. See “Goodwill” above for further details about our test for goodwill impairment.
In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash.” The new standard requires
companies to include cash and cash equivalents that have restrictions on withdrawal or use within total
cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. The new standard is effective for interim and annual periods
beginning after December 15, 2017, and early adoption is permitted. The new standard is required to be
adopted retrospectively. We plan to adopt this new standard in the first quarter of 2018 and do not
expect the adoption to have a material effect on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash
Payments.” The new standard is intended to reduce diversity in practice in how certain transactions are
classified in the statement of cash flows. It addresses eight specific cash flow issues to clarify the
presentation and classification of cash receipts and cash payments in the statement of cash flows. The
new standard is effective for interim and annual periods beginning after December 15, 2017, and early
adoption is permitted. The new standard is required to be adopted retrospectively. We plan to adopt this
new standard in the first quarter of 2018 and do not expect the adoption to have a material effect on our
consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment
Accounting.” This new standard simplifies the accounting for share-based payment transactions, including
the income tax consequences, the calculation of diluted earnings per share, the treatment of forfeitures,
the classification of awards as either equity or liabilities and the classification on the statement of cash
flows. This new standard increases volatility in the statement of operations by requiring all excess tax
benefits and deficiencies to be recognized as income tax benefit or expense in the statement of operations
and treated as discrete items in the period in which they occur. We adopted the new standard as of
January 1, 2017, and prospectively applied the provisions in this guidance requiring recognition of excess
tax benefits and deficits in the statement of operations, which resulted in an income tax benefit of
$2,483,000 for the year ended December 31, 2017. The corresponding increase in net earnings equated
to $0.07 per diluted share during the year ended December 31, 2017. Also, as a result of the adoption of
the new standard, we made an accounting policy election to recognize forfeitures as they occur and no
longer estimate expected forfeitures. The provisions in this guidance requiring the use of a modified
retrospective transition method would have required us to record a cumulative effect adjustment in
retained earnings as of January 1, 2017. We elected not to adjust retained earnings and to record such
cumulative effect adjustment as stock-based compensation in the first quarter of 2017 on the basis of
immateriality. Lastly, we applied the provisions of this guidance relating to classification on the statement
of cash flows retrospectively. As a result, excess tax benefits from employee gains on stock-based
compensation of $323,000 and $592,000 were reclassified from cash flows from financing activities to
cash flows from operating activities for the years ended December 31, 2016 and 2015, respectively, to
conform to the current period presentation.
In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which supersedes the existing lease
recognition requirements in the existing accounting standard for leases. The core principal of the new
standard is that an entity should recognize assets and liabilities arising from a lease for both financing and
operating leases, along with additional qualitative and quantitative disclosures. The new standard will be
effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal
years. Early adoption is permitted. The new standard is to be applied using a modified retrospective
transition method with the option to elect a number of practical expedients. We expect to adopt the new
standard in the first quarter of 2019 and are in the process of determining the effect that the adoption of
ASU 2016-02 will have on our consolidated financial statements and disclosures. We have not yet
selected our planned transition approach.
In January 2016, the FASB issues ASU No. 2016-01, “Financial Instruments Overview: Recognition
and Measurement of Financial Assets and Financial Liabilities.” The new standard amends the guidance on
the classification and measurement of financial instruments and changes the accounting for investments in
equity securities. The new standard is effective for annual and interim periods in fiscal years beginning
after December 15, 2017, and early adoption is permitted. We plan to adopt this new standard in the first
quarter of 2018 and do not expect the adoption to have a material effect on our consolidated financial
statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” This
standard changes the measurement from lower of cost or market to lower of cost and net realizable value.
We adopted the standard in the first quarter of 2017 and applied the provisions prospectively. The
standard did not have a material effect on our consolidated financial statements.
On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,”
which amends the existing accounting standards for revenue recognition. The core principle of the
guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The standard, as amended, will be effective for the Company
beginning in the first quarter of 2018. The standard permits two methods of adoption: retrospectively to
each prior reporting period presented (the full retrospective transition method) or retrospectively with the
cumulative effect adjustment of initially applying the new standard recognized at the date of initial
application (the modified retrospective transition method).
We will adopt the standard as of January 1, 2018, and will utilize the modified retrospective transition
method. While we are still finalizing our accounting policies under the new standard and are in the
process of quantifying the cumulative effect adjustment from prior periods that will be recognized in our
consolidated balance sheet as of the date of adoption as an adjustment to retained earnings, to date we
have concluded:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
In sales transactions for certain security software products that are sold with integral third-party
delivered software maintenance, we will change to record both the software license and the
accompanying software maintenance on a net basis, as the agent in the arrangement. Under
current guidance, we bifurcate the sale of the software license from the sale of the maintenance
contract, record the sale of the software product on a gross basis, as the principal in the
arrangement, and record the sale of the software maintenance on a net basis, as an agent in the
arrangement. This change will lead us to report lower net sales in future periods related to
security software products. This change will have no effect on gross profit dollars, but all other
things being equal, gross margin for these specific sales would increase compared to prior years.
The accounting for inventories not available for sale, otherwise known as bill and hold
arrangements, will change such that a portion of revenue under the contracts will be recognized
earlier than we are recognizing under current accounting standards. Bill and hold arrangements
are inventory balances owned and paid for by our clients, but for which we are warehousing the
product and will be deploying it to the clients’ locations in a future period.
The accounting for renewals of certain software term licenses will change to delay revenue
recognition until the beginning of the renewal period. Under current guidance, we recognize
revenue as the renewal order is completed. We do not believe this change will have a material
effect on our sales or profitability trends, as it is only a change in timing of recognition between
periods.
Sales commissions on contracts with performance periods that exceed one year will be recorded
as an asset and amortized to expense over the related contract performance period as opposed to
being expensed in the period the transaction is generated.
Our analysis and evaluation of the new standard will continue through to when we publish our first
quarter of 2018 results. A substantial amount of work has been completed, and findings and progress to
date have been reported to management and the Audit Committee. Although we currently believe that
the changes overall resulting from the adoption of the new standard will not lead to operating trends that
are materially different than we reported in prior years, our evaluation of the effects is still being finalized.
Currently, we estimate the total cumulative effect adjustment from prior periods that will be recognized in
our consolidated balance sheet as of the date of adoption as an adjustment to retained earnings to be less
than $10,000,000, on a pretax basis.
61
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2)
Property and Equipment
Property and equipment consist of the following (in thousands):
Software .................................................................................... $
Buildings ....................................................................................
Equipment .................................................................................
Furniture and fixtures ..................................................................
Leasehold improvements .............................................................
Land ..........................................................................................
Accumulated depreciation and amortization ....................................
Property and equipment, net ........................................................ $
December 31,
2017
2016
171,701 $
65,468
103,542
38,459
25,981
5,179
410,330
(335,078)
75,252 $
159,442
63,253
93,553
36,526
21,132
5,131
379,037
(308,127)
70,910
We periodically assess whether any indicators of impairment existed related to our property and
equipment. We incurred non-cash charges of $418,000 and $535,000 during 2017 and 2015,
respectively, to write-off certain property and equipment. No such charges were incurred in 2016.
Depreciation and amortization expense related to property and equipment was $25,787,000, $27,493,000
and $26,649,000 in 2017, 2016 and 2015, respectively. Interest charges capitalized in connection with
internal-use software development projects in 2017, 2016 and 2015 were immaterial.
(3)
Goodwill
The changes in the carrying amount of goodwill for the year ended December 31, 2017 are as follows
(in thousands):
Goodwill .............................................. $
Accumulated impairment losses .............
Goodwill acquired during 2016 ...............
Balance at December 31, 2016..........
North America
379,617
(323,422)
(507)
55,688
EMEA
APAC
Consolidated
$
151,439 $
(151,439)
-
-
13,973 $
(13,973)
6,957
6,957
545,029
(488,834)
6,450
62,645
Goodwill acquired during 2017 ...............
64,140
4,041
605
68,786
Balance at December 31, 2017.......... $
119,828
$
4,041 $
7,562 $
131,431
On September 26, 2017, we acquired Caase.com, which has been integrated into our EMEA business.
Under the purchase method of accounting, the purchase price for the acquisition was allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values. The excess purchase price over fair value of net assets acquired of approximately $4,041,000 was
recorded as goodwill in the EMEA reporting unit (see Note 21). The primary driver for this acquisition was to
strengthen our ability to deliver Intelligent Technology Solutions to our clients in the Netherlands, with a
view to expand into the wider European region in the near future.
On January 6, 2017, we acquired Datalink, which has been integrated into our North America business.
Under the purchase method of accounting, the purchase price for the acquisition was allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair
values. The excess purchase price over fair value of net assets acquired of approximately $64,140,000 was
recorded as goodwill in the North America reporting unit (see Note 21). The primary driver for this
acquisition was to strengthen our position as a leading IT solutions provider with deep technical talent
delivering data center solutions to clients on premise or in the cloud.
On September 1, 2016, we acquired Ignia, which has been integrated into our APAC business. Under
the purchase method of accounting, the purchase price for the acquisition was allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.
The excess purchase price over fair value of net assets acquired of approximately $6,957,000 was
recorded as goodwill in the APAC reporting unit (see Note 21). The primary driver for this acquisition was
to expand our global footprint in the areas of application design, digital solutions, cloud, mobility and
business analytics, while also building on our unique position to bring solutions powered by Intelligent
Technology™ to our clients in the Asia-Pacific region. The change in goodwill in our APAC operating segment
as of December 31, 2017 compared to the balance as of December 31, 2016 resulted from a final working
62
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
capital adjustment of $35,000 during the year and foreign currency translation adjustments associated with
the goodwill balance.
On October 1, 2015, we acquired BlueMetal, which has been integrated into our North America business.
In 2016, we resolved the working capital contingency associated with the acquisition of BlueMetal. We
recorded the adjustment of the purchase price allocation as a reduction of goodwill in our North America
operating segment upon the receipt of $507,000 in cash during 2016.
During 2017, we periodically assessed whether any indicators of impairment existed which would
require us to perform an interim impairment review. As of each interim period end during the year, we
concluded that a triggering event had not occurred that would more likely than not reduce the fair value of
our reporting units below their carrying values. We performed our annual test of goodwill for impairment
during the fourth quarter of 2017. The results of the goodwill impairment test indicated that the fair
values of our North America, EMEA and APAC reporting units, estimated using the market approach, were
in excess of their respective carrying values.
(4)
Intangible Assets
Intangible assets consist of the following (in thousands):
Customer relationships ............................................................... $
Other........................................................................................
Accumulated amortization ...........................................................
Intangible assets, net ................................................................. $
December 31,
2017
2016
133,660 $
4,475
138,135
(37,357)
100,778 $
41,711
1,978
43,689
(22,982)
20,707
In March and December 2017, respectively, the customer relationship intangible assets associated
with the 2012 acquisition of Inmac and the 2011 acquisition of Ensynch were fully amortized. As such,
the gross intangible assets balance and the accumulated amortization balance were both reduced by
approximately $2,516,000, which had no effect on the net intangible assets balance reported in the
accompanying consolidated balance sheet as of December 31, 2017.
In September 2016, the customer relationship intangible assets associated with the 2006 acquisition
of Software Spectrum Inc. and the 2008 acquisition of MINX Limited in the United Kingdom were fully
amortized. As such, the gross intangible assets balance and the accumulated amortization balance were
both reduced by approximately $81,817,000, which had no effect on the net intangible assets balance
reported in the accompanying consolidated balance sheet as of December 31, 2016.
During 2017, we periodically assessed whether any indicators of impairment existed related to our
intangible assets. As of each interim period end during the year, we concluded that a triggering event had
not occurred that would more likely than not reduce the fair value of our intangible assets below their
carrying values.
Amortization expense recognized in 2017, 2016 and 2015 was $16,812,000, $10,637,000 and
$11,308,000, respectively. Future amortization expense for the remaining unamortized balance as of
December 31, 2017 is estimated as follows (in thousands):
Years Ending December 31,
2018 ........................................................................................
2019 ........................................................................................
2020 ........................................................................................
2021 ........................................................................................
2022 ........................................................................................
Thereafter .................................................................................
Total amortization expense ...................................................
63
Amortization Expense
$
14,260
11,690
11,677
11,638
11,638
39,875
100,778
$
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5)
Accounts Payable - Inventory Financing Facility
We have entered into an agreement with a financial intermediary to facilitate the purchase of
inventory from various suppliers under certain terms and conditions, as described below. These amounts
are classified separately as accounts payable - inventory financing facility in the accompanying
consolidated balance sheets.
The aggregate availability for vendor purchases under our inventory financing facility is $325,000,000.
From time to time and at our option, we may request to increase the aggregate amount available under
the inventory financing facility by up to an aggregate of $25,000,000, subject to customary conditions.
The facility matures on June 23, 2021. Additionally, the facility may be renewed under certain
circumstances described in the agreement for successive 12-month periods. Interest does not accrue on
accounts payable under this facility provided the accounts payable are paid within stated vendor terms
(typically 60 days). We impute interest on the average daily balance outstanding during these stated
vendor terms based on our blended incremental borrowing rate during the period under our senior
revolving credit facility and our accounts receivable securitization financing facility. Imputed interest of
$6,736,000, $3,385,000 and $3,406,000 was recorded in 2017, 2016 and 2015, respectively. If balances
are not paid within stated vendor terms, they will accrue interest at prime plus 1.25%. The facility is
guaranteed by the Company and each of its material domestic subsidiaries and is secured by a lien on
substantially all of the Company’s and each guarantor’s assets.
(6)
Debt, Capital Lease and Other Financing Obligations
Debt
Our long-term debt consists of the following (in thousands):
Senior revolving credit facility ....................................................... $
Term Loan A (less unamortized debt issuance costs of $873) ............
Accounts receivable securitization financing facility ..........................
Capital leases and other financing obligations .................................
Total ...................................................................................
Less: current portion of long-term debt .........................................
Long-term debt .................................................................... $
December 31,
2017
117,500 $
165,377
25,000
5,291
313,168
(16,592)
296,576
2016
-
-
39,500
1,231
40,731
(480)
40,251
$
Our senior revolving credit facility (“revolving facility”) is used for general corporate purposes, which
may include acquisitions and share repurchases, and may be used for borrowings in certain foreign
currencies and for letters of credit, in each case up to specified sublimits. The revolving facility has an
aggregate U.S. dollar equivalent maximum borrowing amount of $350,000,000, including a maximum
borrowing capacity that may be used for borrowing in certain foreign currencies of $50,000,000. On
January 6, 2017, we amended our revolving facility to expand the facility by $175,000,000 in the form of
an incremental Term Loan A (“TLA”). Pricing and all other general terms and conditions of the TLA are
governed by the existing revolving facility. The TLA requires amortization payments of 5%, 7.5%, 10%,
12.5% and 15% of the original principal balance in years one through five, respectively, to be paid
quarterly through March 31, 2021, with the remaining balance of $107,187,500 due at maturity on June
23, 2021. The revolving facility and TLA are guaranteed by the Company’s material domestic subsidiaries
and are secured by a lien on substantially all of the Company’s and each guarantor’s assets.
The interest rates applicable to borrowings under the revolving facility and the TLA are based on the
leverage ratio of the Company as set forth on a pricing grid in the agreement. Amounts outstanding
under the revolving facility and TLA bear interest, payable quarterly, at a floating rate equal to the prime
rate plus a predetermined spread of 0.00% to 0.75% or, at our option, a LIBOR rate plus a pre-
determined spread of 1.25% to 2.25%. The floating interest rate applicable at December 31, 2017 was
3.49% per annum for the revolving facility and 3.57% per annum for the TLA. In addition, we pay a
quarterly commitment fee on the unused portion of the facility of 0.25% to 0.45%, and our letter of credit
participation fee ranges from 1.25% to 2.25%. During 2017, 2016 and 2015, due to availability under our
ABS facility, weighted average borrowings under our revolving facility were $63,604,000, $35,811,000
and $21,987,000, respectively. Interest expense associated with the revolving facility and TLA was
$8,491,000, $2,191,000 and $1,813,000 in 2017, 2016 and 2015, respectively, including the commitment
fee and amortization of deferred financing fees. As of December 31, 2017, we had $117,500,000
outstanding under our revolving facility and approximately $166,250,000 outstanding under the TLA. See
64
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
discussion of the maximum leverage ratio under “Debt Covenants” below. The revolving facility matures
on June 23, 2021.
Our accounts receivable securitization financing facility (“ABS facility”) has a maximum aggregate
borrowing availability of $250,000,000 and matures on June 23, 2019. Under our ABS facility, we can sell
receivables periodically to a special purpose accounts receivable and financing entity (the “SPE”), which is
exclusively engaged in purchasing receivables from us. The SPE is a wholly-owned, bankruptcy-remote
entity that we have included in our consolidated financial statements. The SPE funds its purchases by
selling undivided interests in eligible trade accounts receivable to independent financial institution
purchasers under the ABS facility (“Purchasers”), which is administered by an independent financial
institution agent. The SPE’s assets are available first and foremost to satisfy the claims of the Purchasers,
and we cannot convey any interest in the receivables sold to the Purchasers (or allow any adverse claims
on the receivables) without the consent of the Purchasers. In addition, the SPE is required to maintain a
minimum capital amount and various reserves pursuant to the terms of the ABS facility. We maintain
effective control over the receivables that are sold. Accordingly, the receivables remain recorded on our
consolidated balance sheets. At December 31, 2017 and 2016, the SPE owned $1,141,520,000 and
$936,467,000, respectively, of receivables recorded at fair value and included in the accompanying
consolidated balance sheets. While the ABS facility has a stated maximum amount, the actual availability
under the ABS facility is limited by the quantity and quality of the underlying accounts receivable. As of
December 31, 2017, qualified receivables were sufficient to permit access to the full $250,000,000 facility
amount, of which $25,000,000 was outstanding. See discussion of the maximum leverage ratio under
“Debt Covenants” below.
Under the amended ABS facility, interest is payable monthly, and the floating interest rate applicable
at December 31, 2017 was 2.41% per annum, including a 0.85% usage fee on any outstanding balances.
In addition, we pay a monthly commitment fee on the unused portion of the facility of 0.375%. During
the years ended December 31, 2017, 2016 and 2015, the weighted average interest rates on amounts
outstanding under our ABS facility, including the usage and commitment fees and the amortization of
deferred financing fees, were 2.4%, 1.9% and 1.6%, respectively. Weighted average borrowings under
our ABS facility in 2017, 2016 and 2015 were $153,759,000, $145,376,000 and $112,101,000,
respectively.
Debt Covenants
Our revolving facility, our TLA and our ABS facility contain various covenants customary for
transactions of this type, including limitations on the payment of dividends and the requirement that we
comply with maximum leverage and minimum fixed charge ratio requirements, comply with a minimum
receivables requirement and meet monthly, quarterly and annual reporting requirements. If we fail to
comply with these covenants, the lenders would be able to demand payment within a specified period of
time. Further, the terms of the ABS facility identify various circumstances that would result in an
“amortization event” under the facility.
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under our
revolving facility, our TLA and our ABS facility is limited by certain financial covenants, particularly a
maximum leverage ratio. The maximum leverage ratio is calculated as aggregate debt outstanding
divided by the sum of our trailing twelve month net earnings (loss) plus (i) interest expense, excluding
non-cash imputed interest on our inventory financing facility, (ii) income tax expense (benefit), (iii)
depreciation and amortization, (iv) non-cash stock-based compensation, (v) extraordinary or non-
recurring non-cash losses or expenses and (vi) certain cash restructuring and acquisition-related charges
and synergies, not to exceed a specified cap (“adjusted earnings”). The maximum leverage ratio
permitted under the facilities was increased to 3.50 times trailing twelve-month adjusted earnings in
conjunction with the acquisition of Datalink effective January 6, 2017. A significant drop in our adjusted
earnings would limit the amount of indebtedness that could be outstanding at the end of any fiscal quarter
to a level that would be below our consolidated maximum facility amount. Based on our maximum
leverage ratio as of December 31, 2017, our aggregate debt balance that could have been outstanding
under our revolving facility, our TLA and our ABS facility was the full amount of the maximum borrowing
capacity of $766,250,000, of which $117,500,000 was outstanding under our revolving facility,
$166,250,000 was outstanding under our TLA and $25,000,000 was outstanding under our ABS facility at
December 31, 2017.
65
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Capital Lease and Other Financing Obligations
In August 2017, we entered into two 12-month capital leases for certain IT equipment. In May 2017
and March 2016, we entered into capitalized leases with 36-month terms for certain IT equipment. The
capital leases were non-cash transactions and, accordingly, have been excluded from our consolidated
statements of cash flows for the years ended December 31, 2017 and 2016.
Future minimum payments under the capitalized leases consist of the following as of December 31,
2017 (in thousands):
Years Ending December 31,
2018........................................................ $
2019........................................................
2020........................................................
Total minimum lease payments ...................
Less amount representing interest ...............
Present value of minimum lease payments ... $
1,550
1,016
381
2,947
(145)
2,802
From time to time, we also enter into other financing agreements with financial intermediaries to
facilitate the purchase of products from certain vendors. In conjunction with our acquisition of Datalink
effective January 6, 2017, we acquired certain obligations associated with Datalink’s financing of the
equipment that it leased to its clients. At December 31, 2017, these financing obligations totaled
$2,489,000. No amounts were owed under other financing agreements as of December 31, 2016.
The current and long-term portions of our capital lease and other financing obligations are included in
the current and long-term portions of long-term debt in the table above and in our consolidated balance
sheets as of December 31, 2017 and 2016.
(7)
Operating Leases
We have non-cancelable operating leases with third parties, primarily for administrative and distribution
center space and computer equipment. Our facilities leases generally provide for periodic rent increases and
many contain escalation clauses and renewal options. We recognize rent expense on a straight-line basis
over the lease term. Rental expense for these third-party operating leases was $19,126,000, $14,444,000
and $14,737,000 in 2017, 2016 and 2015, respectively, and is included in selling and administrative
expenses in the accompanying consolidated statements of operations.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining
lease terms in excess of one year) as of December 31, 2017 are as follows (in thousands):
Years Ending December 31,
2018 ...........................................................
2019 ...........................................................
2020 ...........................................................
2021 ...........................................................
2022 ...........................................................
Thereafter ...................................................
Total minimum lease payments ................ $
18,601
16,617
12,122
9,170
6,966
12,023
75,499
Amounts in the table above exclude approximately $1.6 million in each of 2018 and 2019 in non-
cancellable rental income.
66
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8)
Severance and Restructuring Activities
During 2017, 2016 and 2015, we recorded severance expense associated with the elimination of
certain positions based on a re-alignment of roles and responsibilities and a continued review of resource
needs. Charges in North America included severance actions taken to realign roles and responsibilities
subsequent to the acquisition of Datalink in January 2017, as well as a headcount reduction as part of cost
reduction initiatives in the fourth quarter of 2017 and early in 2016. Charges in EMEA included ongoing
restructuring activities, primarily in France, Germany, the United Kingdom and the Netherlands, as part
our cost reduction and restructuring initiatives in the region. The APAC charges primarily related to
severance actions taken subsequent to the acquisition of Ignia. The following table details the activity for
each of the three years in the period ending December 31, 2017 related to these resource actions, and the
outstanding obligations as of December 31, 2017 (in thousands):
Balances at December 31, 2014 ................. $
Severance costs, net of adjustments .........
Cash payments ......................................
Foreign currency translation adjustments ..
Balances at December 31, 2015 .................
Severance costs, net of adjustments .........
Cash payments ......................................
Foreign currency translation adjustments ..
Balances at December 31, 2016 .................
Severance costs, net of adjustments .........
Cash payments ......................................
Foreign currency translation adjustments ..
Balances at December 31, 2017 ................. $
North America
857
1,126
(1,456)
(22)
505
2,966
(2,524)
-
947
4,010
(3,336)
10
1,631
$
$
EMEA
APAC
2,971
3,781
(3,534)
(235)
2,983
1,496
(3,239)
(23)
1,217
4,888
(3,597)
486
2,994
$
$
-
-
-
-
-
118
(118)
-
-
104
(89)
-
15
$
3,828
4,907
(4,990)
(257)
3,488
4,580
(5,881)
(23)
2,164
9,002
(7,022)
496
4,640
Consolidated
$
Immaterial adjustments were recorded as a reduction to severance and restructuring expense in each
of 2017, 2016 and 2015, due to changes in estimates.
The remaining outstanding obligations as of December 31, 2017 are expected to be paid during the
next 12 months and are therefore included in accrued expenses and other current liabilities.
(9)
Stock-Based Compensation
We recorded the following pre-tax amounts in selling and administrative expenses for stock-based
compensation, by operating segment, in the accompanying consolidated financial statements (in thousands):
North America ................................................. $
9,697 $
8,096 $
EMEA .............................................................
APAC ..............................................................
2,737
392
2,530
432
Total Consolidated ........................................... $
12,826 $
11,058 $
6,648
1,908
366
8,922
Years Ended December 31,
2017
2016
2015
Company Plan
Our Board of Directors adopted the Amended Insight Enterprises, Inc. 2007 Omnibus Plan (the “Plan”)
on March 28, 2011. The Plan was approved by our stockholders on May 18, 2011 at our 2011 annual
meeting and, unless sooner terminated, will remain in place until May 18, 2021.
The Plan allows the Company to grant options, stock appreciation rights, stock awards, restricted
stock, stock units (which may also be referred to as “restricted stock units”), performance shares,
performance units, cash-based awards and other awards payable in cash or shares of common stock to
eligible non-employee directors, employees and consultants. Consultants and independent contractors are
eligible if they provide bona fide services that are not related to capital raising or promoting or
maintaining a market for the Company’s stock.
On February 17, 2016, the Board of Directors adopted the First Amendment to the Plan (the “First
Amendment”). On May 18, 2016 at our 2016 annual meeting, our stockholders approved the First
Amendment. The First Amendment: (a) updates the list of performance criteria contained in Section 16.1
67
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of the Plan; (b) imposes a limit on the dollar value of awards that may be granted to any one participant
who is a non-employee director during any one calendar year; and (c) adds an objective clawback
provision expressly providing that every award granted under the Plan is subject to potential forfeiture or
recovery to the fullest extent called for by law, listing standard or Company policy. The First Amendment
did not increase the number of shares available for grant under the Plan or extend the term of the Plan.
The Plan is administered by the Compensation Committee of Insight’s Board of Directors, and, except
as provided below, the Compensation Committee has the exclusive authority to administer the Plan,
including the power to determine eligibility, the types of awards to be granted, the price and the timing of
awards. Under the Plan, the Compensation Committee may delegate some of its authority to our Chief
Executive Officer to grant awards to individuals other than individuals who are subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended. As of December 31,
2017, of the 7,250,000 shares of common stock reserved and available for grant under the Plan,
3,215,540 shares of common stock remain available for grant under the Plan.
Accounting for Restricted Stock Units
We issue RSUs as incentives to certain officers and teammates and as compensation to members of
our Board of Directors. We recognize compensation expense associated with the issuance of such RSUs
over the vesting period for each respective RSU. The total compensation expense associated with RSUs
represents the value based upon the number of RSUs awarded multiplied by the closing price of our
common stock on the date of grant. The number of RSUs to be awarded under our service-based RSUs is
fixed at the grant date. The number of RSUs ultimately awarded under our performance-based RSUs
varies based on whether the Company achieves certain financial results. We record compensation
expense each period based on our estimate of the most probable number of RSUs that will be issued
under the grants of performance-based RSUs. Recipients of RSUs do not have voting or dividend rights
until the vesting conditions are satisfied and shares are released.
As of December 31, 2017, total compensation cost related to nonvested RSUs not yet recognized is
$17,483,000, which is expected to be recognized over the next 1.25 years on a weighted-average basis.
The following table summarizes our RSU activity during 2017:
Nonvested at the beginning of year ...........
Granted ..................................................
Vested, including shares withheld to
cover taxes ..........................................
Forfeited .................................................
Nonvested at the end of year ....................
Number
1,067,557
369,438
Weighted Average
Grant Date Fair Value
$
$
25.37
44.12
Fair Value
(466,839) $
(78,043) $
892,113
$
24.88 $
32.16
32.86 $
20,284,762(a)
34,159,007(b)
(a)
(b)
The aggregate fair value of vested RSUs represents the total pre-tax fair value, based on the closing stock
price on the day of vesting, which would have been received by holders of RSUs had all such holders sold their
underlying shares on that date. The aggregate intrinsic value for RSUs which vested during 2016 and 2015 was
$9,235,102 and $9,168,784, respectively.
The aggregate fair value of the nonvested RSUs and the RSUs expected to vest represents the total pre-tax
fair value, based on our closing stock price of $38.29 as of December 29, 2017 (December 31, 2017 was not a
trading day), which would have been received by holders of RSUs had all such holders sold their underlying
shares on that date.
During each of the years in the three-year period ended December 31, 2017, the RSUs that vested for
teammates in the United States were net-share settled such that we withheld shares with value equivalent
to the teammates’ minimum statutory United States tax obligation for the applicable income and other
employment taxes and remitted the equivalent cash amount to the appropriate taxing authorities. The
total shares withheld during 2017, 2016 and 2015 of 122,255, 84,953 and 85,652, respectively, were
based on the value of the RSUs on their vesting dates as determined by our closing stock price on such
dates. For 2017, 2016 and 2015, total payments for our teammates’ tax obligations to the taxing
authorities were $5,318,000, $2,219,000 and $2,265,000, respectively, and are reflected as a financing
activity within the accompanying consolidated statements of cash flows. These net-share settlements had
the effect of repurchases of our common stock as they reduced the number of shares that would have
otherwise been issued as a result of the vesting and did not represent an expense to us.
68
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(10) Assets Held for Sale
In May 2016, we sold real estate that we owned in Bloomingdale, Illinois that was previously classified
as a held for sale asset and included in other current assets in the accompanying consolidated balance
sheet as of December 31, 2015. In previous years, we recorded non-cash charges to reduce the carrying
amount of the related assets to their estimated fair value less costs to sell. During the second quarter of
2016, we recorded a gain on sale of approximately $338,000, which is included in selling and
administrative expenses in the accompanying consolidated statement of operations for the year ended
December 31, 2016.
(11)
Income Taxes
The following table presents the United States (“U.S.”) and foreign components of earnings before
income taxes and the related income tax expense (in thousands):
Earnings before income taxes:
United States ............................................................................... $ 119,330 $ 99,095 $ 90,575
Foreign ........................................................................................
28,601
$ 159,098 $ 139,458 $ 119,176
40,363
39,768
Years Ended December 31,
2016
2015
2017
Income tax expense:
Current:
Years Ended December 31,
2016
2015
2017
U.S. Federal ................................................................................. $ 31,067 $ 27,947 $ 24,369
U.S. State and local ......................................................................
2,705
Foreign ........................................................................................
11,077
38,151
2,200
14,104
44,251
3,636
14,573
49,276
Deferred:
U.S. Federal .................................................................................
U.S. State and local ......................................................................
Foreign ........................................................................................
20,327
10,395
1,088
(427)
(761)
5,104
602
(532)
5,174
$ 68,415 $ 54,768 $ 43,325
(966)
19,139
10,517
The following schedule reconciles the differences between the U.S. federal income taxes at the U.S.
statutory rate and our income tax expense (dollars in thousands):
Statutory federal income tax rate .................. $
State income tax expense, net of federal
income tax benefit .................................
Audits and adjustments, net..........................
Change in valuation allowances .....................
Foreign income taxed at different rates ..........
U.S. mandatory deemed repatriation ..............
Adjustment of net deferred tax assets for
2017
2016
2015
55,684
35.0% $
48,810
35.0%
$
41,712
35.0%
2,808
(313)
2,472
(6,057)
5,625
1.8
(0.2)
1.5
(3.8)
3.5
3,368
(1,039)
3,742
(6,611)
-
2.4
(0.7)
2.7
(4.7)
-
3,180
(886)
2,944
(5,729)
-
2.7
(0.7)
2.5
(4.8)
-
enacted U.S. federal tax reform ...............
7,738
4.9
-
-
-
-
Change in U.S. tax law applicable to certain
foreign entities ......................................
Non-deductible compensation ........................
Other, net ...................................................
Effective tax rate ..................................... $
-
571
(113)
68,415
-
0.4
(0.1)
43.0%
2,577
518
3,403
54,768
1.8
0.4
2.4
39.3%
$
-
474
1,630
43,325
-
0.4
1.3
36.4%
$
In December 2017, U.S. federal tax reform was enacted as part of the U.S. Tax Cuts and Jobs Act. As
part of the change in tax law, beginning in 2018, the U.S. statutory federal income tax rate was reduced
from 35% to 21%. This reduction required a remeasurement of our deferred tax balances that resulted in
an increase in our 2017 income tax expense. In addition, the change in tax law included provisions
requiring mandatory deemed repatriation of undistributed foreign earnings. In 2017, we recorded a tax
charge totaling $13,363,000 in connection with the enactment of the U.S. Tax Cuts and Jobs Act. Due to
the enactment date and complexities of the new law, we have not completed our accounting related to
these items. In accordance with Staff Accounting Bulletin 118, issued on December 22, 2017, we have
concluded that the U.S. income taxes attributable to the remeasurement of U.S. deferred income taxes,
69
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the mandatory deemed repatriation provision and the state tax effects of these items are provisional
amounts.
A change in U.S. tax law was enacted in December 2016 related to the taxation of foreign currency
translation gains or losses arising from qualified business units. The change, which increased our U.S.
federal income taxes, affects our foreign entities that are treated as branches for U.S. tax purposes. The
“Other, net” line item in the schedule above includes $349,000 and $1,296,000 related to the effect of
non-deductible acquisition-related expenses incurred during 2017 and 2016, respectively.
For foreign entities not treated as branches for U.S. tax purposes, historically, we did not provide for
U.S. income taxes on the undistributed earnings of these subsidiaries as these earnings were considered
to be reinvested and, in the opinion of management, would continue to be reinvested indefinitely outside
of the United States. As a result of U.S. federal tax reform enacted during December 2017, all
undistributed foreign earnings are deemed distributed.
The significant components of deferred tax assets and liabilities are as follows (in thousands):
December 31,
2017
2016
Deferred tax assets:
Net operating losses ............................................. $
Foreign tax credits ................................................
Accruals ..............................................................
Goodwill and other intangibles ...............................
Stock-based compensation ....................................
Accounts receivable ..............................................
Inventories ..........................................................
Property and equipment ........................................
Deferred revenue .................................................
Other ..................................................................
Gross deferred tax assets ...............................
Valuation allowances ............................................
Total deferred tax assets .................................
25,418 $
21,346
5,921
4,717
3,023
2,124
1,930
1,111
600
335
66,525
(45,995)
20,530
Deferred tax liabilities:
Goodwill and other intangibles ...............................
Accrued withholding tax ........................................
Prepaid expenses .................................................
Other ..................................................................
Total deferred tax liabilities .............................
Net deferred tax assets .................................. $
(1,587)
(1,452)
(369)
(775)
(4,183)
16,347 $
18,964
13,115
6,426
35,523
4,238
2,547
2,598
705
468
55
84,639
(30,972)
53,667
(1,221)
-
(204)
(795)
(2,220)
51,447
The net non-current deferred tax assets and liabilities are as follows (in thousands):
Net non-current deferred tax assets .............................. $
Net non-current deferred tax liabilities ..........................
Net deferred tax assets ......................................... $
December 31,
2017
17,064 $
(717)
16,347 $
2016
52,347
(900)
51,447
As of December 31, 2017, we have a federal net operating loss carryforward (“NOL”) of $1,455,000
and U.S. state NOLs of $1,977,000 that will expire between 2018 and 2036. We also have NOLs from
various non-U.S. jurisdictions of $87,056,000. While the majority of the non-U.S. NOLs have no
expiration date, $6,258,000 will expire between 2018 and 2024.
On the basis of currently available information, we have provided valuation allowances for certain of
our deferred tax assets where we believe it is more likely than not that the related tax benefits will not be
realized. At December 31, 2017 and 2016, our valuation allowances totaled $45,995,000 and
$30,972,000, respectively, representing non-U.S. NOLs, foreign depreciation allowances and foreign tax
credits.
We believe it is more likely than not that forecasted income, including income that may be generated as
a result of prudent and feasible tax planning strategies, together with the tax effects of deferred tax
liabilities, will be sufficient to fully recover our remaining deferred tax assets. In the future, if we determine
that realization of the remaining deferred tax assets and the availability of certain previously paid taxes to be
70
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
refunded are not more likely than not, we will need to increase our valuation allowances and record
additional income tax expense.
The following table summarizes the change in the valuation allowance (in thousands):
Valuation allowances at beginning of year .................... $
Increase in income tax expense .................................
U.S. federal tax reform .............................................
Foreign currency translation adjustments ....................
Other ......................................................................
Valuation allowances at end of year ............................ $
30,972 $
2,472
11,623
2,865
(1,937)
45,995 $
28,750
3,742
-
(1,035)
(485)
30,972
December 31,
2017
2016
The increase in our valuation allowance related to U.S. federal tax reform in the table above was
primarily related to U.S. mandatory deemed repatriation.
Various taxing jurisdictions are examining our tax returns for certain tax years. Although the outcome of
tax audits cannot be predicted with certainty, management believes the ultimate resolution of these
examinations will not result in a material adverse effect to our financial position, results of operations or cash
flows.
As of December 31, 2017 and 2016, we had approximately $4,273,000 and $2,246,000, respectively,
of unrecognized tax benefits. Of these amounts, approximately $287,000 and $195,000, respectively,
related to accrued interest. A reconciliation of the beginning and ending amounts of unrecognized tax
benefits, excluding interest, is as follows (in thousands):
Balance at December 31, 2016 ........................................................... $
Additions for tax positions added through acquisition ............................
Subtractions for tax positions in prior periods .......................................
Additions for tax positions in current period .........................................
Additions due to foreign currency translation ........................................
Subtractions due to audit settlements and statute expirations................
Balance at December 31, 2017 ........................................................... $
2,051
2,484
(59)
867
53
(1,410)
3,986
In the future, if recognized, the liability associated with uncertain tax positions would affect our
effective tax rate. We do not believe there will be any changes over the next 12 months that would have
a material effect on our effective tax rate.
Several of our subsidiaries are currently under audit for tax years 2012 through 2015. Although the
timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that the
examination phase of these audits may be concluded within the next 12 months which could significantly
increase or decrease the balance of our gross unrecognized tax benefits. However, based on the status of
the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible
outcomes cannot be made at this time, but the estimated effect on our income tax expense and net
earnings is not expected to be significant.
We, including our subsidiaries, file income tax returns in the U.S. federal jurisdiction and many state
and local and non-U.S. jurisdictions. In the United States, federal income tax returns for 2014, 2015,
2016 and 2017 remain open to examination. For U.S. state and local taxes as well as in non-U.S.
jurisdictions, the statute of limitations generally varies between three and ten years.
(12) Market Risk Management
Interest Rate Risk
We have interest rate exposure arising from our financing facilities, which have variable interest rates.
These variable interest rates are affected by changes in short-term interest rates. We currently do not
hedge our interest rate exposure.
We do not believe that the effect of reasonably possible near-term changes in interest rates will be
material to our financial position, results of operations and cash flows. Our financing facilities expose our
net earnings to changes in short-term interest rates since interest rates on the underlying obligations are
71
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
variable. We had $117,500,000 outstanding under our revolving facility, $166,250,000 outstanding under
our TLA and $25,000,000 outstanding under our ABS facility at December 31, 2017. The interest rate
attributable to the borrowings under our revolving facility, our TLA and our ABS facility was 3.49%, 3.57%
and 2.41%, respectively, per annum at December 31, 2017. The change in annual pre-tax earnings from
operations resulting from a hypothetical 10% increase or decrease in the applicable interest rate would
have been immaterial.
Foreign Currency Exchange Risk
We have foreign currency exchange risk related to the translation of our foreign subsidiaries’ operating
results, assets and liabilities (see Note 1 for a description of our Foreign Currencies policy). We also
maintain cash accounts denominated in currencies other than the functional currency, which expose us to
fluctuations in foreign exchange rates. Remeasurement of these cash balances results in gains/losses that
are also reported as a separate component of non-operating (income) expense. We monitor our foreign
currency exposure and selectively enter into forward exchange contracts to mitigate risk associated with
certain non-functional currency monetary assets and liabilities related to foreign denominated payables,
receivables and cash balances. Transaction gains and losses resulting from non-functional currency assets
and liabilities are offset by gains and losses on forward contracts in non-operating (income) expense, net
in our consolidated statements of operations. The counterparties associated with our foreign exchange
forward contracts are large creditworthy commercial banks. The derivatives transacted with these
institutions are short in duration and, therefore, we do not consider counterparty concentration and non-
performance to be material risks. The Company does not have a significant concentration of credit risk
with any single counterparty.
(13) Derivative Financial Instruments
We use derivatives to partially offset our exposure to fluctuations in certain foreign currencies. We do
not enter into derivative contracts for speculative or trading purposes. Derivatives are recorded at fair
value on the balance sheet based on observable market based inputs or unobservable inputs that are
corroborated by market data (Level 2). Gains or losses resulting from changes in fair value of the
derivative are recorded currently in income. We do not designate our hedges for hedge accounting, and
our foreign currency derivative instruments are not subject to any master netting arrangements with our
counterparties.
We use foreign exchange forward contracts to mitigate risk associated with certain non-functional
currency assets and liabilities from fluctuations in foreign currency exchange rates. Our non-functional
currency assets and liabilities are primarily related to foreign currency denominated payables, receivables,
and cash balances. The foreign currency forward contracts, carried at fair value, typically have a maturity
of one month or less. We currently enter into approximately four foreign exchange forward contracts per
month with an average notional value of $10,610,000 and an average maturity of approximately nine
days.
Our derivative financial instruments as of December 31, 2017 were not material. The effect of our
derivative financial instruments on our results of operations during the years ended December 31, 2017,
2016 and 2015 were a gain of $159,000, a loss of $2,722,000 and a loss of $942,000, respectively.
These amounts are reported within the net foreign currency exchange (gain) loss line item in our
consolidated statements of operations.
(14) Fair Value Measurements
Fair value measurements are determined based on the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market
data.
Level 3: Unobservable inputs that are not corroborated by market data.
We have elected to use the income approach to value our foreign exchange derivatives, using
observable Level 2 market expectations at the measurement date and standard valuation techniques to
convert future amounts to a single present value amount assuming that participants are motivated, but
not compelled, to transact. Level 2 inputs for the valuations are limited to quoted prices for similar assets
or liabilities in active markets and inputs other than quoted prices that are observable for the asset or
72
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
liability (specifically LIBOR rates, foreign exchange rates, and foreign exchange forward points). Mid-
market pricing is used as a practical expedient for fair value measurements. Fair value measurement of
an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore,
the impact of the counterparty’s creditworthiness when in an asset position and the Company’s
creditworthiness when in a liability position has also been factored into the fair value measurement of the
derivative instruments and did not have a material impact on the fair value of these derivative
instruments. Both the counterparty and the Company are expected to continue to perform under the
contractual terms of the instruments.
As of December 31, 2017, we have no non-financial assets or liabilities that are measured and
recorded at fair value on a recurring basis, and our other financial assets or liabilities generally consist of
cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current
liabilities and long-term debt. The estimated fair values of our cash and cash equivalents approximate
their carrying values and are determined based on quoted prices in active markets for identical assets
(Level 1). The estimated fair values of our long-term debt balances approximate their carrying values
based on their variable interest rate terms that are based on current market interest rates for similar debt
instruments. The fair values of the other financial assets and liabilities are based on the values that would
be received or paid in an orderly transaction between market participants and approximate their carrying
values due to their nature and short duration.
(15) Benefit Plans
We adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for our U.S.
teammates which complies with section 401(k) of the Internal Revenue Code. The Company provides a
discretionary match to all participants who make 401(k) contributions pursuant to the Defined
Contribution Plan. The discretionary match provided to participants is equivalent to 50% of a participant’s
pre-tax contributions up to a maximum of 6% of eligible compensation per pay period. Additionally, we
offer several defined contribution benefit plans to our teammates outside of the United States. These
plans and their related terms vary by country. Total consolidated contribution expense under these plans
was $14,083,000, $7,684,000 and $7,190,000 for 2017, 2016 and 2015, respectively.
(16) Share Repurchase Programs
In February 2016, February 2015 and October 2014, our Board of Directors authorized share repurchase
programs of $50,000,000, $75,000,000 and $25,000,000, respectively. No share repurchase program was
authorized in 2017. The following table summarizes the shares of our common stock that we repurchased
on the open market under these repurchase programs during the years ended December 31, 2017, 2016
and 2015, respectively, in thousands, except per share amounts:
Year
Total Number
of Shares
Purchased
Average Price
Paid per Share
Approximate Dollar
Value of Shares
Purchased
2017 .......................................
2016 .......................................
2015 .......................................
Total .......................................
$
-
1,891
3,300
5,191
-
26.43
27.83
$
$
-
50,000
91,843
141,843
All shares repurchased were retired.
On February 13, 2018, our Board of Directors authorized the repurchase of up to $50,000,000 of our
common stock. Our share repurchases will be made on the open market, subject to Rule 10b-18 or in
privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at
management’s discretion. The amount of shares purchased and the timing of the purchases will be based
on market conditions, working capital requirements, general business conditions and other factors. We
intend to retire the repurchased shares.
(17) Commitments and Contingencies
Contractual
In the ordinary course of business, we issue performance bonds to secure our performance under
certain contracts or state tax requirements. As of December 31, 2017, we had approximately $1,962,000
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of performance bonds outstanding. These bonds are issued on our behalf by a surety company on an
unsecured basis; however, if the surety company is ever required to pay out under the bonds, we have
contractually agreed to reimburse the surety company.
Management believes that payments, if any, related to these performance bonds are not probable at
December 31, 2017. Accordingly, we have not accrued any liabilities related to such performance bonds
in our consolidated financial statements.
Employment Contracts and Severance Plans
We have employment contracts with, and plans covering, certain officers and management teammates
under which severance payments would become payable in the event of specified terminations without
cause or terminations under certain circumstances after a change in control. In addition, vesting of
outstanding nonvested RSUs would accelerate following a change in control. If severance payments under
the current employment agreements or plan payments were to become payable, the severance payments
would generally range from three to twenty-four months of salary.
Indemnifications
From time to time, in the ordinary course of business, we enter into contractual arrangements under
which we agree to indemnify either our clients or third-party service providers from certain losses incurred
relating to services performed on our behalf or for losses arising from defined events, which may include
litigation or claims relating to past performance. These arrangements include, but are not limited to, the
indemnification of our clients for certain claims arising out of our performance under our sales contracts,
the indemnification of our landlords for certain claims arising from our use of leased facilities and the
indemnification of the lenders that provide our credit facilities for certain claims arising from their
extension of credit to us. Such indemnification obligations may not be subject to maximum loss clauses.
Management believes that payments, if any, related to these indemnifications are not probable at
December 31, 2017. Accordingly, we have not accrued any liabilities related to such indemnifications in
the accompanying consolidated financial statements.
We have entered into separate indemnification agreements with certain of our executive officers and
with each of our directors. These agreements require us, among other requirements, to indemnify such
officers and directors against expenses (including attorneys’ fees), judgments and settlements incurred by
such individual in connection with any action arising out of such individual’s status or service as our
executive officer or director (subject to exceptions such as where the individual failed to act in good faith
or in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the
Company) and to advance expenses incurred by such individual with respect to which such individual may
be entitled to indemnification by us. There are no pending legal proceedings that involve the
indemnification of any of the Company’s directors or officers.
Contingencies Related to Third-Party Review
From time to time, we are subject to potential claims and assessments from third parties. We are also
subject to various governmental, client and partner audits. We continually assess whether or not such
claims have merit and warrant accrual. Where appropriate, we accrue estimates of anticipated liabilities in
our consolidated financial statements. Such estimates are subject to change and may affect our results of
operations and our cash flows.
Legal Proceedings
From time to time, we are party to various legal proceedings arising in the ordinary course of
business, including preference payment claims asserted in client bankruptcy proceedings, indemnification
claims, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property
rights, claims of alleged non-compliance with contract provisions and claims related to alleged violations of
laws and regulations. We regularly evaluate the status of the legal proceedings in which we are involved
to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss,
may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we
further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible
loss can be made for disclosure. Although litigation is inherently unpredictable, we believe that we have
adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our
74
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
consolidated financial position, results of operations or liquidity could be materially and adversely affected
in any particular period by the resolution of a legal proceeding. Legal expenses related to defense,
negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
The Company is not involved in any pending or threatened legal proceedings that it believes would
reasonably be expected to have a material adverse effect on its business, financial condition or results of
operations.
(18) Supplemental Financial Information
Additions and deductions related to the allowance for doubtful accounts receivable for 2017, 2016 and
2015 were as follows (in thousands):
Balance at
Beginning
of Year
Additions
Deductions
Balance at
End of Year
Allowance for doubtful accounts receivable:
Year ended December 31, 2017 .......................... $
Year ended December 31, 2016 .......................... $
Year ended December 31, 2015 .......................... $
9,138
11,872
19,336
$
$
$
5,245 $
2,452 $
6,761 $
(4,225) $
(5,186) $
(14,225) $
10,158
9,138
11,872
During 2015, we undertook a project to analyze our older accounts receivable to attempt further
collection action, or where appropriate, to write off such accounts as uncollectible. Since these aged
accounts receivable had been fully reserved against, the write off was accomplished through the
elimination of the associated allowance, with no effect on net accounts receivable balances. The reduction
of the allowance for doubtful accounts to $11,872,000 at December 31, 2015 was a direct result of the
write off of these older fully reserved accounts receivable as well as an overall improvement in managing
the receivables portfolio. The reduction of the reserve during 2015 related to these actions had no effect
on our results of operations.
(19) Cash Flows
Cash payments for interest on indebtedness and cash payments for taxes on income were as follows
(in thousands):
Supplemental disclosures of cash flow information:
Years Ended December 31,
2017
2016
2015
Cash paid during the year for interest ...................................................... $ 10,976 $
Cash paid during the year for income taxes, net of refunds ..................... $ 55,470
3,782 $
2,866
$ 39,051 $ 41,062
Non-cash investing activities for 2017, 2016 and 2015 included $159,000, $791,000 and $662,000,
respectively, of capital expenditures in accounts payable, representing additions purchased at period end
but not yet paid for in cash.
(20) Segment and Geographic Information
We operate in three reportable geographic operating segments: North America; EMEA; and APAC.
Our offerings in North America and certain countries in EMEA and APAC include IT hardware, software and
services. Our offerings in the remainder of our EMEA and APAC segments are largely software and certain
software-related services.
During the year ended December 31, 2017, subsequent to our acquisition of Datalink, our
consolidated net sales from the provision of services approximated 10%. As such, for the year ended
December 31, 2017, we began reporting net sales from the provision of services and the related costs of
goods sold separately from net sales of products and the related costs of goods on the face of our
consolidated statement of operations. For comparability purposes, net sales and costs of goods sold for
the years ended December 31, 2016 and 2015 have been expanded to conform to the current year
presentation. These changes in presentation had no effect on previously reported total net sales, total
costs of goods sold or gross profit amounts.
In conjunction with these changes in presentation, because fees earned from activities reported net
are considered services revenues, we reclassified certain revenue streams for which we act as the agent in
75
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the transaction to net sales from services. Previously, we included these net revenue streams within our
software and, to a lesser extent, hardware sales mix categories based on the type of product being sold
(e.g., fees earned for the sale of software maintenance and certain software licenses were included in
software sales and fees earned for the sale of certain third-party provided training and warranty services
were included in hardware sales when we historically disclosed and analyzed our sales mix). For
comparability purposes, our sales mix among our hardware, software and services categories for the years
ended December 31, 2016 and 2015 has been reclassified to conform to the current year presentation.
These reclassifications had no effect on previously reported total net sales amounts. The following tables
summarize net sales by offering for North America, EMEA and APAC including the effect of the
reclassifications on the previously reported net sales by sales mix amounts for the years ended December
31, 2016 and 2015 (in thousands):
Sales Mix
Hardware .................................. $
Software ...................................
Services ....................................
North America
Years Ended December 31,
2017
2016
(As Reclassified)
3,352,355 $
1,310,118
519,261
2,454,889 $
1,146,808
370,131
$
5,181,734 $
3,971,828 $
2015
(As Reclassified)
2,336,764
1,157,168
329,596
3,823,528
In North America, fees earned from activities reported on a net basis of $270,000 and $87,984,000
that were previously reported as part of our hardware and software product categories, respectively, in
2016, and fees earned from activities reported on a net basis of $24,000 and $74,101,000 that were
previously reported as part of our hardware and software product categories, respectively, in 2015, were
reclassified to services to conform to the current year presentation.
EMEA
Years Ended December 31,
Sales Mix
Hardware ................................. $
Software ..................................
Services ...................................
536,500 $
710,452
108,464
2017
2016
(As Reclassified)
2015
(As Reclassified)
531,308
481,505 $
762,427
94,628
756,373
83,456
$
1,355,416 $
1,338,560 $
1,371,137
In EMEA, fees earned from activities reported on a net basis of $48,586,000 and $43,388,000 that
were previously reported as part of our software product category in 2016 and 2015, respectively, were
reclassified to services to conform to the current year presentation.
APAC
Sales Mix
Hardware .................................. $
Software ...................................
Services ....................................
$
27,907 $
101,412
37,154
166,473 $
2017
Years Ended December 31,
2016
(As Reclassified)
18,916 $
2015
(As Reclassified)
14,327
132,718
23,493
175,127 $
149,607
14,491
178,425
In APAC, fees earned from activities reported on a net basis of $9,000 and $10,991,000 that were
previously reported as part of our hardware and software product categories, respectively, in 2016, and
fees earned from activities reported on a net basis of $6,000 and $8,439,000 that were previously
reported as part of our hardware and software product categories, respectively, in 2015, were reclassified
to services to conform to the current year presentation.
The method for determining what information regarding operating segments, products and services,
geographic areas of operation and major clients to report is based upon the “management approach,” or
the way that management organizes the operating segments within a company, for which separate
financial information is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding
how to allocate resources. Our CODM is our Chief Executive Officer.
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INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All significant intercompany transactions are eliminated upon consolidation, and there are no
differences between the accounting policies used to measure profit and loss for our segments or on a
consolidated basis. Net sales are defined as net sales to external clients. None of our clients exceeded
ten percent of consolidated net sales in 2017, 2016 or 2015.
A portion of our operating segments’ selling and administrative expenses arise from shared services
and infrastructure that we have historically provided to them in order to realize economies of scale and to
use resources efficiently. These expenses, collectively identified as corporate charges, include senior
management expenses, internal audit, legal, tax, insurance services, treasury and other corporate
infrastructure expenses. Charges are allocated to our operating segments, and the allocations have been
determined on a basis that we considered to be a reasonable reflection of the utilization of services
provided to or benefits received by the operating segments.
The tables below present information about our reportable operating segments (in thousands):
Year Ended December 31, 2017
North
America
EMEA
APAC
Consolidated
Net Sales:
Products ..........................................
$ 4,662,473
$ 1,246,952
$
129,319 $ 6,038,744
Services ..........................................
519,261
108,464
37,154
664,879
Total net sales ..............................
5,181,734
1,355,416
166,473
6,703,623
Costs of goods sold:
Products ..........................................
4,253,587
1,140,204
118,611
5,512,402
Services ..........................................
236,470
24,902
11,279
272,651
Total costs of goods sold ................
4,490,057
1,165,106
129,890
5,785,053
Gross profit ..................................
691,677
190,310
36,583
918,570
Operating expenses:
Selling and administrative expenses ......
Severance and restructuring expenses ...
Loss on sale of foreign entity ................
Acquisition-related expenses ................
530,792
4,010
-
3,223
164,305
28,231
723,328
4,888
3,646
106
104
-
-
9,002
3,646
3,329
Earnings from operations ...............
$
153,652
$
17,365
$
8,248 $
179,265
Total assets ........................................ $ 2,337,573
$
530,242
$
101,169 $ 2,968,984*
Year Ended December 31, 2016
North
America
EMEA
APAC
Consolidated
Net Sales:
Products .......................................... $ 3,601,697
$
1,243,932
$
151,634
$
4,997,263
Services ..........................................
370,131
94,628
23,493
488,252
Total net sales ..............................
3,971,828
1,338,560
175,127
5,485,515
Costs of goods sold:
Products ..........................................
3,301,148
1,129,917
140,397
4,571,462
Services ..........................................
145,199
22,956
2,796
170,951
Total costs of goods sold ................
3,446,347
1,152,873
143,193
4,742,413
Gross profit ..................................
525,481
185,687
31,934
743,102
Operating expenses:
Selling and administrative expenses ......
401,316
Severance and restructuring expenses ...
Acquisition-related expenses ................
2,966
4,278
160,269
1,496
-
23,658
585,243
118
169
4,580
4,447
Earnings from operations ...............
$
116,921
$
23,922
$
7,989 $
148,832
Total assets ........................................ $ 2,204,351
$
562,293
$
119,778 $ 2,886,422*
77
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended December 31, 2015
North
America
EMEA
APAC
Consolidated
Net Sales:
Products .......................................... $ 3,493,932
$
1,287,681
$
163,934 $
4,945,547
Services ..........................................
329,596
83,456
14,491
427,543
Total net sales ..............................
3,823,528
1,371,137
178,425
5,373,090
Costs of goods sold:
Products ..........................................
3,196,297
1,167,113
149,943
4,513,353
Services ..........................................
125,668
17,737
-
143,405
Total costs of goods sold ................
3,321,965
1,184,850
149,943
4,656,758
Gross profit ..................................
501,563
186,287
28,482
716,332
Operating expenses:
Selling and administrative expenses ......
Severance and restructuring expenses ...
396,603
1,126
165,879
3,781
22,424
584,906
-
4,907
Earnings from operations ...............
$
103,834
$
16,627
$
6,058 $
126,519
Total assets ........................................ $ 1,999,485
$
543,146
$
114,973 $ 2,657,604*
* Consolidated total assets do not reflect intercompany eliminations and corporate assets of $283,333,000,
$667,122,000 and $643,587,000 at December 31, 2017, 2016 and 2015, respectively.
The following is a summary of our geographic net sales and long-lived assets, consisting of property and
equipment, net (in thousands):
United States
United Kingdom
Other Foreign
Total
2017
Net sales .................................... $
4,933,805
Total long-lived assets ................. $
50,462
2016
Net sales .................................... $
3,776,352
Total long-lived assets ................. $
46,774
2015
Net sales .................................... $
3,645,876
Total long-lived assets ................. $
58,748
$
$
$
$
$
$
684,632
14,783
671,999
13,570
711,957
16,810
$
$
$
$
$
$
1,085,186
10,007
1,037,164
10,566
1,015,257
12,723
$
$
$
$
$
$
6,703,623
75,252
5,485,515
70,910
5,373,090
88,281
Net sales by geographic area are presented by attributing net sales to external customers based on
the domicile of the selling location.
78
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recorded the following pre-tax amounts, by operating segment, for depreciation and amortization
in the accompanying consolidated financial statements (in thousands):
Years Ended December 31,
2017
2016
2015
Depreciation and amortization of
property and equipment:
North America .............................................. $
EMEA ..........................................................
APAC ..........................................................
Amortization of intangible assets:
North America ..............................................
15,971
EMEA ..........................................................
APAC ..........................................................
73
768
16,812
20,241
$
21,952
$
5,025
521
25,787
4,908
633
27,493
8,139
1,951
547
10,637
22,239
3,757
653
26,649
8,053
2,834
421
11,308
37,957
Total .............................................................. $
42,599
$
38,130
$
(21) Acquisitions
Caase.com
Effective September 26, 2017, we acquired Caase.com, a Dutch cloud service provider, for a purchase
price, net of cash acquired, of approximately $6,038,000, subject to a final working capital adjustment.
We believe that this acquisition strengthened our ability to deliver Intelligent Technology Solutions to our
clients in the Netherlands, with a view to expand into the wider European region in the near future.
The total fair value of net identifiable assets acquired was approximately $2,107,000, including
$68,000 of cash acquired and $2,039,000 of identifiable intangible assets, consisting primarily of customer
relationships. The customer relationships identifiable intangible asset is being amortized using the
straight-line method over its estimated economic life of 8 years. The preliminary purchase price was
allocated under the acquisition method of accounting using the information available at the time. During
the fourth quarter of 2017, we finalized the fair value assumptions for identifiable intangible assets
acquired and reduced the fair value of identifiable intangible assets acquired by approximately $193,000.
Goodwill initially recorded of approximately $4,117,000, which was recorded in our EMEA operating
segment, was adjusted to $4,041,000 as of December 31, 2017 as a result of the net effects of the
decrease in the value of acquired identifiable intangible assets noted previously, adjustments for deferred
taxes and foreign currency translation adjustments. None of the goodwill is tax deductible. We will
finalize the purchase price allocation in 2018 when the final working capital adjustment is agreed upon
and paid and the evaluation of uncertain tax positions, which could lead to an adjustment of the purchase
price allocation, is completed.
We consolidated the results of operations for Caase.com within our EMEA operating segment
beginning on the effective date of the acquisition. Our historical results would not have been materially
affected by the acquisition of Caase.com and, accordingly, we have not presented pro forma information
as if the acquisition had been completed at the beginning of each period presented in our statements of
operations.
Datalink
On January 6, 2017, we completed our acquisition of Datalink, a leading provider of IT services and
enterprise data center solutions based in Eden Prairie, Minnesota, for a cash purchase price of
$257,456,000, which included cash and cash equivalents acquired of $76,597,000. We believe that this
acquisition strengthened our position as a leading IT solutions provider with deep technical talent
delivering data center solutions to clients on premise or in the cloud.
79
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the purchase price and the estimated fair value of the assets acquired
and liabilities assumed at the date of acquisition (in thousands):
Total purchase price .............................................................................
Fair value of net assets acquired:
Current assets ..................................................................................
Identifiable intangible assets – see description below ............................
Property and equipment ....................................................................
Other assets ....................................................................................
Current liabilities ..............................................................................
Long-term liabilities, including deferred taxes ......................................
Total fair value of net assets acquired .....................................
Excess purchase price over fair value of net assets acquired (“goodwill”) ....
$
238,577
94,500
5,843
17,888
(129,071)
(34,421)
$
257,456
$
193,316
64,140
Under the acquisition method of accounting, the total purchase price as shown in the table above was
allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their
estimated fair values. The excess of the purchase price over fair value of net assets acquired was
recorded as goodwill.
The estimated fair values of current assets and liabilities (other than deferred revenue and related
deferred costs) were based upon their historical costs on the date of acquisition due to their short-term
nature. The majority of property and equipment were also estimated based upon historical costs as they
approximated fair value. Certain long-term assets, including Datalink’s IT system, were written down to
the estimated fair value based on the economic benefit expected to be realized from the assets following
the acquisition. Deferred revenue acquired primarily represents monies collected prior to January 6, 2017
related to unearned revenues associated with support services to be performed in the future. The
estimated fair value of deferred revenue of $65,500,000, which is included in current and long-term
liabilities in the table above, was calculated using the adjusted fulfillment cost method as the present
value of the costs expected to be incurred by a third party to perform the support services obligations
acquired under various customer contracts, plus a reasonable profit associated with the performance
effort. The deferred costs acquired represent monies paid prior to January 6, 2017 to purchase third party
customer support contracts from manufacturers. The estimated fair value of the deferred costs of
$48,029,000, which is included in current and other assets in the table above, was calculated in
conjunction with the valuation of deferred revenue discussed above.
Identified intangible assets of $94,500,000 consist primarily of customer relationships, the trade name
and non-compete agreements, which were valued at $92,200,000, $2,200,000 and $100,000,
respectively. These values were determined using the multiple-period excess earnings method, the relief
from royalty method and the lost income method, respectively.
The identifiable intangibles resulting from the acquisition are amortized using the straight-line method
over the following estimated useful lives:
Intangible Assets
Customer relationships
Trade name
Non-compete agreements
Estimated Economic Life
10 Years
1 Year
1 Year
Amortization expense recognized for the period from the acquisition date through December 31, 2017
was $11,520,000.
Goodwill of $64,140,000, which was recorded in our North America operating segment, represents the
excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible
assets acquired and liabilities assumed from Datalink. The addition of the Datalink technical employees to
our team and the opportunity to grow our data center solutions business are the primary factors making
up the goodwill recognized as part of the transaction. None of the goodwill is tax deductible.
The preliminary purchase price was allocated using information available at the time. During the
second quarter of 2017, upon analysis of additional information affecting our estimate of the fair value of
net assets acquired, we adjusted the purchase price allocation and reduced the goodwill balance by
$945,000. During the remainder of 2017, no further adjustments to the purchase price allocation were
made, and the purchase price allocation was finalized.
80
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We have consolidated the results of operations for Datalink since its acquisition on January 6, 2017.
Consolidated net sales and gross profit for the year ended December 31, 2017 include $524,281,000 and
$118,917,000, respectively, from Datalink. The following table reports pro forma information as if the
acquisition of Datalink had been completed at the beginning of the earliest period presented (in
thousands, except per share amounts):
Year Ended December 31,
Net sales ........................................ As reported
Proforma
Net earnings ................................... As reported
Proforma
Diluted earnings per share ................ As reported
Proforma
$
$
$
$
$
$
Ignia
2017
6,703,623 $ 5,485,515 $ 5,373,090
2015
2016
6,707,533 $ 6,084,484 $ 6,033,750
90,683 $
84,690 $
92,276 $
85,823 $
75,851
75,696
2.50 $
2.55 $
2.32 $
2.36 $
1.98
1.98
Effective September 1, 2016, we acquired Ignia, a business technology consulting and managed
services provider headquartered in Perth, Australia, with an additional office in Melbourne, for a cash
purchase price, net of cash acquired, of approximately $10,804,000, subject to a final working capital
adjustment. We believe that this acquisition expands our global footprint in the areas of application
design, digital solutions, cloud, mobility and business analytics, while also building on our unique position
to bring solutions powered by Intelligent Technology™ to our clients in the Asia-Pacific region.
The total fair value of net identifiable assets acquired initially recorded was approximately $5,324,000,
including $1,463,000 of cash acquired and $4,716,000 of identifiable intangible assets, consisting
primarily of customer relationships and restrictive covenant agreements which are being amortized using
the straight-line method over their estimated economic lives of eight years and 27 months, respectively.
The preliminary purchase price was allocated using the information available at the time. During the
fourth quarter of 2016, we finalized the fair value assumptions for identifiable intangible assets acquired
and reduced the fair value of identifiable intangible assets acquired by approximately $218,000. Goodwill
initially recorded of approximately $7,248,000, which was recorded in our APAC operating segment, was
adjusted to $6,957,000 as of December 31, 2016 as a result of the net effects of the decrease in the value
of acquired identifiable intangible assets noted previously and foreign currency translation adjustments.
None of the goodwill is tax deductible. We finalized the purchase price allocation in the second quarter of
2017 when the final working capital adjustment of $35,000 was agreed upon.
We consolidated the results of operations for Ignia within our APAC operating segment beginning on
September 1, 2016, the effective date of the acquisition. Our historical results would not have been
materially affected by the acquisition of Ignia and, accordingly, we have not presented pro forma
information as if the acquisition had been completed at the beginning of each period presented in our
statements of operations.
BlueMetal
Effective October 1, 2015, we acquired BlueMetal, an interactive design and technology architecture
firm based in the Boston area, with offices in Chicago and New York, for a cash purchase price, net of cash
acquired, of approximately $44,221,000. BlueMetal delivers strategic design, application development,
business intelligence solutions and data visualization platforms, and we believe this acquisition
strengthens our services capabilities to bring value to our clients’ businesses in the area of application
design, mobility and big data.
The total fair value of net assets acquired was approximately $15,412,000, including $15,240,000 of
identifiable intangible assets, consisting primarily of customer relationships and restrictive covenant
agreements which are being amortized using the straight-line method over their estimated economic lives
of eight and three years, respectively. Goodwill acquired approximated $29,938,000, which was recorded
in our North America operating segment. In 2016, we resolved the working capital contingency associated
with the acquisition of BlueMetal. We recorded an adjustment of the purchase price as a reduction of
81
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
goodwill in our North America operating segment upon the receipt of $507,000 in cash during 2016. The
addition of the BlueMetal employees to our team and the opportunity to grow our services business are
the primary factors making up the goodwill recognized as part of the transaction. None of the goodwill is
tax deductible.
We consolidated the results of operations for BlueMetal beginning on October 1, 2015, the effective
date of the acquisition. Our historical results would not have been materially affected by the acquisition of
BlueMetal and, accordingly, we have not presented pro forma information as if the acquisition had been
completed at the beginning of each period presented in our statements of operations.
(22) Sale of Foreign Entity
On July 19, 2017, we concluded the sale of our operations in Russia, formerly a part of our EMEA
operating segment, to one of our global partners that is focused in the region. We recorded a loss on the
sale of the foreign entity of approximately $3,646,000 during the third quarter of 2017, including a
$2,903,000 charge upon the release of our cumulative translation adjustment account balance as of the
sale date.
(23)
Selected Quarterly Financial Information (unaudited)
The following tables set forth selected unaudited consolidated quarterly financial information for 2017
and 2016 (in thousands, except per share data):
Net sales ........................................................... $
1,784,075
$
1,757,973
$ 1,684,032 $ 1,477,543
Costs of goods sold ............................................
1,551,192
1,531,892
1,432,653
1,269,316
Gross profit .................................................
232,883
226,081
251,379
208,227
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
Quarters Ended
Operating expenses:
Selling and administrative expenses ..................
Severance and restructuring expenses ...............
Loss on sale of foreign entity ............................
Acquisition-related expenses ............................
184,554
2,791
-
-
180,390
180,752
177,632
1,022
4,695
494
3,646
106
-
276
Earnings from operations ..............................
45,538
41,445
69,329
Non-operating (income) expense:
Interest income ...............................................
Interest expense .............................................
Net foreign currency exchange (gain) loss ..........
Other expense, net ..........................................
Earnings before income taxes ........................
Income tax expense ...........................................
(346)
5,360
(117)
367
40,274
26,106
(227)
5,555
341
339
35,437
13,025
(205)
4,326
251
326
64,631
24,376
Net earnings ................................................
$
14,168 $
22,412
$
40,255 $
-
2,947
22,953
(431)
3,933
380
315
18,756
4,908
13,848
Net earnings per share:
Basic .......................................................... $
Diluted ........................................................ $
0.40
0.39
$
$
0.63 $
0.62 $
1.13 $
1.11 $
0.39
0.38
Shares used in per share calculations:
Basic ..........................................................
Diluted ........................................................
35,809
36,272
35,787
36,203
35,765
36,169
35,602
36,185
82
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net sales ........................................................... $
Costs of goods sold .............................................
2016
1,467,583
1,276,614
December 31,
Quarters Ended
September 30,
2016
June 30,
2016
March 31,
2016
$
1,392,716
$ 1,456,234 $ 1,168,982
1,210,908
1,247,017
1,007,874
Gross profit .................................................
190,969
181,808
209,217
161,108
Operating expenses:
Selling and administrative expenses ..................
145,066
143,872
150,186
146,119
Severance and restructuring expenses ...............
Acquisition-related expenses ............................
Earnings from operations ..............................
Non-operating (income) expense:
Interest income ...............................................
Interest expense .............................................
Net foreign currency exchange (gain) loss ..........
Other expense, net ..........................................
Earnings before income taxes ........................
Income tax expense ...........................................
1,527
3,706
40,670
(282)
2,271
(520)
311
38,890
17,790
788
741
909
-
1,356
-
36,407
58,122
13,633
(318)
2,517
579
352
33,277
11,642
(216)
1,992
(153)
359
56,140
21,073
(250)
1,848
616
268
11,151
4,263
6,888
Net earnings ................................................ $
21,100
$
21,635 $
35,067 $
Net earnings per share:
Basic .......................................................... $
Diluted ........................................................ $
0.59 $
0.59 $
0.61 $
0.60 $
0.96 $
0.96 $
0.19
0.18
Shares used in per share calculations:
Basic ..........................................................
Diluted ........................................................
35,479
35,963
35,474
35,790
36,380
36,612
37,075
37,386
83
INSIGHT ENTERPRISES, INC.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as such term is defined under Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)). Our management, including our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2017. In making this assessment, our management
used the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). Management has concluded that the
Company maintained effective internal control over financial reporting as of December 31, 2017, based on
the criteria established in COSO’s Internal Control – Integrated Framework.
KPMG LLP, the independent registered public accounting firm that audited the Consolidated Financial
Statements in Part II, Item 8 of this report, has issued an attestation report on the Company’s internal
control over financial reporting as of December 31, 2017.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2017 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
(c) Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under
the Exchange Act). Our Chief Executive Officer and Chief Financial Officer, as of the end of the period
covered by this report, evaluated the effectiveness of our disclosure controls and procedures and determined
that as of December 31, 2017 our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
(d) Inherent Limitations of Disclosure Controls and Internal Control Over Financial Reporting
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to risks that
controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Item 9B. Other Information
Not applicable.
84
INSIGHT ENTERPRISES, INC.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item can be found in our definitive Proxy Statement relating to our
2018 Annual Meeting of Stockholders (our “Proxy Statement”) and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item can be found in our Proxy Statement and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this item can be found in our Proxy Statement and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item can be found in our Proxy Statement and is incorporated herein
by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item can be found in our Proxy Statement and is incorporated herein
by reference.
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements and Schedules
PART IV
The Consolidated Financial Statements of Insight Enterprises, Inc. and subsidiaries and the related
Reports of Independent Registered Public Accounting Firm are filed herein as set forth under Part II, Item
8 of this report.
Financial statement schedules have been omitted since they are either not required, not applicable, or
the information is otherwise included in the Consolidated Financial Statements or notes thereto.
(b) Exhibits
The exhibits list is incorporated herein by reference as the list of exhibits required as part of this
report.
Item 16. Form 10-K Summary
None.
85
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31, 2017
Commission File No. 000-25092
Exhibit Description
Form
File No.
Exhibit
Number
Filing/Effective
Date
Filed
Herewith
Incorporated by Reference
Agreement and Plan of Merger, dated as
of November 6, 2016, by and among
Insight Enterprises, Inc., Reef Acquisition
Co., and Datalink Corporation (Schedules
and exhibits to the Agreement and Plan
of Merger have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. The
registrant will furnish copies of any such
schedules to the U.S. Securities and
Exchange Commission upon request.)
Amended and Restated Certificate of
Incorporation of Insight Enterprises, Inc.
Certificate of Amendment of Amended
and Restated Certificate of Incorporation
of Insight Enterprises, Inc.
Amended and Restated Bylaws of Insight
Enterprises, Inc.
8-K
000-25092
2.1
November 7, 2016
10-K
000-25092
3.1
February 17, 2006
8-K
000-25092
3.1
May 21, 2015
8-K
000-25092
3.2
May 21, 2015
Exhibit
Number
2.1
3.1
3.2
3.3
4.1 (P)
Specimen Common Stock Certificate
S-1
33-86142
4.1
January 20, 1995
10.1(1)
10.2(2)
10.3(2)
10.4(2)
10.5(2)
10.6(2)
10.7(2)
Form of Indemnification Agreement
10-K
000-25092
10.1
July 26, 2007
Amended Insight Enterprises, Inc. 2007
Omnibus Plan
Proxy
Statement
First Amendment to the Amended Insight
Enterprises, Inc. 2007 Omnibus Plan
Proxy
Statement
000-25092
Annex A
April 4, 2011
000-25092
Annex A
April 5, 2016
Executive Management Separation Plan
effective as of January 1, 2008
Amended and Restated Employment
Agreement between Insight Enterprises,
Inc. and Glynis A. Bryan dated as of
January 1, 2009
Executive Employment Agreement
between Insight Enterprises, Inc. and
Kenneth T. Lamneck, dated as of
December 14, 2009
Employment Agreement between Insight
Enterprises, Inc. and Michael P.
Guggemos, dated as of November 1,
2010
10-Q
000-25092
10.5
November 7, 2008
8-K
000-25092
10.3
January 7, 2009
10-K
000-25092
10.24
February 25, 2010
10-K
000-25092
10.16
February 23, 2011
10.8(2)
Offer of employment letter to Michael P.
Guggemos, dated September 28, 2010
10-K
000-25092
10.17
February 23, 2011
86
Exhibit
Number
10.9(2)
10.10(2)
10.11(2)
10.12(2)
10.13
10.14
10.15
10.16
10.17
10.18
10.19
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2017
Commission File No. 000-25092
Exhibit Description
Form
Incorporated by Reference
Exhibit
Number
File No.
Date
Filing/Effective
Filed
Herewith
Employment Agreement between Insight
Enterprises, Inc. and Steven W.
Dodenhoff, dated as of January 30, 2012
Employment Agreement between Insight
Enterprises, Inc. and Dana A. Leighty,
dated as of March 2, 2012
Managing Director Service Agreement
dated October 25, 2013 between Insight
Technology Solutions GmbH and
Wolfgang Ebermann
Executive Employment Agreement
between Insight Enterprises, Inc. and
Samuel C. Cowley, dated June 7, 2016
Receivables Purchase Agreement dated
as of December 31, 2002 among Insight
Receivables, LLC, Insight Enterprises,
Inc., Jupiter Securitization Corporation,
Bank One NA, and the entities party
thereto from time to time as financial
institutions
Amended and Restated Receivables Sale
Agreement dated as of September 3,
2003 by and among Insight Direct USA,
Inc. and Insight Public Sector, Inc. as
originators, and Insight Receivables, LLC,
as buyer
Amendment No. 1 to Receivables
Purchase Agreement dated as of
September 3, 2003
Amendment No. 2 to Receivables
Purchase Agreement dated as of
December 23, 2003 among Insight
Receivables, LLC, Insight Enterprises,
Inc. and Jupiter Securitization
Corporation, Bank One NA
Amendment No. 5 to Receivables
Purchase Agreement dated as of March
25, 2005
Amendment No. 6 to Receivables
Purchase Agreement dated as of
December 19, 2005
Amendment No. 7 to Receivables
Purchase Agreement dated as of
September 7, 2006
10-K
000-25092
10.16
February 24, 2012
10-K
000-25092
10.12
February 22, 2013
8-K
000-25092
10.1
October 30, 2013
10-K
000-25092
10.12
February 2, 2017
10-K
000-25092
10.38
March 27, 2003
10-Q
000-25092
10.1
November 13, 2003
10-Q
000-25092
10.2
November 13, 2003
10-K
000-25092
10.42
March 11, 2004
10-Q
000-25092
10.4
May 9, 2005
8-K
000-25092
10.1
December 22, 2005
8-K
000-25092
10.2
September 8, 2006
87
Exhibit
Number
10.20
10.21
10.22
10.23
10.24
10.25
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2017
Commission File No. 000-25092
Exhibit Description
Form
File No.
Exhibit
Number
Filing/Effective
Date
Filed
Herewith
Incorporated by Reference
8-K
000-25092
10.3
September 23,
2008
10-Q
000-25092
10.1
August 6, 2009
10-Q
000-25092
10.1
November 4, 2010
8-K
000-25092
10.3
May 2, 2012
8-K
000-25092
10.1
May 2, 2012
8-K
000-25092
10.2
May 2, 2012
Amendment No. 9 to Receivables Purchase
Agreement dated as of September 17,
2008
Amendment No. 11 and Joinder
Agreement to Receivables Purchase
Agreement dated as of July 24, 2009
Amendment No. 12 to Receivables
Purchase Agreement dated as of July 1,
2010 among Insight Receivables, LLC,
Insight Enterprises, Inc., the Purchasers
and Managing Agents party thereto, and
JPMorgan Chase Bank, N.A. (successor by
merger to Bank One, NA (Main Office
Chicago)), as agent for the Purchasers
Omnibus Amendment and Joinder to
Receivables Purchase Agreement, dated
as of April 26, 2012, among Insight
Receivables, LLC, Insight Enterprises, Inc.,
Insight Direct USA, Inc., Insight Public
Sector, Inc., the purchasers and managing
agents party thereto and JPMorgan Chase
Bank, N.A., as Agent
Third Amended and Restated Credit
Agreement, dated as of April 26, 2012, by
and among Insight Enterprises, Inc.,
Insight Enterprises B.V., Insight Direct
(UK) Ltd., as borrowers, JPMorgan Chase
Bank, N.A., as administrative agent, Wells
Fargo Bank, National Association, as
syndication agent, and the lenders party
thereto
Amended and Restated Credit Agreement,
dated as of April 26, 2012, by and among
Calence, LLC, Insight Direct USA, Inc. and
Insight Public Sector, Inc., as Resellers,
Castle Pines Capital LLC, as administrative
agent, Wells Fargo Capital Finance, LLC,
as collateral agent, syndication agent and
administrative agent, and the lenders
party thereto
88
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2017
Commission File No. 000-25092
Exhibit Description
Form
File No.
Exhibit
Number
Filing/Effective
Date
Filed
Herewith
Incorporated by Reference
Omnibus Amendment, dated as of June
25, 2014, among Insight Receivables,
LLC, Insight Enterprises, Inc., Insight
Direct USA, Inc., Insight Public Sector,
Inc., the purchasers and managing
agents party thereto and Wells Fargo
Bank, National Association, as successor
agent
Amendment No. 2 to Amended and
Restated Credit Agreement, dated as of
July 2, 2015, by and among Calence,
LLC, Insight Direct USA, Inc. and Insight
Public Sector, Inc., as Resellers, Castle
Pines Capital LLC, as a lender and as an
administrative agent, Wells Fargo Capital
Finance, LLC, as a lender, as collateral
agent and as an administrative agent,
and the other lenders party thereto.
Amendment No. 2 to Third Amended and
Restated Credit Agreement, dated as of
April 26, 2012, by and among Insight
Enterprises, Inc., Insight Enterprises
B.V., Insight Direct (UK) Ltd., as
borrowers, JPMorgan Chase Bank, N.A.,
as administrative agent, Wells Fargo
Bank, National Association, as
syndication agent, and the lenders party
thereto
Amendment No. 3 to Amended and
Restated Credit Agreement, dated as of
April 26, 2012, by and among Calence,
LLC, Insight Direct USA, Inc. and Insight
Public Sector, Inc., as Resellers, Castle
Pines Capital LLC, as administrative
agent, Wells Fargo Capital Finance, LLC,
as collateral agent, syndication agent
and administrative agent, and the
lenders party thereto
Amendment to Receivables Purchase
Agreement, dated as of October 15,
2015, among Insight Receivables, LLC,
Insight Enterprises, Inc., PNC Bank,
National Association and Wells Fargo
Bank, National Association
8-K
000-25092
10.1
July 1, 2014
8-K
000-25092
10.1
July 9, 2015
10-Q
000-25092
10.1
October 29, 2015
10-Q
000-25092
10.2
October 29, 2015
10-Q
000-25092
10.3
October 29, 2015
Exhibit
Number
10.26
10.27
10.28
10.29
10.30
89
Exhibit
Number
10.31
10.32
10.33
10.34
10.35
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2017
Commission File No. 000-25092
Exhibit Description
Form
File No.
Exhibit
Number
Filing/Effective
Date
Filed
Herewith
Incorporated by Reference
8-K
000-
25092
10.1
June 28, 2016
8-K
000-
25092
10.2
June 28, 2016
8-K
000-
25092
10.3
June 28, 2016
10-K
000-
25092
10.34
February 2, 2017
10-K
000-
25092
10.35
February 2, 2017
Fourth Amended and Restated Credit
Agreement, dated as of June 23, 2016, by
and among Insight Enterprises, Inc.,
Insight Enterprises B.V., Insight Direct
(UK) Ltd., as borrowers, JPMorgan Chase
Bank, N.A., as administrative agent, Wells
Fargo Bank, National Association, as
syndication agent, and the lenders party
thereto
Second Amended and Restated Credit
Agreement, dated as of June 23, 2016, by
and among Calence, LLC, Insight Direct
USA, Inc. and Insight Public Sector, Inc.,
as Resellers, Castle Pines Capital LLC, as
administrative agent, Wells Fargo Capital
Finance, LLC, as collateral agent,
syndication agent and administrative
agent, and the lenders party thereto
Amendment to Receivables Purchase
Agreement, dated as of June 23, 2016,
among Insight Receivables, LLC, Insight
Enterprises, Inc., the purchasers and
managing agents party thereto and Wells
Fargo Bank, National Association, as Agent
Amendment No. 1 dated as of January 6,
2017 to Fourth Amended and Restated
Credit Agreement, by and among Insight
Enterprises, Inc., Insight Enterprises B.V.
and Insight Direct (UK) Ltd., as borrowers,
JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders
party thereto
Second Omnibus Reaffirmation
Agreement, Amendment and Joinder to
Loan Documents, dated as of January 6,
2017, by and among Calence, LLC, Insight
Direct USA, Inc., Insight Public Sector,
Inc. and Datalink Corporation, as
Resellers, the guarantors party thereto,
Castle Pines Capital LLC, as administrative
agent, Wells Fargo Capital Finance, LLC,
as collateral agent and administrative
agent, and the lenders party thereto
21
Subsidiaries of Insight Enterprises, Inc.
23.1
Consent of KPMG LLP
X
X
90
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2017
Commission File No. 000-25092
Exhibit
Number
Exhibit Description
Form
File No.
Exhibit
Number
Filing/Effective
Date
Filed
Herewith
Incorporated by Reference
24.1
24.2
24.3
24.4
24.5
24.6
24.7
24.8
24.9
24.10
31.1
31.2
32.1
Power of Attorney for Timothy A. Crown
dated February 13, 2018
Power of Attorney for Richard E. Allen
dated February 13, 2018
Power of Attorney for Bruce W. Armstrong
dated February 13, 2018
Power of Attorney for Linda Breard dated
February 13, 2018
Power of Attorney for Catherine Courage
dated February 13, 2018
Power of Attorney for Bennett Dorrance
dated February 8, 2018
Power of Attorney for Michael M. Fisher
dated February 13, 2018
Power of Attorney for Anthony A. Ibargüen
dated February 13, 2018
Power of Attorney for Kathleen S. Pushor
dated February 13, 2018
Power of Attorney for Girish Rishi dated
February 13, 2018
Certification of Chief Executive Officer
Pursuant to Securities and Exchange Act
Rule 13a-14
Certification of Chief Financial Officer
Pursuant to Securities and Exchange Act
Rule 13a-14
Certification of Chief Executive Officer and
Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant
To Section 906 of the Sarbanes-Oxley Act
of 2002
101
Interactive data files pursuant to Rule 405
of Regulation S-T
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(1) We have entered into a separate indemnification agreement with each of the following directors and executive
officers that differ only in names and dates: Richard E. Allen, Bruce W. Armstrong, Linda Breard, Glynis A.
Bryan, Catherine Courage, Samuel C. Cowley, Timothy A. Crown, Steven W. Dodenhoff, Bennett Dorrance,
Wolfgang Ebermann, Michael M. Fisher, Michael P. Guggemos, Anthony A. Ibargüen, Helen K. Johnson,
Kenneth T. Lamneck, Dana A. Leighty, Kathleen S. Pushor and Girish Rishi. Pursuant to the instructions
accompanying Item 601 of Regulation S-K, the Registrant is filing the form of such indemnification agreement.
(2) Management contract or compensatory plan or arrangement.
(P) Paper exhibit.
91
INSIGHT ENTERPRISES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INSIGHT ENTERPRISES, INC.
By /s/ Kenneth T. Lamneck
Kenneth T. Lamneck
Chief Executive Officer
Dated: February 23, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Kenneth T. Lamneck
Kenneth T. Lamneck
/s/ Glynis A. Bryan
Glynis A. Bryan
/s/ Dana A. Leighty
Dana A. Leighty
/s/ Timothy A. Crown*
Timothy A. Crown
/s/ Richard E. Allen*
Richard E. Allen
/s/ Bruce W. Armstrong*
Bruce W. Armstrong
/s/ Linda Breard*
Linda Breard
/s/ Catherine Courage*
Catherine Courage
/s/ Bennett Dorrance*
Bennett Dorrance
/s/ Michael M. Fisher*
Michael M. Fisher
/s/ Anthony A. Ibargüen*
Anthony A. Ibargüen
/s/ Kathleen S. Pushor*
Kathleen S. Pushor
/s/ Girish Rishi*
Girish Rishi
* By: /s/ Samuel C. Cowley
Samuel C. Cowley, Attorney in
Fact
President, Chief Executive Officer
and Director (principal executive
officer)
February 23, 2018
Chief Financial Officer
(principal financial officer)
February 23, 2018
Vice President, Finance
February 23, 2018
(principal accounting officer)
Chairman of the Board
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
92
INSIGHT ENTERPRISES, INC.
Exhibit 31.1
I, Kenneth T. Lamneck, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Insight Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of
the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: February 23, 2018
By: /s/ Kenneth T. Lamneck
Kenneth T. Lamneck
Chief Executive Officer
INSIGHT ENTERPRISES, INC.
Exhibit 31.2
I, Glynis A. Bryan, certify that:
CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K of Insight Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5 The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of
the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: February 23, 2018
By: /s/ Glynis A. Bryan
Glynis A. Bryan
Chief Financial Officer
INSIGHT ENTERPRISES, INC.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Insight Enterprises, Inc. (the “Company”) on Form 10-K
for the period ended December 31, 2017 as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), we, Kenneth T. Lamneck, Chief Executive Officer of the Company, and
Glynis A. Bryan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
By: /s/ Kenneth T. Lamneck
Kenneth T. Lamneck
Chief Executive Officer
February 23, 2018
By: /s/ Glynis A. Bryan
Glynis A. Bryan
Chief Financial Officer
February 23, 2018
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