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, 2019
/ /
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
or
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
Trading Symbol
NSIT
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 every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Yes
X
No
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
Smaller reporting company
X
Accelerated filer
Emerging growth company
Non-accelerated filer
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 28, 2019, the last business day of the registrant’s most recently
completed second fiscal quarter, was $2,046,698,623.
The number of shares outstanding of the registrant’s common stock on February 7, 2020 was 35,264,486.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to its 2020 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, 2019
TABLE OF CONTENTS
PART I
ITEM 1. Business ..........................................................................................................
ITEM 1A. Risk Factors......................................................................................................
ITEM 1B. Unresolved Staff Comments................................................................................
Properties ........................................................................................................
ITEM 2.
ITEM 3.
Legal Proceedings..............................................................................................
ITEM 4. Mine Safety Disclosures......................................................................................
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.............................................................................
ITEM 6. Selected Financial Data ......................................................................................
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations .......................................................................................................
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................
ITEM 8.
Financial Statements and Supplementary Data ......................................................
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure ........................................................................................................
ITEM 9A. Controls and Procedures.....................................................................................
ITEM 9B. Other Information .............................................................................................
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance .........................................
ITEM 11. Executive Compensation ....................................................................................
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters...........................................................................................
ITEM 13. Certain Relationships and Related Transactions, and Director Independence..............
ITEM 14. Principal Accounting Fees and Services.................................................................
ITEM 15. Exhibits, Financial Statement Schedules ...............................................................
ITEM 16. Form 10-K Summary .........................................................................................
EXHIBITS TO FORM 10-K..................................................................................................
SIGNATURES ..................................................................................................................
PART IV
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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, and 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; our expectations regarding completion of the PCM integration; 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
plans to continue to evolve our IT systems, including migration of EMEA’s current 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; our expectations
regarding future tax rates; adequate provisions for and our positions and strategies with respect to
ongoing and threatened litigation and expected outcomes; 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 belief that we have adequate provisions for losses; our expectation that we will
not incur interest payments under our inventory financing facilities; our expectations that future
income will be sufficient to fully recover deferred tax assets; 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, including
achievement of expected benefits;
possible significant fluctuations in our future operating results as well as seasonality and
variability in customer demands;
the risks associated with our international operations;
general economic conditions, economic uncertainties and changes in geopolitical conditions;
increased debt and interest expense and decreased availability of funds under our financing
facilities;
cyberattacks or breaches of data privacy and security regulations;
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, including PCM related litigation, client audits and failure to comply with laws
and regulations;
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•
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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;
intellectual property infringement claims and challenges to our registered trademarks and
trade names;
our substantial amount of indebtedness;
the conditional conversion feature of the notes, if triggered, may adversely affect the
Company’s financial condition and operating results;
the accounting method for convertible debt securities that may be settled in cash, such as the
notes, could have a material effect on the Company’s reported financial results;
future sales of the Company’s common stock or equity-linked securities in the public market
could lower the market price for our common stock;
the Company is subject to counterparty risk with respect to the convertible note hedge
transactions; and
risks associated with the discontinuation of LIBOR as a benchmark rate.
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 (the “SEC”). 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
Today, every business is a technology business. Insight Enterprises, Inc. (“Insight” or the
“Company”) empowers organizations of all sizes with Intelligent Technology SolutionsTM and services to
maximize the business value of IT in North America; Europe, the Middle East and Africa (“EMEA”); and
Asia-Pacific (“APAC”). As a Fortune 500-ranked global provider of digital innovation, cloud/data center
transformation, connected workforce, and supply chain optimization solutions and services, we help
clients innovate and optimize their operations to run smarter.
The Company is organized in the following three operating segments, which are primarily defined
by their related geographies:
Operating Segment*
North America .............................................. United States and Canada
EMEA .......................................................... Europe, Middle East and Africa
APAC .......................................................... Asia-Pacific
Geography
Percent of 2019
Consolidated Net Sale
s
78%
20%
2%
* 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 19 to the Consolidated Financial Statements in Part II, Item 8 of this report.
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 acquisitions were as
follows:
Prior to 2015 we acquired Software Spectrum, Inc. (2006), Calence, LLC (2008), MINX Limited
(2008), Ensynch, Inc. (2011), Inmac GmbH (2012) and Micro Warehouse BV (2012).
Our acquisitions from 2015 through today were as follows:
•
•
•
•
•
2015 – Acquired BlueMetal Architects, Inc. (“BlueMetal”), an interactive design and technology
architecture firm, and strengthened our digital innovation 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 digital innovation solutions to our clients in APAC;
2017 – Acquired Datalink Corporation (“Datalink”) and strengthened our position as a leading IT
solutions provider with deep technical expertise delivering data center transformation solutions
to clients on premise or in the cloud. Additionally, we acquired Caase Group B.V. (referred to
herein as, “Caase.com”) and strengthened our ability to deliver cloud and data center solutions
to our clients in EMEA;
2018 – Acquired Cardinal Solutions Group, Inc. (“Cardinal”), a digital solutions provider and
strengthened our digital innovations capabilities; and
2019 – On August 30, 2019, we acquired PCM, Inc. (“PCM”), a provider of multi-vendor
technology offerings, including hardware, software and services which complemented our supply
chain optimization solution offering, adding scale and clients in the mid-market and corporate
space primarily in North America.
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Our Purpose and Values
Our purpose: “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:
Hunger – Our insatiable desire to create new opportunities for our clients and our
business is apparent in everything we do.
Heart – We seek to have a positive impact in the lives of the people we serve by putting
our clients, partners and teammates first.
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 20% of the worldwide total addressable market. We believe our addressable worldwide market
in the indirect sales IT channel represents approximately $671 billion in annual sales and for the year
ended December 31, 2019, our net sales of $7.7 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 21 countries and our deep experience delivering IT hardware, software and services
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 product and services needs and help our clients define,
architect, implement and manage their IT solutions.
We believe that Insight has a unique position in the market to gain profitable market share by
offering Intelligent Technology SolutionsTM that empower our clients to manage their IT environments
so they can drive meaningful business outcomes today and transform their operations for tomorrow.
Insight’s Strategic Assets are a Platform for Growth
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Culture, people and leadership – we have many teammates on one global team who live by
our core values; we show hunger, heart and harmony in everything we do. We put people
first, believing that technology can connect people in powerful ways.
Innovation led solution area expertise –
o
Software DNA – we understand complex software licensing requirements and have the
know-how to optimize our clients’ usage and compliance management through a portfolio
of license consulting and optimization services.
o Data center transformation skills – in support of our long-term strategy, we acquired
Datalink (2017, U.S.) and Caase.com (2017, Netherlands), providers of IT services, cloud
and enterprise data center solutions. This added deep technical expertise and
complementary services offerings to our internally developed solutions and increased our
addressable market opportunity in hybrid cloud and other high-growth data center
categories.
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o Next-generation tech skills – we quickly adapt to new technology trends and innovation,
investing internally to advance our technical capabilities while at the same time making
strategic acquisitions that establish us as thought leaders, with scale and reach, around
emerging market trends. Annually, we gather thought leaders from our technical expert
pool to share best practices through peer led learning sessions. The BlueMetal (2015,
U.S.), Ignia (2016, Australia) and Cardinal (2018, U.S.) acquisitions are examples of
acquisitions that have given us global capabilities to support our clients as they look to
accelerate in the digital world.
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
2018 and 2017. That expertise combined with our hardware and software expertise,
makes us well-positioned to deliver holistic connected product and IoT solutions.
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• Global reach and scale – 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.
• Diverse partner relationships – 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.
• Operational rigor and financial health – we offer efficient supply chain execution, as well
as product fulfillment, logistics capabilities, management tools and technical expertise. We
also have a track record for successfully integrating mergers and acquisitions to accelerate
growth.
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Our Business Strategy
A client’s information technology services needs span an array of business priorities including
modern infrastructure and cloud options, workforce productivity initiatives, and leveraging IT to
differentiate from their competitors. We believe our four solution areas effectively represent the areas
that our clients care about most and are designed to allow our clients, and the different decision
makers within our clients, to interact with us in multiple ways, whether acquiring a hardware or
software asset, implementing public cloud or as-a-service workplace solutions, designing a next
generation or hybrid cloud data center, or leveraging sophisticated IoT and artificial intelligence
solutions to improve their clients’ experience. At each connection point, we provide technical
expertise and advisory services to our clients.
Our go to market framework for our four solution areas, built on thirty years of broad IT
experience combined with strategic acquisitions, new services development and deep partner
relationships, uniquely positions us to help our clients manage their business today and also transform
to meet their needs for tomorrow. Our expertise is deep across these key solutions areas:
Digital Innovation – We leverage emerging technologies to build innovative
applications to improve clients’ business performance, engage customers and
uncover new revenue streams. We help our clients innovate smarter.
Cloud and Data Center Transformation – We help businesses modernize
and secure critical platforms to transform IT. Through end-to-end services
from architecture through management, we help leverage the right platforms
to increase agility and support innovation.
Connected Workforce – We help clients deliver a secure, modern experience
to their workforce, driving productivity in the workplace and helping to attract
and retain talent in this competitive marketplace. We help our clients work
smarter.
Supply Chain Optimization – Through Insight’s core business, we help
clients effectively and efficiently acquire all of their information technology
needs leveraging our scale and supply chain expertise. We help our clients
invest smarter.
Each of our solution areas represents a discrete area of growth for our business and when
connected to each other, they provide a platform for our clients to leverage our breadth of expertise to
solve their most relevant business challenges from IT supply chain to optimizing performance in the
digital world. Our strategy is to increase our penetration with new and existing clients within the four
solution areas across our geographic footprint in North America, EMEA and APAC. Our offerings within
the solution areas include hardware and software products from market leading and emerging
manufacturer brands, sold separately or combined into branded solutions with Insight delivered
professional or managed services. We can serve clients directly in our markets or serve a single client
globally where they can enjoy a common experience across our footprint. To execute our strategy, we
employ centralized and field-based sales, engineering, and services resources to connect with our
clients. We also have invested in approximately 1,000 technical engineers, architects and software
developers who create and deliver integrated IT solutions to our clients globally, an asset that we
believe differentiates us in the marketplace.
Our unique solution area go to market strategy is supported by a strong operational platform that
includes scalable IT and e-commerce systems and processes, robust digital marketing capabilities, and
a culture of continuous business process transformation and automation.
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E-commerce and Cloud Management Systems - In recent years, cloud and as-a-service
solutions have become more mainstream and adoption continues to increase across markets and
verticals. Key market imperatives in the adoption of these 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 e-commerce platform, which serves as a single
marketplace for our clients to buy and manage anything from a discrete product offering to their cloud
and other as-a-service subscriptions. Components of our e-commerce platform include:
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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.
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 capabilities allowing larger IT organizations to centrally provide cloud
offerings while maintaining the manageability and visibility they require.
Digital Marketing Enablement – We have invested in internal industry and marketing expertise
to develop original go to market and IT solution content, whitepapers and industry research studies to
ensure we enable our clients with relevant information around IT and business trends. Further, we
leverage a best-in-class digital marketing technology stack to personalize the delivery of our content
through an omni-channel experience as they manage and transform their IT investment. Our
integrated suite of digital marketing tools has allowed us to access and grow our position in the mid-
market over the past few years while also strengthening our marketing alignment with our partners.
Culture of Business Transformation and Automation – At the heart of our culture is an
intense desire to improve our clients’ experience when doing business with us either on the web,
through business to business connections or on the telephone. We have a dedicated business
transformation team focused on end to end process improvement initiatives around order flow,
dynamic pricing and cost optimization, and back office operations, all oriented to the impact on client
experience. In 2018, we began to invest in process automation and optical recognition scanning
solutions to improve certain of our client facing processes, making the buying experience more
frictionless while improving the scalability of our business processes for the long term.
Our Offerings
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 consist of
largely software and certain software-related services. On a consolidated basis, hardware, software
and services represented approximately 60%, 27% and 13%, respectively, of our net sales in 2019.
This compares to 61%, 27% and 12%, respectively, of our net sales in 2018 and 58%, 32% and 10%,
respectively, of our consolidated net sales in 2017. Additional detailed sales mix information by
operating segment can be found in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Part II, Item 7 and in Note 19 to the Consolidated Financial Statements in
Part II, Item 8 of this report.
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:
Digital Innovation – Our clients are looking for business outcomes, whether they are trying to
improve their customer engagement, enable their workforce, or improve their operations, our
clients face strong competition and digital disruption throughout their industries. We help our
clients leverage technology to digitally transform their businesses. Our digital innovation solutions
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build upon our deep expertise in public cloud, IoT, mobility, big data and artificial intelligence as
well as our extensive project management and organizational change management capabilities to
ensure success across our clients’ digital transformation journeys.
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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.
•
• 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.
Big Data & Analytics. Custom solutions to help clients quickly review actionable insights within
their data, 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.
Cloud and Data Center Transformation – Consumption-based models and technology convergence
are reinventing decades-old approaches to IT infrastructure. We assess, align, manage and secure
our clients’ data and workloads, defining and executing platform strategies for optimized IT
environments. Our end-to-end services empower companies to effectively leverage technology
solutions to overcome challenges, support growth and innovation, reduce risk, and transform the
business.
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Data center and cloud transformation: Modernizing and optimizing IT across the business. Our
services span hybrid cloud, migration and consolidation, workload-platform alignment,
converged/hyperconverged solutions, and software-defined data center.
Data platform modernization: Improving how data is stored, protected, consumed, analyzed
and restored. We address data protection, backup to cloud — independent software vendor,
business continuity and disaster recovery, artificial intelligence/machine learning private
infrastructure and graphics processing unit acceleration, and data security.
Integrated network and security: Securing networks and data, including cloud. Our focus
areas are security operations and controls, compliance and governance, cloud security, micro-
segmentation, and software-defined networking in a wide area network and SD fabric.
Comprehensive services: Our consulting services, professional services, managed services
and support services help clients throughout transformation, with advisory, technical needs,
24/7/365 monitoring, residencies and more.
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’
workforces with solutions to enable and enhance employee productivity and retention. We offer a
full range of services to clients including discovery, transformation, adoption and management.
We deliver managed solutions in three domains:
•
Digital Workplace: Desktop, notebook, tablet and mobile devices coupled with cloud-based
productivity software, deployed via an “over the air” model and remotely managed by
Insight’s 24x7 Service Desk.
Collaboration: Digital collaboration software suites coupled with technology-enabled “huddle
spaces" that enable teams to seamlessly collaborate across functional areas and geographies.
We deliver managed solutions spanning messaging, voice, video and content management.
• Workplace Services: Full support of end users and their technology including deskside support,
•
remote service desk, automated self-service and self-healing solutions.
Supply Chain Optimization – Growing pressure on IT budgets and increasing trends in outsourcing
of non-core functions are changing the way clients approach procurement and management of
core IT investments. We provide end to end lifecycle services around hardware and software that
help our clients optimize their IT return on investments.
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INSIGHT ENTERPRISES, INC.
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Hardware Life Cycle: Source, procure, stage, configure, integrate, test, deploy and maintain IT
products spanning endpoints to infrastructure, regionally, or across the globe via the Insight
footprint and an engaged network of suppliers.
Software Life Cycle: Portfolio management, compliance, integration and adoption, on premise
or in the cloud, regionally or across the globe.
Hardware Warranty and Software Maintenance: Warranty and maintenance services covering
an array of products that can be purchased as a point solution or as a managed service
delivered by Insight.
Hardware Product Offerings
We offer products from hundreds of manufacturers, including such industry leaders as Cisco,
Dell/EMC, HP Inc., Lenovo, Hewlett Packard Enterprise Company (“HPE”), NetApp, Apple, Microsoft
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 warehousing 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.
Software Product 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, VMware, Adobe, IBM Software, Symantec and Citrix.
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. With many
publishers now offering public cloud-based software solutions in place of licenses consumed on
premise, we expect we will continue to see migration to the cloud-based software alternatives
discussed above in our services offerings.
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 are currently
integrating the PCM business to our IT system platforms. 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.
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Our Competition
The IT hardware, software and services industry is very fragmented and highly competitive. Our
competition includes:
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Solution providers, value-added resellers and direct marketers such as CDW, Zones,
Connection, SHI, Softchoice, Systemax, Computacenter, Bechtle, SoftwareONE, Comparex,
and Crayon;
Systems integrators such as ePlus, Presidio, World Wide Technology, Perficient and Accenture;
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;
National and global service providers, such as IBM Global Services and HP Enterprise Services;
and
E-tailers, such as Amazon Web Services, Newegg, Buy.com and e-Buyer (United Kingdom).
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. Many of our
manufacturer and publisher partners are also our competitors, as many sell directly to business
customers, particularly larger corporate customers.
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 2019, we purchased products and software from approximately 4,500
partners. Approximately 62% (based on dollar volume) of these purchases were directly from
manufacturers or software publishers, with the balance purchased through distributors. Purchases
from Microsoft and Tech Data (a distributor) accounted for approximately 12% each, of our aggregate
purchases in 2019. No other partner accounted for more than 10% of purchases in 2019. Our top
five partners as a group for 2019 were Microsoft, Tech Data (a distributor), Cisco Systems, HP Inc.
and Dell, and approximately 61% of our total purchases during 2019 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 2019, sales of Microsoft and Dell products accounted for approximately 16% and 11%,
respectively, of our consolidated net sales. No other manufacturer’s or publisher’s products accounted
for more than 10% of our consolidated net sales in 2019. Sales of product from our top five
manufacturers/publishers as a group (Microsoft, Dell, Cisco Systems, HP Inc. and Lenovo) accounted
for approximately 51% of Insight’s consolidated net sales during 2019.
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.
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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
three years. These digital marketing investments increase the effectiveness of our marketing
campaigns and client interactions. We believe that 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, 2019, we employed 11,261 teammates, of whom 3,193 were engaged in sales
related activities, 3,961 were engaged in management, support services and administration activities,
3,822 were skilled, certified consulting and service delivery professionals and 285 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.
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 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
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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 SEC. 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 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 or higher 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
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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 and other investments, 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, increases in customer usage, 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: 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 and
technologies. 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.
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The acquisition, integration and operation of acquired businesses, including PCM, may
disrupt our business and create additional expenses, and we may not achieve the
anticipated benefits of the acquisitions. In connection with our strategic initiatives, we regularly
acquire new businesses to expand our technical capabilities, product offerings and customer base and
to realize cost savings. All acquisitions entail various risks such as difficulties in realizing the benefits
of the acquired business, exposure to unexpected liabilities, difficulties in retaining key employees and
adverse customer reactions. In addition, integration of an acquired business, such as PCM, 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, particularly with the integration of a
company the size of PCM, 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 are 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.
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, India, Philippines 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 and tariffs (foreign and
domestic);
trade restrictions (foreign and domestic);
difficulties of conducting business, managing operations, and costs of staffing in certain
foreign countries;
• 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, public health concerns (including health epidemics or
outbreaks of communicable diseases such as the coronavirus) and other geopolitical
uncertainties.
In addition, changes in policies and/or laws of the United States or foreign governments, including
data privacy restrictions such as the General Data Protection Regulation (“GDPR”) 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,
government shutdowns, 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.
Political developments, economic instability or natural disasters impacting international trade,
including continued uncertainty surrounding the Referendum on the United Kingdom’s Membership in
the European Union (“EU”) (referred to as “Brexit”) and, trade disputes and increased tariffs,
particularly between the United States and China, may negatively impact markets and cause weaker
macroeconomic conditions or drive sentiment that weakens demand for our products and services.
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.
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We may face risks related to health epidemics or outbreaks of communicable diseases. For
example, there have been recent outbreaks in several countries, including China, of the highly
transmissible and pathogenic coronavirus. The outbreak of such communicable diseases could result
in a widespread health crisis that could adversely affect general commercial activity and the
economies and financial markets of many countries. Since some of our business partners’ and our
operations are in China and other Asian countries, an outbreak of communicable diseases in Asia or
elsewhere, or the perception that such an outbreak could occur, and the measures taken by the
governments of countries affected could adversely affect our business, supply chain, financial
condition or results of operations. Additionally, an outbreak could significantly disrupt our business by
limiting our ability to travel or adversely impact the ability of our manufacturers, publishers and
distributors to ship materials, thereby forcing temporary disruption in the availability of products that
we sell to our clients.
Our acquisition strategy may increase our outstanding debt and interest expense and
decrease 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
initiatives, we increase our total borrowings from time to time, such as with the PCM acquisition.
These additional borrowings have the effect of increasing our future interest expenses and require
escalating amortization payments. Additionally, certain of our financing facilities have interest rates
that vary based on market conditions and on utilization, which increases our exposure to interest rate
fluctuations and may result in greater interest expense than we have forecasted.
Our financing facilities contain covenants that we must comply with in order to avoid an
occurrence of an event of default. The covenants include, among other things, limitations on the
payment of dividends and compliance with certain minimum fixed charge ratio and minimum
receivables requirements, as well as meeting 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.
Cyberattacks and 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 proprietary and 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. We have privacy and data security policies
in place that are designed to prevent security breaches; however, as newer technologies evolve, and
the portfolio of the service providers we share confidential information with grows, we could be
exposed to increased risks from breaches in security, including those from human error, negligence or
mismanagement or from illegal or fraudulent acts, such as cyberattacks.
The evolving nature of threats to data security, in light of new and sophisticated methods used by
criminals and cyberterrorists, including computer viruses, malware, phishing, misrepresentation, social
engineering and forgery, make it increasingly challenging to anticipate and adequately mitigate these
risks. 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.
Cyberthreats are constantly evolving, increasing the difficulty of detecting and successfully
defending against them. Malicious individuals or organizations may attempt to penetrate our network
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security and misappropriate or compromise our confidential information or that of third parties, create
system disruptions or cause shutdowns. Such individuals or organizations also may develop or deploy
viruses, worms, ransomware or otherwise exploit security vulnerabilities of our systems or our product
offerings, or attempt to fraudulently induce our employees, customers or others to disclose passwords
or other sensitive information or unwittingly provide access to our systems or data. Cyberthreats, data
breaches, malware and similar disruptions from unauthorized access or tampering by malicious actors
or inadvertent error could disrupt the security of our systems and business applications, impair our
ability to provide services to our customers and protect the privacy of their data, resulting in
compromise of confidential or technical business information harming our reputation and competitive
position.
Like many other businesses, we have been, and expect to continue to be, subject to electronic
data attacks and threats, although we do not believe attacks have resulted in the misappropriation of
sensitive data in a material way. 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 may be required to
notify regulators and individuals of a data breach and 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 economic life or the value of our current system is impaired, or
necessary improvements to our technology are significantly delayed, we could incur additional
expense and/or 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. In addition, we plan to migrate our EMEA operations to the same
IT system used in North America and APAC. There is no guarantee that we will be successful in these
efforts at all times or 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 and currently engage in 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
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INSIGHT ENTERPRISES, INC.
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, including data privacy restrictions such as the GDPR or the California Consumer Privacy
Act (“CCPA”), 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 sustained 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 leadership team, 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 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:
18
INSIGHT ENTERPRISES, INC.
•
•
•
•
•
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, including but not limited to U.S. federal and state regulations or interpretations
resulting from the Tax Cuts and Jobs Act of 2017;
tax effects related to acquisition accounting; and
resolutions of issues arising from tax examinations and any related interest or penalties.
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 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.
We have a substantial amount of indebtedness, which could have important
consequences to our business. We have a substantial amount of indebtedness. As of December
31, 2019, we had $859.4 million of total long-term debt outstanding, as defined by U.S. generally
accepted accounting principles (“GAAP”), and an additional $253.7 million of obligations outstanding
under our inventory financing agreements. We also have the ability to borrow an additional $629.3
million under our senior secured credit facility. Our substantial indebtedness could have important
consequences, that could have a material adverse effect on our business, financial condition and
results of operations, including the following:
•
• making it more difficult for us to satisfy our obligations with respect to our indebtedness;
requiring us to dedicate a substantial portion of our cash flow from operations to debt
•
service payments on our and our subsidiaries’ debt, which reduces the funds available for
working capital, capital expenditures, acquisitions and other general corporate purposes;
requiring us to comply with restrictive covenants in our senior secured debt facility, which
limits the manner in which we conduct our business;
limiting our flexibility in planning for, or reacting to, changes in the industry in which we
operate;
placing us at a competitive disadvantage compared to any of our less-leveraged
competitors;
•
•
19
INSIGHT ENTERPRISES, INC.
•
•
increasing our vulnerability to both general and industry-specific adverse economic
conditions; and
limiting our ability to obtain additional debt or equity financing to fund future working
capital, capital expenditures, acquisitions or other general corporate requirements and
increasing our cost of borrowing.
The conditional conversion feature of the notes, if triggered, may adversely affect the
Company’s financial condition and operating results. In the event the conditional conversion
feature of the notes is triggered, holders of notes will be entitled to convert the notes at any time
during specified periods at their option. If one or more holders elect to convert their notes, unless we
elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than
paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of
our conversion obligation through the payment of cash, which could adversely affect our liquidity. In
addition, even if holders of notes do not elect to convert their notes, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a
current rather than long-term liability, which would result in a material reduction of our net current
assets.
The accounting method for convertible debt securities that may be settled in cash, such
as the notes, could have a material effect on the Company’s reported financial results.
Under Accounting Standards Codification (“ASC”) 470-20, “Debt with Conversion and Other Options,”
an entity must separately account for the liability and equity components of the convertible debt
instruments (such as the notes) that may be settled entirely or partially in cash upon conversion in a
manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting
for the notes is that the equity component is required to be included in the additional paid-in capital
section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of
the equity component is treated as debt discount for purposes of accounting for the debt component
of the notes. As a result, we record a greater amount of non-cash interest expense as a result of the
amortization of the discounted carrying value of the notes to their face amount over the term of the
notes. We will report larger net losses (or lower net income) in our financial results because ASC 470-
20 requires interest to include both the amortization of the debt discount and the instrument’s non-
convertible coupon interest rate, which could adversely affect our reported or future financial results,
the trading price of our common stock and the trading price of the notes.
In addition, under certain circumstances, convertible debt instruments (such as the notes) that
may be settled entirely or partly in cash at the election of the issuer and are in the money at the
reporting date may be included in the treasury stock method under ASC 260, “Earnings Per Share.”
To the extent that the conversion value of the notes exceeds their principal amount, the shares
issuable upon conversion of such notes are included in the calculation of diluted earnings per share
thus increasing the number of shares included in this calculation. We cannot be sure that the
accounting standards in the future will continue to permit the use of the treasury stock method. If we
are required to include the notes in the treasury stock method in accounting for the shares issuable
upon conversion of the notes, then our diluted earnings per share could be adversely affected.
Future sales of the Company’s common stock or equity-linked securities in the public
market could lower the market price for our common stock. In the future, we may sell
additional shares of our common stock or equity-linked securities to raise capital. In addition, a
substantial number of shares of our common stock is reserved for issuance upon the exercise of stock
options, restricted stock units, upon conversion of the notes and in connection with the warrants to be
issued in connection with the convertible note hedge and warrant transactions. We cannot predict the
size of future issuances or the effect, if any, that they may have on the market price for our common
stock. The issuance and sale of substantial amounts of common stock or equity-linked securities, or
the perception that such issuances and sales may occur, could adversely affect the market price of our
common stock and impair our ability to raise capital through the sale of additional equity or equity-
linked securities.
The Company is subject to counterparty risk with respect to the convertible note hedge
transactions. The option counterparties are financial institutions or affiliates of financial institutions,
and we are subject to the risk that one or more of such option counterparties may default under the
convertible note hedge transactions. Our exposure to the credit risk of the option counterparties will
20
INSIGHT ENTERPRISES, INC.
not be secured by any collateral. If any option counterparty becomes subject to insolvency
proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our
exposure at that time under the convertible note hedge transaction. Our exposure will depend on
many factors but, generally, the increase in our exposure will be correlated to the increase in our
common stock market price and in the volatility of the market price of our common stock. In addition,
upon a default by the option counterparty, we may suffer adverse tax consequences and dilution with
respect to our common stock.
The Company may face risk associated with the discontinuation of and transition from
London Interbank Offered Rate (LIBOR) as a benchmark interest rate. The Company has
outstanding debt with variable interest rates based on LIBOR, and it is anticipated that LIBOR will be
discontinued as of the year ending 2021. The expected discontinuation of LIBOR will require lenders
and their borrowers to transition from LIBOR to an alternative benchmark interest rate, which could
have an impact on and risk to the Company if not completed in a timely manner. The Company’s
current material loan documents include an alternative benchmark interest rate. At this time,
however, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or
any establishment of alternative benchmark rates in the future. Any new benchmark rate will likely not
replicate LIBOR exactly, which could impact our contracts which terminate after 2021. In addition,
any changes to benchmark rates in the future may have an uncertain impact on our cost of funds and
our access to the capital markets, which could impact our results of operations and cash flows.
Item 1B. Unresolved Staff Comments
Not applicable.
21
INSIGHT ENTERPRISES, INC.
Item 2. Properties
Our principal executive offices are located in Tempe, Arizona. At December 31, 2019, we owned
or leased approximately 2.3 million square feet of office and warehouse space, and, while
approximately 73% 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 eight
countries in APAC. 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.
Information about significant sales, distribution, services and administration facilities in use as of
December 31, 2019 is summarized in the following table:
Operating Segment
North America
Location
Tempe, Arizona, USA
Primary Activities
Executive Offices, Sales and
Administration and Network
Operations Center
Client Support Center
Sales and Administration
Sales and Administration
Tempe, Arizona, USA
El Segundo, California, USA
Addison, Illinois, USA
Eden Prairie, Minnesota, USA Sales, Services and
Lewis Center, Ohio, USA
Hanover Park, Illinois, USA
Administration
Services, Distribution and
Administration
Services, Distribution and
Administration
Sales and Administration
Plano, Texas, USA
Austin, Texas, USA
Sales and Administration
Liberty Lake, Washington, USA Sales and Administration
Sales and Administration
Tampa, Florida, USA
Sales and Administration
Conway, Arkansas, USA
Sales and Administration
Winnipeg, Manitoba, Canada
Sales and Administration
Montreal, Quebec, Canada
Distribution
Montreal, Quebec, Canada
EMEA
APAC
Sheffield, United Kingdom
Sheffield, United Kingdom
Uxbridge, United Kingdom
Garching, Germany
Frankfurt, Germany
Frankfurt, Germany
Vélizy, France
Apeldoorn, Netherlands
Sydney, New South Wales,
Australia
Perth, Australia
Manila, Philippines
Sales and Administration
Distribution
Sales and Administration
Sales and Administration
Sales and Administration
Distribution
Sales and Administration
Sales and Administration
Sales and Administration
Lease
Sales and Administration
Operations Center
Lease
Lease
Own or Lease
Own
Own
Own
Lease
Lease
Lease
Own
Lease
Lease
Lease
Lease
Lease
Lease
Own
Lease
Own
Lease
Lease
Lease
Lease
Lease
Lease
Lease
In addition to those listed above, we have leased sales offices in various cities across North
America, EMEA and APAC and during the fourth quarter of 2019, we completed the purchase of real
estate in Chandler, Arizona that we intend to use as our global headquarters. A portion of the client
support center that we own in Tempe, Arizona (included in the table above) is currently leased to
TTEC, formerly known as Direct Alliance Corporation, a discontinued operation that was sold to a third
party in 2006. For additional information on property and equipment and operating leases, see Notes
4 and 9 to the Consolidated Financial Statements in Part II, Item 8 of this report.
22
INSIGHT ENTERPRISES, INC.
Item 3. Legal Proceedings
For a discussion of legal proceedings, see “Legal Proceedings” in Note 16 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.
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. As of
February 7, 2020, we had 35,264,486 shares of common stock outstanding held by 48 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 senior secured revolving credit facility contains
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, 2019.
See further information on our share repurchase programs in Note 15 to the Consolidated
Financial Statements in Part II, Item 8 of this report.
23
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, 2014 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, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019
Dec. 31,
2014
Dec. 31,
2015
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2018
Dec. 31,
2019
Insight Enterprises, Inc. Common
Stock (NSIT) ................................... $100.00 $ 97.00 $156.00 $148.00 $157.00 $271.00
Nasdaq US Benchmark TR Index
(Market Index).................................
100.00
100.00
114.00
138.00
130.00
171.00
Nasdaq US Benchmark Computer
Hardware TR Index (Industry
Index) ............................................
100.00
91.00
105.00
151.00
141.00
259.00
24
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, 2019 is derived from our audited consolidated
financial statements. The consolidated financial statements as of December 31, 2019 and 2018, and
for each of the years in the three-year period ended December 31, 2019, which have been audited by
KPMG LLP, our independent registered public accounting firm, are included in Part II, Item 8 of this
report.
Consolidated Statements of
Operations Data (1)(2)(3)
2019
Years Ended December 31,
2017
(in thousands, except per share data)
2018
2016
2015
Net sales ........................................... $7,731,190 $7,080,136 $6,703,623 $5,485,515 $5,373,090
5,785,053 4,742,413 4,656,758
Costs of goods sold ............................. 6,593,092 6,086,418
716,332
743,102
993,718
Gross profit ............................... 1,138,098
918,570
Operating expenses:
Selling and administrative
expenses....................................
880,737
756,529
723,328
585,243
584,906
Severance and restructuring
expenses....................................
Loss on sale of foreign entity............
Acquisition-related expenses ............
Earnings from operations ............
Non-operating (income) expense:
Interest expense, net......................
Other expense (income) ..................
Earnings before income taxes...........
Income tax expense............................
5,425
—
11,342
240,594
28,478
400
211,716
52,309
3,424
—
282
233,483
21,737
(156)
211,902
48,225
Net earnings .................................. $ 159,407 $ 163,677 $
9,002
3,646
3,329
179,265
4,580
—
4,447
148,832
17,965
2,202
159,098
68,415
90,683 $
7,562
1,812
139,458
54,768
84,690 $
4,907
—
—
126,519
6,441
902
119,176
43,325
75,851
Net earnings per share:
Basic ............................................ $
Diluted.......................................... $
4.49 $
4.43 $
4.60 $
4.55 $
2.54 $
2.50 $
2.35 $
2.32 $
2.00
1.98
Shares used in per share
calculations:
Basic ............................................
Diluted..........................................
35,538
35,959
35,586
36,009
35,741
36,207
36,102
36,438
37,984
38,275
25
INSIGHT ENTERPRISES, INC.
2019
2018
December 31,
2017
(in thousands)
2016
2015
Consolidated Balance Sheet Data
Working capital.................................... $1,164,504 $ 801,915 $ 804,369 $ 544,943 $ 543,534
Total assets ........................................ 4,178,179 2,775,947 2,685,651 2,219,300 2,014,017
Short-term debt, including finance leases
and other financing obligations (4)........
Long-term debt, including finance leases
and other financing obligations (4)........
16,592
1,691
1,395
1,535
480
195,525
986,989
296,576
843,469
40,251
713,443
89,000
685,742
857,673
Stockholders’ equity............................. 1,160,318
Cash dividends declared per common
share
—
—
—
—
—
(1) Our consolidated statements of operations data includes results of the following acquisitions from their
respective dates of acquisition: PCM from August 30, 2019, Cardinal from August 1, 2018, Caase.com from
September 26, 2017, Datalink from January 6, 2017, Ignia from September 1, 2016 and BlueMetal from
October 1, 2015.
(2) Our consolidated statement of operations for 2019 and 2018 includes the impact of adopting ASU No. 2014-
09, “Revenue from Contracts with Customers,” which created FASB Topic 606 (“Topic 606”).
(3) Our consolidated statements of operations for 2017 through 2019 include the impact of U.S federal tax reform
that was enacted in December 2017 as part of the U.S Tax Cuts and Jobs Act. See Note 11 to the
Consolidated Financial Statements in Part II, Item 8 of this report.
(4) Excludes obligations under our inventory financing facilities of $253.7 million, $304.1 million, $319.5 million,
$154.9 million and $106.3 million as of December 31, 2019, 2018, 2017, 2016 and 2015, 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 these facilities. These amounts are classified separately as
accounts payable-inventory financing facilities on our consolidated balance sheets. See Note 7 to the
Consolidated Financial Statements in Part II, Item 8 of this report.
26
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 PCM’s results subsequent to the PCM acquisition.
Overview
Today, every business is a technology business. We empower organizations of all sizes with
Intelligent Technology SolutionsTM and services to maximize the business value of information
technology (“IT”) in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific
(“APAC”). As a Fortune 500-ranked global provider of digital innovation, cloud/data center
transformation, connected workforce, and supply chain optimization solutions, we help clients innovate
and optimize their operations to run smarter. 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 2019 financial and operational highlights included the following:
• We generated growth in earnings from operations on a consolidated basis and in our North
America and EMEA reporting segments.
• We grew our services business by 20% on a consolidated basis with growth in each of our
reporting segments.
• We generated cash flows from operations of $127.9 million.
• We completed the acquisition of PCM on August 30, 2019 and commenced the integration of
IT systems and back office operations which we expect to complete in 2020.
On a consolidated basis, for the year ended December 31, 2019:
Net sales of $7.7 billion increased 9% compared to 2018.
•
• Gross profit of $1.1 billion increased 15% compared to 2018, also up 16% year over year
•
•
excluding the effects of fluctuating foreign currency exchange rates.
Consolidated gross margin improved approximately 70 basis points to 14.7% of net sales in
2019. This increase reflects growth in services net sales and gross profit together with the
impact of PCM from August 30, 2019.
Earnings from operations increased to $240.6 million in 2019, up 3% compared to the prior
year, which represented 3.1% of net sales.
• Our effective tax rate in 2019 was 24.7%, which compares to our effective tax rate of 22.8%
•
in 2018.
Net earnings and diluted net earnings per share were $159.4 million and $4.43, respectively,
in 2019. In 2018, we reported net earnings of $163.7 million and diluted net earnings per
share of $4.55.
The results of operations for 2019 include the following items:
•
•
•
•
•
the results of the acquisition of PCM, effective August 30, 2019;
transaction costs totaling $11.3 million, $9.9 million net of tax, associated with the acquisition
of PCM;
severance and restructuring expenses of $5.4 million, $4.0 million net of tax;
the repurchase of approximately 541,000 shares of the Company’s common stock for an
aggregate of $27.9 million; and
the impact of the adoption of FASB Topic 842 (“Topic 842”), effective January 1, 2019,
resulting in the recording of net operating lease right-of-use assets and lease liabilities of
$65.9 million and $70.5 million, respectively.
27
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The results of operations for 2018 include the following items:
•
•
•
•
•
the impact of the adoption of FASB Topic 606 (“Topic 606”);
the results of the acquisition of Cardinal, effective August 1, 2018;
transaction costs totaling $282,000 associated with the acquisition of Cardinal;
severance and restructuring expenses of $3.4 million, $2.7 million net of tax; and
the repurchase of approximately 641,000 shares of the Company’s common stock for an
aggregate of $22.0 million.
The results of operations for 2017 include the following items:
•
•
•
•
•
the results of the acquisitions of Caase.com and Datalink, from their respective acquisition
dates;
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;
incremental income tax expense related to U.S. federal tax reform of $13.4 million; and
the loss on the sale of our Russia business totaling $3.6 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 2019, we generated $127.9 million of cash from operating activities, we utilized $664.3
million, net of cash and cash equivalents acquired to fund our acquisition of PCM and for the final
working capital and tax true up paid for Cardinal. We borrowed $550.0 million under our new senior
secured revolving credit facility (the “ABL facility”) and received $341.3 million from the issuance of
our convertible senior notes. We ended the year with $114.7 million of cash and cash equivalents and
$855.5 million of debt outstanding under our long-term debt facilities.
Details about segment results of operations can be found in Note 19 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.
28
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net sales for the years
ended December 31, 2019, 2018 and 2017:
Net sales ....................................................................
Costs of goods sold ......................................................
Gross profit ........................................................
100.0%
85.3
14.7
100.0%
86.0
14.0
100.0%
86.3
13.7
2019
2018
2017
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.....................................................
Net earnings .......................................................
11.4
10.6
10.8
0.2
3.1
0.4
2.7
0.6
2.1%
0.1
3.3
0.3
3.0
0.7
2.3%
0.2
2.7
0.3
2.4
1.0
1.4%
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 shift our focus and respond to
them. 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.
2019 Compared to 2018
Net Sales. Net sales increased 9%, or $651 million, in 2019 compared to 2018. Net sales of
products (hardware and software) increased 8% and net sales of services increased 20% in 2019
compared to 2018. Our net sales by operating segment for 2019 and 2018 were as follows (dollars in
thousands):
North America ............................................................. $ 6,024,305 $ 5,362,981
1,530,241
EMEA .........................................................................
APAC .........................................................................
186,914
Consolidated ............................................................... $ 7,731,190 $ 7,080,136
1,526,644
180,241
12%
—
(4%)
9%
2019
2018
% Change
Our net sales by offering category for North America for 2019 and 2018, were as follows (dollars
in thousands):
North America
Sales Mix
Hardware ................................................................... $ 3,957,507 $ 3,610,356
1,112,715
Software ....................................................................
639,910
Services .....................................................................
$ 6,024,305 $ 5,362,981
1,269,983
796,815
2018
2019
% Change
10%
14%
25%
12%
Net sales in North America increased 12%, or $661.3 million, in 2019 compared to 2018. This
increase reflects the addition of PCM, which reported $716.1 million in net sales in 2019, partially
offset by a decline in net sales of the core business of $51.3 million. Net sales of hardware, software
and services increased 10%, 14% and 25%, respectively, year over year.
29
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The increases year over year were the result of the following:
•
•
•
PCM accounted for the higher volume of hardware net sales in 2019 compared to 2018. This
was partially offset by lower volume of hardware net sales to large enterprise clients in the
core business due to a slow-down of the device refresh cycle.
PCM accounted for approximately 70% of the year over year increase in software net sales. In
our core business there was also an increase in software net sales as a result of a significant
transaction during the first quarter of 2019 with a large enterprise client, with no comparable
transaction in the same quarter in the prior year.
PCM accounted for approximately 56% of the year over year increase in services net sales. In
our core business, application related services net sales which is part of our digital innovation
solution area accounted for approximately 30% of the increase in services net sales, including
the acquisition of Cardinal Solutions which we completed in the third quarter of 2018. The
trend toward higher sales of cloud solution offerings continued, as did, higher software
aintenance sales and increases in supplier reimbursements that are recorded on a net sales
recognition basis. These were offset partially by declines in warranty net sales and consulting
and managed services net sales in our core business.
Our net sales by offering category for EMEA for 2019 and 2018, were as follows (dollars in
thousands):
EMEA
Sales Mix
Hardware ................................................................. $ 622,949 $
Software ..................................................................
Services...................................................................
2019
753,729
149,966
$1,526,644 $
2018
% Change
653,499
736,509
140,233
1,530,241
(5%)
2%
7%
—
Net sales in EMEA remained flat (increased 5% excluding the effects of fluctuating foreign
currency exchange rates), or down $3.6 million, in 2019 compared to 2018. Net sales of hardware
declined 5%, year to year, while net sales of software and services were up 2% and 7%, respectively,
year over year. The changes were the result of the following:
•
•
•
Lower volume of net sales of networking solutions, partially offset by higher volume of net
sales of devices, to large enterprise and public sector clients in hardware net sales.
Higher volume of software net sales to large enterprise and public sector clients.
Higher volume of net sales of cloud solution offerings and increased software referral fees that
are recorded on a net sales recognition basis. In addition, there was an increase in the
volume of Insight delivered services.
Our net sales by offering category for APAC for 2019 and 2018, were as follows (dollars in
thousands):
Sales Mix
Hardware ................................................................. $
Software ..................................................................
Services...................................................................
APAC
2019
2018
% Change
34,965 $
92,988
52,288
$ 180,241 $
29,496
107,363
50,055
186,914
19%
(13%)
4%
(4%)
Net sales in APAC decreased 4% (increased 2% excluding the effects of fluctuating foreign
currency rates), or $6.7 million, in 2019 compared to 2018. In APAC, increases in hardware and
services net sales year over year were offset by a decrease in software net sales during 2019
compared to 2018. The changes were the result of the following:
•
Continued expansion of hardware offerings in the APAC market resulted in higher net sales in
this category.
30
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
•
•
Continued trend toward higher sales of cloud solution offerings that are recorded on a net
sales recognition basis in the services net sales category resulted in declines in the software
net sales category.
Higher volume of net sales of cloud solution offerings and software referral fees that are
recorded on a net sales recognition basis positively impacted services net sales. Additionally,
there were contributions from Insight delivered services from increased net sales of our digital
innovation solutions offering.
Net sales by category for North America, EMEA and APAC were as follows for 2019 and 2018:
Sales Mix
Hardware.......................................
Software........................................
Services ........................................
North America
2018
2019
EMEA
APAC
2019
2018
2019
2018
66%
21%
13%
100%
67%
21%
12%
100%
41%
49%
10%
100%
43%
48%
9%
100%
19%
52%
29%
100%
16%
57%
27%
100%
Gross Profit. Gross profit increased 15%, or $144.4 million, in 2019 compared to 2018, with
gross margin increasing approximately 70 basis points to 14.7% of net sales. Our gross profit and
gross profit as a percent of net sales by operating segment for 2019 and 2018 were as follows (dollars
in thousands):
North America .................................................. $ 871,114
EMEA............................................................... $ 227,083
39,901
APAC ............................................................... $
Consolidated..................................................... $1,138,098
14.5% $ 732,695
14.9% $ 221,467
22.1% $ 39,556
14.7% $ 993,718
13.7%
14.5%
21.2%
14.0%
2019
% of Net
Sales
2018
% of Net
Sales
North America’s gross profit in 2019 increased 19% compared to 2018, and as a percentage of net
sales, gross margin increased by approximately 80 basis points year over year. The year over year
net increase in gross margin was primarily attributable to the following:
•
•
A net increase in product margin, which includes partner funding and freight, of 30 basis
points year over year. This increase was due primarily to improvements in hardware and
software product margin partially as a result of improvements in core business margins on
product net sales and also as a result of PCM.
Services margin improvement year over year of 50 basis points was generated from increased
vendor funding, cloud solution offerings and referral fees. In addition, there was a 21 basis
point improvement in margins from Insight delivered services.
EMEA’s gross profit in 2019 increased 3% (increased 8% excluding the effects of fluctuating
foreign currency exchange rates), compared to 2018. As a percentage of net sales, gross margin
increased by approximately 40 basis points year over year. APAC’s gross profit in 2019 increased 1%
(increased 6% excluding the effects of fluctuating foreign currency exchange rates), compared to
2018, with gross margin increasing to 22.1% in 2019 from 21.2% in 2018. The improvement in gross
margin for both EMEA and APAC in 2019 compared to 2018 was due primarily to changes in sales mix
to higher margin products and services.
31
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses increased $124.2
million in 2019 compared to 2018. Our selling and administrative expenses by major expense type for
2019 and 2018 were as follows (dollars in thousands):
Personnel costs, including teammate benefits ............ $
Depreciation and amortization .................................
Facility expenses ...................................................
Travel and entertainment........................................
Legal and professional fees .....................................
Marketing .............................................................
Other ...................................................................
Total .................................................................... $
2019
684,837
46,209
30,945
28,402
16,839
11,597
61,908
880,737
2018
593,955
37,458
26,396
25,656
16,103
10,345
46,616
756,529
$
$
Change
90,882
8,751
4,549
2,746
736
1,252
15,292
124,208
$
$
Percentage of net sales...........................................
11.4%
10.7%
Selling and administrative expenses increased approximately 70 basis points as a percentage of
net sales in 2019 compared to 2018. The increase in expenses reflects the addition of PCM to our
North America and EMEA segments, effective August 30, 2019. The addition of PCM and increased
variable compensation resulting from increased sales and gross profit in 2019 compared to 2018 were
the primary drivers for the $90.9 million increase in personnel costs. PCM was also the primary driver
for year over year increases in facilities, travel and entertainment, and marketing expenses.
Depreciation and amortization expense increased approximately $8.8 million year over year, primarily
due to additional amortization expense on newly acquired intangible assets.
Severance and Restructuring Expenses. During 2019, we recorded severance expense, net of
adjustments, totaling $5.4 million. The North America and EMEA charges related to severance actions
taken to realign roles and responsibilities subsequent to the acquisition of PCM in August 2019, as well
as a headcount reduction as part of cost reduction initiatives in the fourth quarter of 2019. For 2019,
charges were partially offset by immaterial adjustments for changes in estimates of previous accruals
as cash payments were made during the year. During 2018, we recorded severance expense, net of
adjustments, totaling $3.4 million.
Acquisition-related Expenses. During 2019, we incurred $11.3 million in direct third-party
costs related to the acquisition of PCM. Comparatively, during 2018, we incurred $282,000 in such
costs related to the acquisition of Cardinal. See Note 20 to the Consolidated Financial Statements in
Part II, Item 8 of this report for further discussion of acquisitions.
Non-Operating (Income) Expense.
Interest Expense, net. Interest expense, net primarily relates to borrowings under our
financing facilities and imputed interest under our convertible notes and inventory financing facilities,
partially offset by interest income generated from interest earned on cash and cash equivalent bank
balances. Interest expense increased 30%, or $6.8 million, in 2019 compared to 2018 due primarily
to higher average daily balances under our debt facilities, in 2019 compared to 2018, while imputed
interest under our inventory financing facilities increased $200,000 to $10.8 million in 2019 and
imputed interest under our convertible senior notes was $3.7 million in 2019.
Other Expense (Income), Net. Other expense (income), net, consists primarily of foreign
currency exchange gains and losses. Foreign currency exchange gains and 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.
32
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Income Tax Expense. Our effective tax rate for 2019 was 24.7% compared to 22.8% in
2018. The increase in the tax rate from 2018 to 2019 was primarily due to a non-recurring benefit
recorded in 2018 to true-up provisional amounts related to U.S tax reform. The effective tax rate in
2019 was higher than the federal statutory rate of 21.0% primarily due to state income taxes, net of
federal income tax benefits, and higher taxes on earnings in foreign jurisdictions. These increases to
the federal statutory rate in 2019 were offset partially by decreases in the valuation allowance in
certain foreign jurisdictions and the recognition of tax benefits, net of reserves, related to research
and development activities. See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of
this report for further discussion of income tax expense.
2018 Compared to 2017
For a comparison of our results of operations for the fiscal years ended December 31, 2018 and 2017,
see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part
II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with
the SEC on February 22, 2019.
Liquidity and Capital Resources
The following table sets forth certain consolidated cash flow information for 2019, 2018 and 2017
(in thousands):
Net cash provided by (used in) operating activities ........... $
Net cash used in investing activities ...............................
Net cash provided by (used in) financing activities............
Foreign currency exchange effect on cash and cash
2019
127,876
(733,373)
577,587
$
2018
292,647
(91,710)
(159,028)
2017
$ (307,066)
(204,645)
397,121
equivalent and restricted cash balances .......................
(86)
(5,061)
16,089
(Decrease) increase in cash and cash equivalents and
restricted cash.............................................................
Cash and cash equivalents and restricted cash at
beginning of year .........................................................
Cash and cash equivalents and restricted cash at end of
year ........................................................................... $
(27,996)
36,848
(98,501)
144,293
107,445
205,946
116,297
$
144,293
$
107,445
Cash and Cash Flow
• Our primary uses of cash during 2019 were to fund the acquisition of PCM, fund working
capital requirements, fund capital expenditures, including the purchase of real estate, and to
repurchase shares of our common stock.
• Operating activities generated $127.9 million in cash in 2019.
• During 2019, we drew down net combined borrowings on our long-term debt facilities of
$356.0 million and acquired PCM for $660.9 million, net of cash and cash equivalents
acquired.
• We received net proceeds of $341.3 million from the issuance of our convertible senior notes
in 2019.
•
In connection with the issuance of our convertible senior notes, we entered into certain
convertible note hedge and warrant transactions with respect to our common stock. We
paid approximately $66.3 million for the convertible note hedge transaction using
proceeds from the convertible senior notes offering.
In addition, we received aggregate proceeds of approximately $34.4 million for the sale of
related warrants.
•
•
In August 2019, we terminated our senior revolving credit facility (“revolving credit facility”)
and accounts receivable securitization financing facility (the “ABS facility”) and entered into a
new $1.2 billion ABL facility. Net repayments of the revolving credit facility and ABS facility
combined during 2019 were $194.0 million. Net borrowings under the ABL revolving credit
facility during 2019 were $550.0 million.
33
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
•
•
In July 2019, we entered into an unsecured inventory financing facility with MUFG Bank Ltd
and in August 2019 we terminated our existing inventory financing facility with Wells Fargo
Capital Finance, LLC (“Wells Fargo”) and entered into a new unsecured facility with Wells
Fargo, creating a combined total maximum capacity of $450.0 million, of which $253.7 million
was outstanding as of December 31, 2019.
Capital expenditures were $69.1 million in 2019, a significant increase from 2018, reflecting
our purchase of real estate for future use as our global corporate headquarters and continued
IT investments in our core ERP systems and e-commerce and digital marketing platforms.
• During 2019, we repurchased an aggregate of $27.9 million of our common stock, using
proceeds from the convertible notes offering, under a previously announced repurchase
program compared to $22.1 million repurchased during 2018.
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 provided by (used in) operating activities.
•
Cash flow from operating activities in 2019 was $127.9 million, a significant decrease in cash
generation compared to 2018. This decrease is the result of timing of payment of accounts
payable 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.
The significant increases in both other assets and accrued expenses and other liabilities for
2019 resulted from a single significant transaction in 2019 with no comparable activity in the
prior year.
In 2018, cash flow from operating activities was $292.6 million, a significant increase in cash
generation compared to 2017. This increase is the result of our focus on expense control,
optimizing working capital, including an enhanced focus on collection of receivables, and
reducing our investments in inventory.
•
•
Our consolidated cash flow operating metrics for the quarters ended December 31, 2019, 2018
and 2017 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)....................................
2019
2018
2017
100
10
(72)
38
102
10
(79)
33
94
13
(72)
35
(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 in 2017) 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 38 days in the quarter ended December 31, 2019, compared to
•
33 days in the fourth quarter of 2018.
The increase resulted from the net effect of a two day decrease in DSO and a seven day
decrease in DPOs due to the impact of the addition of PCM and the relative timing of client
receipts and supplier payments during the respective quarters.
34
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
• 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 2020 in excess of working capital needs to support our
capital expenditures for the year and to pay down our debt balances. We also may use cash
to fund potential acquisitions.
Net cash used in investing activities.
•
In 2019, we acquired PCM for $660.9 million net of cash and cash equivalents acquired of
$84.6 million and including the payment of PCM’s outstanding debt.
Capital expenditures of $69.1 million in 2019 was due primarily to our purchase of real estate
to be used in the future for our global corporate headquarters.
Capital expenditures of $17.3 million in 2018 were primarily related to technology and facility
enhancements.
•
•
• We expect total capital expenditures in 2020 to be between $55.0 million and $60.0 million, of
which approximately $35.0 million is for the build out of our global corporate headquarters,
and the remainder is for technology-related upgrade projects and the integration of prior
acquisitions.
• During 2018, we acquired Cardinal for $78.8 million net of cash and cash equivalents
acquired. We paid the final working capital and tax adjustments of approximately $3.4 million
related to this acquisition in 2019.
Net cash provided by (used in) financing activities.
• During 2019, we had net combined borrowings on our long-term debt under our new ABL
revolving credit facility, our revolving credit facility and ABS facility of $356.0 million and had
net repayments under our inventory financing facilities of $50.5 million.
•
•
In connection with the issuance of our convertible senior notes, we entered into
certain convertible note hedge and warrant transactions with respect to our common
stock. We paid approximately $66.3 million for the convertible note hedge transaction
using proceeds from the convertible senior notes offering.
In addition, we received aggregate proceeds of approximately $34.4 million for the
sale of related warrants.
In 2019, we also funded $27.9 million of repurchases of our common stock.
•
• During 2018, we had net combined repayments on our long-term debt under our revolving
credit facility, our Term Loan A and ABS facility of $114.8 million and had net repayments
under our inventory financing facility of $15.3 million.
In 2018, we also funded $22.1 million of repurchases of our common stock.
•
2018 Compared to 2017
For a comparison of our cash flows for the fiscal years ended December 31, 2018 and 2017, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II,
Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the
SEC on February 22, 2019.
Financing Facilities
As of December 31, 2019, our long-term debt balance includes $570.7 million outstanding under
our $1.2 billion ABL facility. As of December 31, 2019, the current portion of our long-term debt
relates to our finance leases and other financing obligations.
• Our objective is to pay our debt balances down while retaining adequate cash balances to
meet overall business objectives.
• Our convertible senior notes are subject to certain events of default and certain acceleration
clauses. As of December 31, 2019, no such events have occurred.
• Our ABL revolving credit facility contains various covenants customary for transactions of this
type, including complying with a minimum receivable and inventory requirement and meeting
monthly, quarterly and annual reporting requirements.
35
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
•
•
The credit agreement contains customary affirmative and negative covenants and
events of default.
At December 31, 2019, we were in compliance with all such covenants.
• While the ABL facility has a stated maximum amount, the actual availability under the ABL
facility is limited by a minimum accounts receivable and inventory requirement. As of
December 31, 2019, eligible accounts receivables and inventory were sufficient to permit
access to the full $1.2 billion under the ABL facility.
We also have agreements with financial intermediaries to facilitate the purchase of inventory from
certain suppliers under certain terms and conditions. These amounts are classified separately as
accounts payable - inventory financing facilities in our consolidated balance sheets.
Notes 7 and 8 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 may be subject to U.S. income taxation
upon repatriation to the United States. As a result of U.S. Federal tax reform enacted in December
2017, all undistributed foreign earnings as of December 31, 2017 were deemed distributed and we
provided for U.S. income and withholding taxes on those earnings. For years subsequent to December
31, 2017, we continue to assert indefinite reinvestment of foreign earnings for certain foreign entities.
As of December 31, 2019, we had approximately $101.7 million in cash and cash equivalents in
certain of our foreign subsidiaries. As of December 31, 2019, the majority of our foreign cash resides
in the Netherlands, Canada and Australia. Certain of these cash balances will be remitted to the U.S.
by paying down intercompany payables generated in the ordinary course of business or through actual
dividend distributions.
Off-Balance Sheet Arrangements
We have entered into off-balance sheet arrangements, which include guaranties and
indemnifications. These arrangements are discussed in Note 16 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, 2019, our contractual obligations for continuing operations were as follows (in
thousands):
Payments due by period
Total
Less than
1 Year
1-3
Years
3-5
Years
More
than 5
Years
— $570,706 $284,836
Long-term debt(a) ...................................... $ 855,542 $
1,750
Estimated interest payments(b) ....................
—
Inventory financing facilities(c).....................
19,559
Operating lease obligations(d) ......................
Other contractual obligations ......................
2,281
Total........................................................ $1,306,463 $302,528 $ 75,353 $620,156 $308,426
19,404
253,676
22,234
7,214
93,176
253,676
89,712
14,357
38,807
—
33,046
3,500
33,215
—
14,873
1,362
— $
(a) Reflects the $570.7 million outstanding at December 31, 2019 under our ABL facility due in August 2024, the
date at which the facility matures, as well as $284.8 million outstanding at December 31, 2019 under our senior
convertible notes due in August 2025. See further discussion in Note 8 to the Consolidated Financial Statements
in Part II, Item 8 of this report.
36
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
(b) The table above includes:
I.
II.
Estimated interest payments of $16.8 million in each of 2020 through 2023, and $28.0 million in the first
eight months of 2024, based on the current debt balance at December 31, 2019 of $570.7 million under
our ABL facility, multiplied by the floating interest rate applicable at December 31, 2019 of 2.94% per
annum.
Estimated interest payments of $2.6 million in each of 2020 though 2024, and $1.8 million in the first
eight months of 2025, based on the principal debt balance at December 31, 2019 of $350.0 million under
our senior convertible notes, multiplied by the stated interest rate applicable at December 31, 2019 of
0.75% per annum.
(c) As of December 31, 2019, 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 7 to the
Consolidated Financial Statements in Part II, Item 8 of this report.
(d) Amounts in the table above exclude non-cancellable rental income.
The table above excludes unrecognized tax benefits, which include 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.
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 20
to the Consolidated Financial Statements in Part II, Item 8 of this report for a discussion of our
acquisition of PCM on August 30, 2019.
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.
37
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
General
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with 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
We sell hardware and software products on both a stand-alone basis without any services and as
solutions bundled with services.
When we provide a combination of hardware and software products with the provision of services,
we separately identify our performance obligations under our contract with the client as the distinct
goods (hardware and/or software products) or services that will be provided. The total transaction
price for an arrangement with multiple performance obligations is allocated at contract inception to
each distinct performance obligation in proportion to its stand-alone selling price. The stand-alone
selling price is the price at which we would sell a promised good or service separately to a client. We
estimate the price based on observable inputs, including direct labor hours and allocable costs, or use
observable stand-alone prices when they are available.
For each of our product and services offerings, described in detail at Note 1 to the Consolidated
Financial Statements in Part II, Item 8 of this report, the determination needs to be made as to
whether we are the principal or the agent in the transaction. This determination leads to how the
revenue for each offering is recognized, either gross, where we are the principal in the transaction, or
net, where we are the agent in the transaction. This determination is made by assessing whether or
not we control the product or service at any time during the transaction. If we take control of the
product or service prior to delivery to the client, then we are the principal in the transaction.
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.
38
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Acquisition Accounting
We allocate the purchase price of an acquired business, using the acquisition method of
accounting, to its 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 is
recorded as goodwill. Certain assumptions and judgements are used to estimate the fair value of
acquired assets and liabilities. We engage outside appraisal firms to assist in the fair value
determination of identifiable intangible assets. We may adjust the preliminary purchase price
allocation, after the acquisition closing date and through the end of the measurement period of one
year or less, as we finalize the valuation of acquired assets and liabilities. Changes in estimates used
in the preliminary purchase price allocation could have a material effect on the final valuation and
result in changes to goodwill and intangible assets. Additionally, if forecasts supporting the valuation
of intangible assets or goodwill are not achieved, then an impairment charge could be recorded.
See further information on acquisition accounting in Notes 1 and 20 to the Consolidated Financial
Statements in Part II, Item 8 of this report.
Goodwill
We perform an annual review of our goodwill in the fourth quarter of every year. We continually
assess 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 and assess whether any indicators of impairment
exist. The 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 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.
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. Our reporting units are our operating segments. Management
must apply judgment in determining the reporting units and in estimating the 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 5 to the Consolidated Financial
Statements in Part II, Item 8 of this report.
39
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Income Taxes
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.
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 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.
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.
40
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, 2019 and 2018 ................................................
Consolidated Statements of Operations – For each of the years in the three-year period ended
December 31, 2019 ....................................................................................................
Consolidated Statements of Comprehensive Income – For each of the years in the three-year
period ended December 31, 2019 .................................................................................
Consolidated Statements of Stockholders’ Equity – For each of the years in the three-year
period ended December 31, 2019 .................................................................................
Consolidated Statements of Cash Flows – For each of the years in the three-year period ended
December 31, 2019 ....................................................................................................
Notes to Consolidated Financial Statements .........................................................................
Page
42
46
47
48
49
50
51
41
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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2019, 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, 2019,
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 21, 2020 expressed
an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 9 to the consolidated financial statements, the Company changed its method of
accounting for leases in 2019 due to the adoption of the FASB’s Accounting Standards Codification (ASC)
Topic 842, Leases.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of
accounting for revenue in 2018 due to the adoption of the FASB’s ASC Topic 606, Revenue from Contracts
with Customers.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of revenue recognition
As discussed in Note 1 to the consolidated financial statements, the Company recognizes revenue
when it satisfies a performance obligation 1) as a principal by transferring control of a product or
service or 2) as an agent by arranging for sales of a vendor’s product or service. The Company
42
measures revenue based on the consideration received in a contract with a customer, and excludes
any sales incentives and amounts collected on behalf of third parties. The Company offers hardware
and software products, as well as services. Given the number of product and service offerings,
significant judgment is exercised by the Company in recognizing revenue, including the following
decisions:
•
•
•
•
Determining the point in time when a customer takes control of hardware.
Determining the point in time when the customer acquires or renews the right to use or copy
software under license and control transfers to the customer.
Evaluating the Company as either a principal or an agent for hardware and software products
and services, and the related recognition of revenue from the customer on a gross or a net basis.
Determining an appropriate pattern of revenue recognition for service performance obligations.
We identified the evaluation of revenue recognition as a critical audit matter because the audit effort
to evaluate the Company’s revenue recognition judgments was extensive and required a high degree
of auditor judgment.
The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the revenue recognition process, including controls related to the
timing and pattern of revenue recognition and gross versus net revenue recognition. As part of
testing the Company’s internal controls, we also involved information technology (IT) professionals
with specialized skills and knowledge, who assisted in testing of general IT controls over significant
systems and the evaluation of system interface controls and automated controls designed to
determine the existence, accuracy, and completeness of revenue. We evaluated the Company’s
significant accounting policies related to its product and service offerings by reviewing the terms of
certain vendor and customer contracts and comparing to the revenue recognition standard. We
selected a sample of revenue transactions and performed the following for each selection:
•
•
•
•
Obtained evidence of a contract with the customer.
Compared the amounts recognized to underlying documentation, including purchase orders,
shipping documentation, and evidence of payment, if applicable.
Evaluated the Company’s application of their accounting policies to determine the timing and
amount of revenue to be recognized.
Tested the presentation of revenue as gross or net by comparing the attributes of the underlying
vendor support to the Company’s accounting policy.
Evaluation of acquisition-date fair value of customer relationship intangible asset acquired in the
PCM, Inc. business combination.
As discussed in Notes 1 and 20 to the consolidated financial statements, on August 30, 2019, the
Company acquired PCM, Inc. (PCM) in a business combination. As a result of the transaction, the
Company acquired a customer relationship intangible asset associated with the generation of future
income from PCM’s existing customers. The acquisition-date fair value for the customer relationship
intangible asset was $175.5 million.
We identified the evaluation of the acquisition-date fair value of the customer relationship intangible
asset acquired in the PCM transaction as a critical audit matter. There was a high degree of
subjectivity in evaluating the assumptions within the discounted cash flow model used to estimate
the acquisition-date fair value of the customer relationship intangible asset. The evaluation was
challenging as the discounted cash flow model included the following internally-developed
assumptions for which there was limited observable market information, and the estimated fair value
of the customer relationship intangible asset was sensitive to possible changes to these assumptions:
Forecasted revenue growth rates attributable to existing customers
Estimated annual customer attrition rate
Forecasted earnings before interest, taxes, and amortization (EBITA) margins
•
•
•
• Weighted-average cost of capital (WACC), including the discount rate
The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s acquisition-date fair value of the customer
relationship process to develop the relevant assumptions listed above, including controls related to
the analysis of the assumptions based on market participants’ views. We evaluated the Company’s
forecasted growth rates for existing customers by comparing forecasted growth assumptions to those
of PCM’s peers and industry reports. We compared the Company’s forecasted PCM revenue growth
and EBITA margins to PCM’s historical actual results to assess the Company’s ability to accurately
forecast. We evaluated the estimated annual customer attrition rate by comparing to the Company’s
43
historical small-medium business customer attrition data. In addition, we involved valuation
professionals with specialized skills and knowledge, who assisted in:
•
•
•
Evaluating the Company’s discount rate, by comparing it against a discount rate range that was
independently developed using publicly available market data for comparable entities;
Assessing the Company’s WACC calculation by comparing it against an independent estimated
WACC range based on inputs obtained through published surveys and studies; and
Developing an estimate of the acquisition-date fair value of the customer relationship intangible
asset using the Company’s cash flow forecast and an independently developed discount rate, and
compared the results to the Company’s fair value estimate.
We have served as the Company’s auditor since 1990.
Phoenix, Arizona
February 21, 2020
/s/ KPMG LLP
44
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. and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2019, 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, 2019, 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, 2019 and
2018, 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, 2019, and the related notes
(collectively, the consolidated financial statements), and our report dated February 21, 2020 expressed an
unqualified opinion on those consolidated financial statements.
The Company acquired PCM, Inc. during 2019, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, PCM Inc.’s
internal control over financial reporting associated with 18% of total assets and 10% of net sales included in
the consolidated financial statements of the Company as of and for the year ended December 31, 2019. Our
audit of internal control over financial reporting of the Company also excluded an evaluation of the internal
control over financial reporting of PCM, Inc.
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 Annual 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.
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 21, 2020
/s/ KPMG LLP
45
INSIGHT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $
Accounts receivable, net .........................................................
Inventories ...........................................................................
Other current assets ..............................................................
Total current assets ...............................................................
Property and equipment, net .......................................................
Goodwill ...................................................................................
Intangible assets, net .................................................................
Other assets .............................................................................
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable—trade ........................................................ $
Accounts payable—inventory financing facilities .........................
Accrued expenses and other current liabilities ...........................
Current portion of long-term debt ............................................
Total current liabilities........................................................
Long-term debt .........................................................................
Deferred income taxes ...............................................................
Other liabilities ..........................................................................
December 31,
2019
2018
$
$
$
114,668
2,511,383
190,833
231,148
3,048,032
130,907
415,149
278,584
305,507
4,178,179
1,275,957
253,676
352,204
1,691
1,883,528
857,673
44,633
232,027
3,017,861
142,655
1,931,736
148,503
115,683
2,338,577
72,954
166,841
112,179
85,396
2,775,947
978,104
304,130
253,033
1,395
1,536,662
195,525
683
56,088
1,788,958
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;
35,263 and 35,482 shares issued and outstanding,
respectively .......................................................................
Additional paid-in capital ........................................................
Retained earnings..................................................................
Accumulated other comprehensive loss – foreign currency
translation adjustments .......................................................
Total stockholders’ equity ...................................................
353
357,032
841,097
355
323,622
704,665
(38,164)
1,160,318
4,178,179
$
$
(41,653)
986,989
2,775,947
See accompanying notes to consolidated financial statements.
46
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended December 31,
2018
2017
2019
Net sales:
Products ................................................................. $ 6,732,121 $ 6,249,938
830,198
Services .................................................................
7,080,136
Total net sales.....................................................
999,069
7,731,190
$ 6,038,744
664,879
6,703,623
Costs of goods sold:
Products .................................................................
Services .................................................................
Total costs of goods sold.......................................
Gross profit.........................................................
6,125,360
467,732
6,593,092
1,138,098
5,711,400
375,018
6,086,418
993,718
5,512,402
272,651
5,785,053
918,570
Operating expenses:
Selling and administrative expenses ...........................
Severance and restructuring expenses........................
Loss on sale of foreign entity .....................................
Acquisition-related expenses .....................................
Earnings from operations ......................................
Non-operating (income) expense:
Interest expense, net ...............................................
Other expense (income), net .....................................
Earnings before income taxes................................
Income tax expense .....................................................
880,737
5,425
—
11,342
240,594
28,478
400
211,716
52,309
Net earnings ....................................................... $
159,407 $
756,529
3,424
—
282
233,483
21,737
(156)
211,902
48,225
163,677
Net earnings per share:
Basic.................................................................. $
Diluted ............................................................... $
4.49 $
4.43 $
4.60
4.55
Shares used in per share calculations:
Basic..................................................................
Diluted ...............................................................
35,538
35,959
35,586
36,009
723,328
9,002
3,646
3,329
179,265
17,965
2,202
159,098
68,415
90,683
2.54
2.50
35,741
36,207
$
$
$
See accompanying notes to consolidated financial statements.
47
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net earnings ............................................................... $
Other comprehensive income (loss), net of tax:
Years Ended December 31,
2018
163,677
2019
159,407 $
$
2017
90,683
Foreign currency translation adjustments ....................
Total comprehensive income ......................................... $
3,489
162,896 $
(17,389)
146,288
$
31,835
122,518
See accompanying notes to consolidated financial statements.
48
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Treasury Stock
Shares
Amount
Balances at December 31, 2016 .............................................
Issuance of common stock under employee stock plans,
net of shares withheld for payroll taxes..........................
Stock-based compensation expense .................................
Foreign currency translation adjustments, net of tax ..........
Net earnings .................................................................
Balances at December 31, 2017 .............................................
Cumulative effect of accounting change ............................
Issuance of common stock under employee stock plans,
net of shares withheld for payroll taxes.............................
Stock-based compensation expense .................................
Repurchase of treasury stock ..........................................
Retirement of treasury stock ...........................................
Foreign currency translation adjustments, net of tax ..........
Net earnings .................................................................
Balances at December 31, 2018 .............................................
Issuance of common stock under employee stock plans,
net of shares withheld for payroll taxes.............................
Stock-based compensation expense .................................
Equity component of convertible senior notes, net of
deferred tax of $14,819 and issuance costs of $1,700......
Issuance of warrants related to convertible
senior notes ...............................................................
Purchase of note hedge related to convertible senior notes,
net of deferred tax of $16,047 ......................................
Repurchase of treasury stock ..........................................
Retirement of treasury stock ...........................................
Foreign currency translation adjustments, net of tax ..........
Net earnings .................................................................
Balances at December 31, 2019 .............................................
Shares
35,484 $
Par Value
355
345
—
—
—
35,829
—
294
—
—
(641 )
—
—
35,482
322
—
—
—
—
—
(541 )
—
—
35,263 $
3
—
—
—
358
—
3
—
—
(6 )
—
—
355
3
—
—
—
—
—
(5 )
—
—
353
Additional
Paid-in
Capital
— $ 309,650 $
Accumulated
Other
Comprehensive Retained
Earnings
Loss
Total
Stockholders'
Equity
(56,099 ) $ 459,537 $
713,443
—
—
—
—
—
—
—
—
(22,069 )
22,069
—
—
—
—
—
—
—
—
(5,321 )
12,826
—
—
317,155
—
(3,233 )
15,355
—
(5,655 )
—
—
323,622
(6,575 )
16,011
44,731
34,440
(50,278 )
—
(4,919 )
(27,899 )
27,899
—
—
— $ 357,032 $
—
—
—
—
31,835
—
—
—
—
90,683
(24,264 ) 550,220
7,176
—
—
—
—
—
—
—
—
(16,408 )
(17,389 )
—
— 163,677
(41,653 ) 704,665
—
—
—
—
—
—
—
3,489
—
—
—
—
—
—
(22,975 )
—
— 159,407
(38,164 ) $ 841,097 $
(5,318 )
12,826
31,835
90,683
843,469
7,176
(3,230 )
15,355
(22,069 )
—
(17,389 )
163,677
986,989
(6,572 )
16,011
44,731
34,440
(50,278 )
(27,899 )
—
3,489
159,407
1,160,318
— $
—
—
—
—
—
—
—
—
(641 )
641
—
—
—
—
—
—
—
—
(541 )
541
—
—
— $
See accompanying notes to consolidated financial statements.
49
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2018
2017
2019
Cash flows from operating activities:
Net earnings ..................................................................... $
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization ........................................
Provision for losses on accounts receivable .......................
Non-cash stock-based compensation ...............................
Deferred income taxes...................................................
Other adjustments ........................................................
Changes in assets and liabilities:
Increase in accounts receivable..................................
Decrease (increase) in inventories ..............................
(Increase) decrease in other assets ............................
(Decrease) increase in accounts payable ..........................
Increase (decrease) in accrued expenses and other
159,407
$
163,677
$
90,683
46,209
5,079
16,011
7,418
11,546
(118,971)
11,944
(129,745)
(612 )
37,458
4,776
15,355
9,126
3,929
(46,883)
46,534
12,424
29,844
42,599
5,245
12,826
19,139
6,840
(208,065)
(14,046)
3,342
(237,457)
liabilities ..............................................................
119,590
16,407
(28,172)
Net cash provided by (used in) operating
activities .........................................................
127,876
292,647
(307,066)
Cash flows from investing activities:
Acquisitions, net of cash and cash equivalents
acquired ...................................................................
Purchases of property and equipment ..............................
Proceeds from sale of foreign entity ................................
Net cash used in investing activities .......................
Cash flows from financing activities:
Borrowings on senior revolving credit facility ....................
Repayments on senior revolving credit facility...................
Borrowings on ABL revolving credit facility, net of initial
lender fees...................................................................
Repayments on ABL revolving credit facility......................
Borrowings on accounts receivable securitization
(664,287)
(69,086)
—
(74,938)
(17,251)
479
(733,373)
(91,710)
(186,932)
(19,230)
1,517
(204,645)
242,936
(242,936)
569,232
(686,732)
1,151,216
(1,033,716)
1,680,515
(1,130,544)
—
—
—
—
financing facility ........................................................
2,364,500
3,357,000
3,961,389
Repayments on accounts receivable securitization
financing facility ........................................................
Borrowings under Term Loan A .......................................
Repayments under Term Loan A .....................................
Net (repayments) borrowings under inventory
financing facility ........................................................
Proceeds from issuance of convertible senior notes............
Proceeds from issuance of warrants.................................
Purchase of note hedge related to convertible
senior notes ..............................................................
Repurchases of treasury stock ........................................
Other payments............................................................
Net cash provided by (used in) financing
(2,558,500)
(3,188,000)
—
—
(50,454 )
341,250
34,440
(66,325)
(27,899)
(9,396)
—
(166,250)
(15,338)
—
—
—
(22,069)
(6,871)
(3,975,889)
175,000
(8,750)
141,037
—
—
—
—
(13,166)
activities .........................................................
577,587
(159,028)
397,121
Foreign currency exchange effect on cash, cash
equivalents and restricted cash balances ................................
(86)
(5,061)
16,089
(Decrease) increase in cash, cash equivalents and
restricted cash ....................................................................
Cash, cash equivalents and restricted cash at beginning of year ...
Cash, cash equivalents and restricted cash at end of year............ $
(27,996)
144,293
116,297
$
36,848
107,445
144,293
$
(98,501)
205,946
107,445
See accompanying notes to consolidated financial statements.
50
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Operations and Summary of Significant Accounting Policies
Description of Business
We empower organizations of all sizes with Intelligent Technology SolutionsTM and services to
maximize the business value of Information Technology (“IT”) in North America; Europe, the Middle
East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked global provider of
digital innovation, cloud/data center transformation, connected workforce, and supply chain
optimization solutions, we help clients innovate and optimize their operations to run smarter. Our
company is organized in the following three operating segments, which are primarily defined by their
related geographies:
Operating Segment
North America
EMEA
APAC
Geography
United States ("U.S.") and Canada
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.
Acquisitions
Effective August 30, 2019, we acquired PCM, Inc. (“PCM”), a provider of multi-vendor technology
offerings, including hardware, software and services, for a purchase price of approximately
$745,562,000, including cash and cash equivalents of $84,637,000 and the payment of PCM’s
outstanding debt. The acquisition was funded through a combination of using cash on hand and
borrowings under our senior secured revolving credit facility (the “ABL facility”).
Effective August 1, 2018, we acquired Cardinal Solutions Group, Inc. (“Cardinal”), a digital
solutions provider, for a purchase price, net of cash acquired, of approximately $78,400,000, including
the final working capital adjustment and tax gross up adjustments. 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”).
Our results of operations include the results of PCM, Cardinal and Datalink from their respective
acquisition dates. (See Note 20 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. Included in our accounts receivable, net balance at December 31, 2019 is
$15,078,000 of accounts receivable from an unconsolidated affiliate. 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.
Acquisition Accounting
The Company accounts for all business combinations using the acquisition method of accounting,
which allocates the fair value of the purchase consideration to the tangible and intangible assets
acquired and liabilities assumed based on their estimated fair values. The excess of the purchase
consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
When determining the fair values of assets acquired and liabilities assumed, management makes
estimates and assumptions. Initial purchase price allocations are subject to revision within the
measurement period, not to exceed one year from the date of acquisition. Acquisition-related
expenses and transaction costs associated with business combinations are expensed as incurred.
51
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, Cash Equivalents and Restricted Cash
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.
Restricted cash generally includes any cash that is restricted as to withdrawal or usage. These
amounts are included with cash and cash equivalents on the consolidated statement of cash flows. All
cash receipts/payments with third parties directly to/from restricted cash accounts are reported as an
operating, investing or financing cash flow, based on the nature of the transaction.
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 under previous accounting
52
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
guidance, prior to Topic 606, these transactions did not meet the sales recognition criteria under
GAAP. Therefore, we did not record sales and the inventories were classified as inventories not
available for sale on our consolidated balance sheet until the product was delivered. If clients
remitted payment before we delivered the product to them, then we recorded the payments received
as deferred revenue on our consolidated balance sheet until such time as the product was delivered.
For additional information about our accounting policy related to these transactions after adopting
Topic 606, see the Bill and Hold Transactions section of our Sales Recognition policy, below.
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 ........................................... Shorter of underlying lease term or asset life
Furniture and fixtures ...............................................
Equipment...............................................................
Software .................................................................
Buildings .................................................................
2 – 7 years
3 – 5 years
3 – 10 years
29 years
Estimated Economic Life
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 economic 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 would likely be used to assess the fair value of the reporting unit. 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 finite lived intangible assets acquired in business combinations using the straight-line
method over the estimated economic lives of the intangible assets from the date of acquisition.
We regularly perform reviews to determine if facts and circumstances exist which indicate that the
economic 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
53
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 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.
Leases
We adopted ASU No. 2016-02, “Leases” (Topic 842) with a date of initial application of January 1,
2019. As a result, we updated our accounting policy for leases. We determine if a contract or
arrangement is, or contains, a lease at inception. Balances related to operating leases are included in
other assets, other current liabilities, and other liabilities in our consolidated balance sheet. Balances
related to financing leases are included in property and equipment, current portion of long-term debt,
and long-term debt in our consolidated balance sheet. Right of use (“ROU”) assets represent our right
to use an underlying asset for the lease term and lease liabilities represent our obligation to make
lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at commencement date based on the
present value of lease payments over the lease term. As most of our leases do not provide an implicit
rate, we use our incremental borrowing rate based on the information available at commencement
date in determining the present value of lease payments. We use the implicit rate when readily
determinable. The operating lease ROU asset includes any prepaid lease payments and additional
direct costs and excludes lease incentives. Our lease terms may include options to extend or
terminate the lease when it is reasonably certain that we will exercise that option.
Self-Insurance
We are self-insured in the U.S. 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
We adopted ASU No. 2014-09, “Revenue from Contracts with Customers,” which created FASB Topic
606 (“Topic 606”) with a date of initial application of January 1, 2018. As a result, we changed our
accounting policy for sales recognition where detailed below. Revenue is measured based on the
consideration specified in a contract with a client, and excludes any sales incentives and amounts
collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance
obligation 1) as a principal by transferring control of a product or service or 2) as an agent by
arranging for the sales of a vendor’s product or service.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a
specific revenue-producing transaction, that are collected by the Company from a client, are excluded
from revenue.
We record the freight we bill to our clients as product net sales and the related freight costs we
pay as product costs of goods sold.
Nature of Goods and Services
We sell hardware and software products on both a stand-alone basis without any services and as
solutions bundled with services.
When we provide a combination of hardware and software products with the provision of services,
we separately identify our performance obligations under our contract with the client as the distinct
54
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
goods (hardware and/or software products) or services that will be provided. The total transaction
price for an arrangement with multiple performance obligations is allocated at contract inception to
each distinct performance obligation in proportion to its stand-alone selling price. The stand-alone
selling price is the price at which we would sell a promised good or service separately to a client. We
estimate the price based on observable inputs, including direct labor hours and allocable costs, or use
observable stand-alone prices when they are available.
Product Offerings
Hardware
We recognize hardware product revenue on a gross basis at the point in time when a client takes
control of the hardware, which typically occurs when title and risk of loss have passed to the client at its
destination. Our selling terms and conditions were modified during the fourth quarter of 2017 to specify
Free On Board (“F.O.B.”) destination contractual terms such that control is transferred from the
Company at the point in time when the product is received by the client. Prior to the adoption of Topic
606, because we either (i) had a general practice of covering client losses while products were in transit
despite title and risk of loss contractually transferring at the point of shipment or (ii) had specifically
stated F.O.B. destination contractual terms with the client, delivery was not deemed to have occurred
until the point in time when the product was received by the client. The transaction price for hardware
sales is adjusted 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 as the principal in the transaction when the product is received by the client because we
control the product prior to transfer to the client. In addition to other factors considered, we assume
primary responsibility for 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 and we work closely with our
clients to determine their hardware specifications.
Bill and Hold Transactions
We offer a service to our customers whereby clients may purchase product that we procure on their
behalf and, at our clients’ direction, store the product in our warehouse for a designated period of time,
with the intention of deploying the product to the clients’ designated locations at a later date. These
warehousing services are designed to help our clients with inventory management challenges associated
with technology roll-outs, product that is moving to end of life, or clients needing integrated stock
available for immediate deployment. The client is invoiced and title transfers to the client upon receipt
of the product at our warehouse. These product contracts are non-cancelable with customary credit
terms beginning the date the product is received in our warehouse and the warranty periods begin on
the date of invoice. Revenue is recognized for the sale of the product to the client upon receipt of the
product at our warehouse.
Under previous accounting guidance, prior to the adoption of Topic 606, it was determined that
these product sales transactions did not meet the revenue recognition criteria under GAAP. Therefore,
we did not record product net sales, and the inventories were classified as inventories not available for
sale on our consolidated balance sheets, until the product was delivered to the clients’ designated
location. If clients remitted payment before we delivered the product to them, we recorded the
payments received as deferred revenue on our consolidated balance sheets until such time as the
product was delivered.
Software
We recognize revenue from software sales on a gross basis at the point in time when the client
acquires the right to use or copy software under license and control transfers to the client. For renewals,
revenue is recognized upon the commencement of the term of the software license agreement or when
the renewal term begins, as applicable. This is a change from our accounting treatment prior to the
adoption of Topic 606, whereby revenue from renewals of software licenses was recognized when the
parties agreed to the renewal or extension, provided that all other revenue recognition criteria had been
met.
55
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Although the revenue recognition treatment for term software license renewals has changed as
described above, a substantial portion of the software licenses we sell are perpetual software licenses
and do not require renewal or extension after their initial purchase by the client. Such perpetual licenses
are periodically subject to true-up, whereby additional perpetual licenses are sold under the client’s pre-
existing master agreement. Such true-ups are generally sold in arrears, and clients are invoiced for the
additional licenses they had already been utilizing. Since the client controlled these additional perpetual
licenses prior to the true-up, software revenue related to the underlying additional licenses is recognized
when we agree to the true-up with our client and the partner.
For sales transactions for certain security software products that are sold with integral third-party
delivered software maintenance, we changed our accounting to record the software license on a net
basis, as the agent in the arrangement, given the predominant nature of the goods and services
provided to the customer. This is a change from our accounting treatment prior to the adoption of Topic
606, whereby we recorded the sale of these software products on a gross sales recognition basis.
Services Offerings
Software Maintenance
Software maintenance agreements provide our clients with the right to obtain any software
upgrades, bug fixes and help desk and other support services directly from the software publisher at
no additional charge during the term of the software maintenance agreements. We act as the
software publisher’s agent in selling these software maintenance agreements and do not assume any
performance obligation to the client under the agreements. As a result, we are the agent in these
transactions and these sales are recorded on a net sales recognition basis. Under net sales
recognition, the cost of the software maintenance agreement 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.
Because we are acting as the software publisher’s agent, revenue is recognized when the parties agree
to the initial purchase, renewal or extension as our agency services are then complete. We report all
fees earned from activities reported net within our services net sales category in our consolidated
statements of operations.
Vendor Direct Support Services Contracts
Clients may purchase a vendor direct support services contract through us. Under these
contracts, our clients call the manufacturer/publisher or its designated service organization directly for
both the initial technical triage and any follow-up assistance. We act as the manufacturer/publisher’s
agent in selling these support service contracts and do not assume any performance obligation to the
client under the arrangements. As a result, these sales are recorded on a net sales recognition basis
similar to software maintenance agreements, as discussed above.
Cloud / Software-as-a-Service Offerings
Cloud or software-as-a-service subscription products provide our clients with access to software
products hosted in the public cloud without the client taking possession of the software. We act as the
software publisher’s agent in selling these software-as-a service subscription products. We do not
take control of the software products or assume any performance obligations to the clients related to
the provisioning of the offerings in the cloud. As a result, these sales are recorded on a net sales
recognition basis. We report all fees earned from activities recognized net within our services net
sales category in our consolidated statements of operations.
Insight Delivered Services
We design, procure, deploy, implement and manage solutions that combine hardware, software
and services to help businesses run smarter. Such services are provided by us or third-party sub-
contract vendors as part of bundled arrangements, or are provided separately on a stand-alone basis
as technical, consulting or managed services engagements. If the services are provided as part of a
bundled arrangement with hardware and software, the hardware, software and services are generally
distinct performance obligations. In general, we recognize revenue from services engagements as we
perform the underlying services and satisfy our performance obligations.
56
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recognize revenue from sales of services by measuring progress toward complete satisfaction
of the related service performance obligation. Billings for such services that are made in advance of
the related revenue recognized are recorded as a contract liability.
Specific revenue recognition practices for certain of our services offerings are described in further
detail below.
Time and Materials Services Contracts
We recognize revenue for professional services engagements that are on a time and materials
basis based upon hours incurred for the performance completed to date for which we have the right to
consideration, even if such amounts have not yet been invoiced as of period end.
Fixed Fee Services Contracts
We recognize revenue on fixed fee professional services contracts using a proportional
performance method of revenue recognition based on the ratio of direct labor and other allocated
costs incurred to total estimated direct labor and other allocated costs.
OneCall Support Services Contracts
When we sell certain hardware and/or software products to our clients, we also enter into service
contracts with them. These contracts are support service agreements for the hardware and/or
software products that were purchased from us. Under certain support services contracts, although
we purchase third-party support contracts for maintenance on the specific hardware or software
products we have sold, our internal support desk assists the client first by performing an initial
technical triage to determine the source of the problem and whether we can direct the client on how
to fix the problem. We refer to these services as “OneCall.” We act as the principal in the transaction
because we perform the OneCall services over the term of the support service contract and we set the
price of the service charged to the client. As a result, we recognize revenue from OneCall extended
service contracts on a gross sales recognition basis. We recognize the revenue ratably over the
contract term of the stand ready obligation, generally one to three years.
On our consolidated balance sheet, a significant portion of our contract liabilities balance relates to
OneCall support services agreements for which clients have paid or have been invoiced but for which
we have not yet recognized the applicable services revenue. We also defer incremental direct costs to
fulfill our service contracts that we prepay to third parties for direct support of our fulfillment of the
service contract to our clients under our contract terms and amortize them into operations over the
term of the contracts.
Third-party Provided Services
A majority of our third-party sub-contractor services contracts are entered into in conjunction with
other services contracts under which the services are performed by Insight teammates. We have
concluded that we control all services under the contract and can direct the third-party sub-contractor
to provide the requested services. As such, we act as the principal in the transaction and record the
services under a gross sales recognition basis, with the selling price being recorded in sales and our
cost to the third-party service provider being recorded in costs of goods sold. For certain third-party
service contracts in which we are not responsible for fulfillment of the services, we have concluded
that we are an agent in the transaction and record revenue on a net sales recognition basis.
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 for teammates who are not
directly associated with delivering services, 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,
57
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 $77,668,000, $68,571,000 and $53,227,000 in 2019, 2018 and
2017, respectively.
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, 2019. We monitor our clients’ financial
condition and do not require collateral. No single client accounted for more than 3% of our
consolidated net sales in 2019.
Partner Risk
Purchases from Microsoft and Tech Data (a distributor) accounted for approximately 12% each of
our aggregate purchases in 2019. No other partner accounted for more than 10% of purchases in
2019. Our top five partners as a group for 2019 were Microsoft, Tech Data (a distributor), Cisco
Systems, HP Inc. and Dell, and approximately 61% of our total purchases during 2019 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 $62,913,000,
$57,448,000 and $47,053,000 was recorded in 2019, 2018 and 2017, 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). Forfeitures are recognized as they occur.
58
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 in other expense (income), net within non-operating (income) expense in our
consolidated statements of operations.
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.
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.
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.
59
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of the denominators of the basic and diluted EPS calculations follows (in
thousands, except per share data):
Years Ended December 31,
2018
2017
2019
Numerator:
Net earnings ........................................................... $
159,407 $
163,677 $
90,683
Denominator:
Weighted-average shares used to compute basic
EPS.....................................................................
35,538
35,586
35,741
Dilutive potential common shares due to dilutive:
RSUs, net of tax effect............................................
421
423
466
Weighted-average shares used to compute
diluted EPS ..........................................................
35,959
36,009
36,207
Net earnings per share:
Basic...................................................................... $
Diluted ................................................................... $
4.49 $
4.43 $
4.60 $
4.55 $
2.54
2.50
In 2019, 2018 and 2017, approximately 42,000, 17,000 and 40,000, 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. In the year ended December 31, 2019,
certain potential outstanding shares from convertible senior notes and warrants were not included in
the diluted EPS calculations because their inclusion would have been anti-dilutive.
Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board’s (“FASB”) issued Accounting
Standard Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes.” The new
standard is intended to simplify various aspects of accounting for income taxes by removing specific
exceptions and amending certain requirements. The new standard is effective for interim and annual
periods beginning after December 15, 2020, and early adoption is permitted. We do not expect this
new standard to have a material effect on our consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-08, “Compensation – Stock Compensation
(Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements –
Share-Based Consideration Payable to a Customer.” The new standard is intended to provide
guidance on measuring share-based payment awards granted to a customer. The new standard is
effective for interim and annual periods beginning after December 15, 2019, and early adoption is
permitted. We adopted this new standard in the fourth quarter of 2019. The adoption of this new
standard did not have a material effect on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.” The
new standard is intended to provide financial statement users with more decision-useful information
about the expected credit losses on financial instruments and other commitments to extend credit held
at each reporting date. The new standard is effective for interim and annual periods beginning after
December 15, 2019, and early adoption is permitted. We will adopt the new standard as of January 1,
2020 and do not expect the adoption to have a material effect on our consolidated financial
statements.
In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326,
Financial Instruments – Credit Losses.” The new standard provides amendments to the reporting of
expected recoveries. The new standard is effective with the adoption of ASU No. 2016-13. We will
adopt the new standard as of January 1, 2020 and do not expect the adoption to have a material
effect on our consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326,
Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments.” The new standard provides changes for how a company considers expected recoveries
and contractual extensions or renewal options when estimating expected credit losses. The new
standard is effective with the adoption of ASU No. 2016-13. We will adopt the new standard as of
60
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 1, 2020 and do not expect the adoption to have a material effect on our consolidated financial
statements.
In February 2016 and July 2018, the FASB issued ASU No. 2016-02, “Leases” and ASU No. 2018-
11, “Leases (Topic 842) – Targeted Improvements,” respectively, which amends the existing
accounting standards for leases. We adopted the standards in the first quarter of 2019. See Note 9
for further discussion.
(2)
Sales Recognition
Disaggregation of Revenue
In the following table, revenue is disaggregated by our reportable operating segments, which are
primarily defined by their related geographies, as well as by major product offering, by major client
group and by recognition on either a gross basis as a principal in the arrangement, or on a net basis as
an agent, for the years ended December 31, 2019 and 2018 (in thousands):
Major Offerings
Year Ended December 31, 2019
North
America
EMEA
APAC
Consolidated
Hardware ..................................................... $3,957,507 $ 622,949 $ 34,965 $ 4,615,421
2,116,700
Software ...................................................... 1,269,983
999,069
796,815
Services.......................................................
$6,024,305 $1,526,644 $ 180,241 $ 7,731,190
753,729
149,966
92,988
52,288
Major Client Groups
Large Enterprise / Corporate........................... $4,466,384 $1,126,388 $ 59,786 $ 5,652,558
976,501
Public Sector ................................................
1,102,131
Small and Medium-Sized Businesses ................
$6,024,305 $1,526,644 $ 180,241 $ 7,731,190
597,489
960,432
323,590
76,666
55,422
65,033
Revenue Recognition based on acting as
Principal or Agent in the Transaction
Gross revenue recognition (Principal)............... $5,759,247 $1,432,300 $ 156,279 $ 7,347,826
383,364
Net revenue recognition (Agent) .....................
$6,024,305 $1,526,644 $ 180,241 $ 7,731,190
265,058
23,962
94,344
Major Offerings
Year Ended December 31, 2018
North
America
EMEA
APAC
Consolidated
Hardware ..................................................... $3,610,356 $ 653,499 $ 29,496 $ 4,293,351
1,956,587
Software ...................................................... 1,112,715
830,198
639,910
Services.......................................................
$5,362,981 $1,530,241 $ 186,914 $ 7,080,136
736,509
140,233
107,363
50,055
Major Client Groups
Large Enterprise / Corporate........................... $3,951,900 $1,134,696 $ 49,826 $ 5,136,422
903,258
Public Sector ................................................
1,040,456
Small and Medium-Sized Businesses ................
$5,362,981 $1,530,241 $ 186,914 $ 7,080,136
498,873
912,208
327,818
67,727
76,567
60,521
Revenue Recognition based on acting as
Principal or Agent in the Transaction
Gross revenue recognition (Principal)............... $5,143,228 $1,439,979 $ 164,394 $ 6,747,601
332,535
Net revenue recognition (Agent) .....................
$5,362,981 $1,530,241 $ 186,914 $ 7,080,136
219,753
22,520
90,262
61
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Contract Balances
The following table provides information about receivables and contract liabilities as of December 31,
2019 and 2018 (in thousands):
December 31,
2019
December 31,
2018
Current receivables, which are included in “Accounts
receivable, net” ...................................................................... $
Non-current receivables, which are included in “Other assets”..........
Contract liabilities, which are included in “Accrued expenses and
2,511,383
154,417
$
1,931,736
38,157
other current liabilities” and “Other liabilities” .............................
84,814
82,117
Significant changes in the contract liabilities balances during the year ended December 31, 2019 are
as follows (in thousands):
Balances at January 1, 2018 .......................................................................... $
Recognition of the beginning contract liabilities to revenue, as the result
of performance obligations satisfied .............................................................
Cash received in advance and not recognized as revenue ...................................
Balances at December 31, 2018 ..................................................................... $
Recognition of the beginning contract liabilities to revenue, as the result
of performance obligations satisfied .............................................................
Cash received in advance and not recognized as revenue ...................................
Contract liabilities assumed in an acquisition ....................................................
Balances at December 31, 2019 ..................................................................... $
Transaction price allocated to the remaining performance obligations
Increase
(Decrease)
86,743
(72,779)
68,153
82,117
(73,750)
69,376
7,071
84,814
The following table includes estimated net sales related to performance obligations that are
unsatisfied (or partially unsatisfied) as of December 31, 2019 that are expected to be recognized in the
future (in thousands):
2020...........................................................................................................
2021...........................................................................................................
2022...........................................................................................................
2023 and thereafter ......................................................................................
Total remaining performance obligations.......................................................... $
Services
104,178
32,080
12,838
6,254
155,350
Remaining performance obligations that have original expected durations of one year or less are not
included in the table above, with the exception of those associated with our OneCall Support Services
contracts. OneCall Support Services contracts are included in the table above regardless of original
duration. Amounts not included in the table above have an average original expected duration of nine
months. Additionally, for our time and material services contracts, whereby we have the right to
consideration from a client in an amount that corresponds directly with the value to the client of our
performance completed to date, we recognized revenue in the amount to which we have a right to
invoice as of December 31, 2019 and do not disclose information about related remaining performance
obligations in the table above. Our open time and material contracts at December 31, 2019, have an
average expected duration of 12 months.
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, therefore
we do not include performance obligations under open cancelable purchase orders, which do not qualify
for revenue recognition as of December 31, 2019, in the table above.
62
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following summarize the effects of adopting Topic 606 on the Company’s consolidated
statement of operations and statement of cash flows for the year ended December 31, 2018 (in
thousands, except for per share data):
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018
As Reported Adjustments
Pre-Topic
606
Adoption
Net sales:
Products................................................................. $ 6,249,938 $
Services .................................................................
Total net sales ....................................................
830,198
7,080,136
49,497
(11,675)
37,822
$ 6,299,435
818,523
7,117,958
Costs of goods sold:
Products.................................................................
Services .................................................................
Total costs of goods sold ......................................
Gross profit ........................................................
5,711,400
375,018
6,086,418
993,718
Operating expenses:
Selling and administrative expenses...........................
Severance and restructuring expenses .......................
Acquisition-related expenses .....................................
Earnings from operations......................................
Non-operating expense, net ..........................................
Earnings before income taxes....................................
Income tax expense.....................................................
756,529
3,424
282
233,483
21,581
211,902
48,225
Net earnings ........................................................... $
163,677 $
39,616
479
40,095
(2,273)
5,751,016
375,497
6,126,513
991,445
373
—
—
(2,646)
8
(2,654)
(519)
(2,135) $
756,902
3,424
282
230,837
21,589
209,248
47,706
161,542
Net earnings per share:
Basic ..................................................................... $
Diluted................................................................... $
4.60 $
4.55 $
(0.06) $
(0.06) $
4.54
4.49
Shares used in per share calculations:
Basic .....................................................................
Diluted...................................................................
35,586
36,009
—
—
35,586
36,009
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2018
The adoption of Topic 606 had no effect on net cash provided by operating activities, net cash used
in investing activities or net cash used in financing activities for the year ended December 31, 2018.
The adjustment to net earnings noted above in reconciling our reported results of operations for the year
ended December 31, 2018 under Topic 606 to pre-Topic 606 adoption was fully offset by adjustments to
the reported changes in asset and liability balances, resulting in no effect on operating cash flows.
(3)
Assets Held for Sale
On November 1, 2019, we completed the purchase of real estate in Chandler, Arizona that we intend
to use as our global corporate headquarters (see Note 4 for a discussion of the purchase). During the
fourth quarter of 2019, properties in Tempe, Arizona, El Segundo, Irvine and Santa Monica, California
and Woodbridge, Illinois were classified as held for sale, for approximately $83,191,000, which is
included in other current assets in the accompanying consolidated balance sheet as of December 31,
2019, as we look to sell current properties in preparation for our move to Chandler in 2020.
63
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(4)
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,
2019
2018
114,674
92,092
60,661
34,768
33,668
31,374
367,237
(236,330)
130,907
$
$
170,327
64,263
100,421
38,200
26,319
5,124
404,654
(331,700)
72,954
Depreciation and amortization expense related to property and equipment was $22,538,000,
$21,721,000 and $25,787,000 in 2019, 2018 and 2017, respectively.
On November 1, 2019, we completed the purchase of real estate in Chandler, Arizona for
approximately $48,000,000 that we intend to use as our global corporate headquarters. The property
contains a building and some infrastructure in place that we will complete readying for our use over the
next year. We intend to sell our current properties in Tempe, Arizona.
Included within the software, buildings and land values presented above are assets in the process of
being readied for use in the amounts of approximately $12,138,000, $27,658,000 and $11,700,000,
respectively. Depreciation on these assets will commence, as appropriate, when they are ready for use
and placed in service.
(5)
Goodwill
The changes in the carrying amount of goodwill for the year ended December 31, 2019 are as
follows (in thousands):
North
America
EMEA
APAC
Goodwill........................................................... $ 443,250 $ 155,480 $ 21,535 $
Accumulated impairment losses ..........................
Goodwill acquired during 2018 ............................
Foreign currency translation adjustment ...............
Balance at December 31, 2018 .......................
Goodwill acquired during 2019 ............................
Foreign currency translation adjustment ...............
Balance at December 31, 2019 ....................... $ 396,818 $ 11,572 $
(323,422)
36,440
—
156,268
240,550
—
6,824
—
(65)
6,759 $
(151,439)
(108)
(184)
3,749
7,910
—
(738)
(13,973)
(87)
Consolidated
620,265
(488,834)
36,332
(922)
166,841
248,460
(152)
415,149
On August 30, 2019, we acquired PCM, which is being integrated into our North America and EMEA
businesses. Under the acquisition method of accounting, the preliminary 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 $248,860,000 was recorded as goodwill in the North America and EMEA
reporting units (see Note 20). The primary driver for this acquisition was to help existing PCM clients in
positioning their businesses for future growth, transforming and securing their data platforms, creating
modern and mobile experiences for their workforce and optimizing the procurement of technology. The
addition of PCM complements our supply chain optimization solution offering, adding scale and clients in
the mid-market and corporate space in North America.
On August 1, 2018, we acquired Cardinal, which has been integrated into our North America
business. Under the acquisition 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
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$36,040,000 , net of a measurement period adjustment of $400,000 recognized in 2019, was recorded
as goodwill in the North America reporting unit (see Note 20). The primary driver for this acquisition
was to strengthen our services capabilities and bring value to our clients within our digital innovation
services solution offering.
During 2019, 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 2019. 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.
(6)
Intangible Assets
Intangible assets consist of the following (in thousands):
Customer relationships ............................................................... $
Other .......................................................................................
Accumulated amortization...........................................................
Intangible assets, net .................................................................
December 31,
2019
2018
$
336,455
15,621
352,076
(73,492)
278,584
159,566
5,555
165,121
(52,942)
112,179
During 2019, 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 2019, 2018 and 2017 was $23,671,000, $15,737,000 and
$16,812,000, respectively.
Future amortization expense for the remaining unamortized balance as of December 31, 2019 is
estimated as follows (in thousands):
Years Ending December 31,
2020........................................................................................................... $
2021...........................................................................................................
2022...........................................................................................................
2023...........................................................................................................
2024...........................................................................................................
Thereafter ...................................................................................................
Total amortization expense ........................................................................ $
Amortization
Expense
36,562
31,259
30,631
29,297
27,846
122,989
278,584
(7)
Accounts Payable - Inventory Financing Facilities
We have entered into agreements with financial intermediaries 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 facilities in the
accompanying consolidated balance sheets.
On July 10, 2019, we entered into an unsecured inventory financing facility with a maximum
availability for vendor purchases of $200,000,000 with MUFG Bank Ltd (“MUFG”). On August 30,
2019, we terminated our existing inventory financing facility with Wells Fargo Capital Finance, LLC
(“Wells Fargo”) and entered into a new unsecured inventory financing facility with Wells Fargo with an
aggregate availability for vendor purchases under the facility of $250,000,000. As of December 31,
2019, our combined inventory financing facilities had a total maximum capacity of $450,000,000, of
which $253,676,000 was outstanding at December 31, 2019. The facilities remain in effect until they
are terminated by any of the parties. Interest does not accrue on accounts payable under these
65
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
facilities provided the accounts payable are paid within stated vendor terms (typically 60 days);
however, we impute interest on the average daily balance outstanding during these stated vendor
terms based on our incremental borrowing rate during the period. Imputed interest of $10,801,000,
$10,593,000 and $6,736,000 was recorded in 2019, 2018 and 2017, respectively. If balances are not
paid within stated vendor terms, they will accrue interest at prime plus 2.00% or prime plus 1.25%
with respect to the MUFG facility and the Wells Fargo facility, respectively.
(8)
Debt, Finance Leases and Other Financing Obligations
Debt
Our long-term debt consists of the following (in thousands):
Senior revolving credit facility...................................................... $
ABL revolving credit facility .........................................................
Accounts receivable securitization financing facility.........................
Convertible senior notes due 2025 ...............................................
Finance leases and other financing obligations ...............................
Total....................................................................................
Less: current portion of long-term debt ........................................
December 31,
2019
2018
— $
570,706
—
284,836
3,822
859,364
—
—
194,000
—
2,920
196,920
(1,691)
(1,395)
Long-term debt ..................................................................... $
857,673
$
195,525
On August 30, 2019, we entered into a credit agreement (the “credit agreement”) providing for a
senior secured revolving credit facility (the “ABL facility”), which has an aggregate U.S. dollar
equivalent maximum borrowing amount of $1,200,000,000, including a maximum borrowing capacity
that could be used for borrowing in certain foreign currencies of $150,000,000. While the ABL facility
has a stated maximum amount, the actual availability under the ABL facility is limited by specified
percentages of eligible accounts receivable and certain eligible inventory, in each case as set forth in
the credit agreement. From time to time and at our option, we may request to increase the aggregate
amount available for borrowing under the ABL facility by up to an aggregate of the U.S. dollar
equivalent of $500,000,000, subject to customary conditions, including receipt of commitments from
lenders. The ABL facility is guaranteed by certain of our material subsidiaries and is secured by a lien
on certain of our assets and certain of each other borrower’s and each guarantor’s assets. The ABL
facility matures on August 30, 2024. As of December 31, 2019, eligible accounts receivable and
inventory were sufficient to permit access to the full $1,200,000,000 facility amount, of which
$570,706,000 was outstanding.
The interest rates applicable to borrowings under the ABL facility are based on the average
aggregate excess availability under the ABL facility as set forth on a pricing grid in the credit
agreement. Amounts outstanding under the ABL facility bear interest, payable quarterly, at a floating
rate equal to a LIBOR rate plus a pre-determined spread of 1.25% to 1.50%. The floating interest
rate applicable at December 31, 2019 was 2.94% per annum for the ABL facility. In addition, we pay
a quarterly commitment fee on the unused portion of the facility of 0.25%, and our letter of credit
participation fee ranges from 1.25% to 1.50%. During 2019, weighted average borrowings under our
ABL facility were $634,361,000. Interest expense associated with the ABL facility was $8,880,000 in
2019, including the commitment fee and amortization of deferred financing fees.
The ABL facility contains customary affirmative and negative covenants and events of default. If a
default occurs (subject to customary grace periods and materiality thresholds) under the credit
agreement, certain actions may be taken, including, but not limited to, possible termination of
commitments and required payment of all outstanding principal amounts plus accrued interest and
fees payable under the credit agreement.
On August 30, 2019, we repaid in full and terminated our then existing senior revolving credit
facility (the “revolving credit facility”). The revolving credit facility had an aggregate U.S. dollar
equivalent maximum borrowing amount of $350,000,000, including a maximum borrowing capacity
that could be used for borrowing in certain foreign currencies of $50,000,000.
66
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On August 30, 2019, we repaid in full and terminated our accounts receivable securitization
financing facility (the “ABS facility”). The ABS facility had a maximum aggregate borrowing
availability of $250,000,000, subject to limitations based on the quantity and quality of the underlying
accounts receivable.
Convertible Senior Notes
On August 15, 2019, we issued $300,000,000 aggregate principal amount of convertible senior
notes (the “notes”) that mature on February 15, 2025. On August 23, 2019, we issued an additional
$50,000,000 aggregate principal amount of the notes pursuant to the exercise in full by the initial
purchasers of the notes of their option to purchase additional notes. The notes bear interest at an
annual rate of 0.75% payable semiannually, in arrears, on February 15th and August 15th of each
year. The notes are general unsecured obligations of Insight and are guaranteed on a senior
unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight.
Holders of the notes may convert their notes at their option at any time prior to the close of
business on the business day immediately preceding June 15, 2024, under the following
circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on
December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our
common stock for at least 20 trading days (whether or not consecutive) during a period of 30
consecutive trading days ending on, and including, the last trading day of the immediately preceding
calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading
day; (2) during the five business day period after any five consecutive trading day period (the
“measurement period”) in which the trading price of our common stock per $1,000 principal amount of
notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price of our common stock and the conversion rate on each such trading day; (3) if we
call any or all of the notes for redemption, at any time prior to the close of business on the second
scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of
specified corporate events. On or after June 15, 2024 until the close of business on the second
scheduled trading day immediately preceding the maturity date, the holders may convert their notes
at any time, regardless of the foregoing circumstances.
Upon conversion, we will pay or deliver cash, shares of our common stock or a combination of the
two, at our discretion. The conversion rate will initially be 14.6376 shares of common stock per
$1,000 principal amount of notes (equivalent to an initial conversion price of approximately $68.32
per share of common stock). The conversion rate is subject to change in certain circumstances and
will not be adjusted for any accrued and unpaid interest. In addition, following certain events that
occur prior to the maturity date or following our issuance of a notice of redemption, the conversion
rate is subject to an increase for a holder who elects to convert their notes in connection with those
events or during the related redemption period in certain circumstances.
If we undergo a fundamental change, the holders may require us to repurchase for cash all or any
portion of their notes at a fundamental change repurchase price equal to 100% of the principal
amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the
fundamental change repurchase date. As of December 31, 2019, none of the criteria for a
fundamental change or a conversion rate adjustment had been met.
The maximum number of shares issuable upon conversion, including the effect of a fundamental
change and subject to other conversion rate adjustments, would be 6,788,208.
We may redeem for cash all or any portion of the notes, at our option, on or after August 20, 2022
if the last reported sale price of our common stock has been at least 130% of the conversion price
then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive
trading day period (including the last trading day of such period) ending on, and including, the trading
day immediately preceding the date on which we provide notice of redemption at a redemption price
equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest
to, but excluding, the redemption date. No sinking fund is provided for the notes.
The notes are subject to certain customary events of default and acceleration clauses. As of
December 31, 2019, no such events have occurred.
67
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The notes consist of the following balances reported within the consolidated balance sheet as of
December 31, 2019 (in thousands):
December 31,
2019
Liability:
Principal ................................................................................................ $
Less: debt discount and issuance costs, net of accumulated accretion ............
Net carrying amount ........................................................................... $
350,000
(65,164)
284,836
Equity, net of deferred tax ......................................................................... $
44,731
The remaining life of the debt discount and issuance cost accretion is approximately 5.125 years.
The effective interest rate on the liability component of the notes is 4.325%.
The following table summarizes the equity components of the notes included in additional paid-in
capital reported within the consolidated balance sheet as of December 31, 2019 (in thousands):
Embedded
Conversion
Option
Embedded
Conversion
Option - Debt
Issuance
Costs
Deferred Tax
Total
Convertible Senior Notes
due 2025.......................... $
61,250 $
(1,700) $
(14,819) $
44,731
The following table summarizes the interest expense components resulting from the notes
reported within the consolidated statement of operations for the year ended December 31, 2019 (in
thousands):
Interest expense
Contractual coupon interest ................................................................... $
Year ended
December 31, 2019
984
Amortization of debt discount ................................................................. $
Amortization of debt issuance costs......................................................... $
3,728
479
Convertible Note Hedge and Warrant Transaction
In connection with the issuance of the notes, we entered into certain convertible note hedge and
warrant transactions (the “Call Spread Transactions”) with respect to the Company’s common stock.
The convertible note hedge consists of an option to purchase up to 5,123,160 common stock
shares at a price of $68.32 per share. The hedge expires on February 15, 2025 and can only be
concurrently executed upon the conversion of the notes. We paid approximately $66,325,000 for the
convertible note hedge transaction.
Additionally, we sold warrants to purchase 5,123,160 shares of common stock at a price of
$103.12 per share. The warrants expire on May 15, 2025 and can only be exercised at maturity. The
Company received aggregate proceeds of approximately $34,440,000 for the sale of the warrants.
The Call Spread Transactions have no effect on the terms of the notes and reduce potential
dilution by effectively increasing the initial conversion price of the notes to $103.12 per share of the
Company’s common stock.
68
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Finance Leases and Other Financing Obligations
From time to time, we enter into finance leases and other financing agreements with financial
intermediaries to facilitate the purchase of products from certain vendors.
The current and long-term portions of our finance 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, 2019 and 2018.
(9)
Leases
Effective January 1, 2019, we adopted the FASB ASU No. 2016-02 — “Leases” (Topic 842) using
the effective date transition method. This approach provides a method for recording existing leases at
adoption without restating comparative periods. We elected the package of practical expedients
permitted under the transition guidance within the new standard, which among other things, allowed
us to carry forward the historical lease classification. In addition, we made an accounting policy
election not to separate non-lease components from lease components for all existing classes of
underlying assets with the exception of land and buildings. We also made an accounting policy
election to not record right of use (“ROU”) assets and lease liabilities for leases with an initial term of
twelve months or less on our consolidated balance sheet.
Adoption of the new standard resulted in the recording of net operating lease ROU assets and
lease liabilities of $65,922,000 and $70,512,000, respectively, as of January 1, 2019. The difference
between the additional lease assets and lease liabilities reflected existing accrued and prepaid rent
balances that were reclassified to the operating lease ROU asset at January 1, 2019. The standard did
not materially impact our consolidated net earnings and had no impact on cash flows.
We lease office space, distribution centers, land, vehicles and equipment. We recognize lease
expense for these leases on a straight-line basis over the lease term.
Certain lease agreements include one or more options to renew, with renewal terms that can extend
the lease term from one to five years or more. The exercise of lease renewal options is at our sole
discretion. Some agreements also include options to purchase the leased property. The estimated life of
assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of
title or purchase option reasonably certain of exercise.
Certain of our lease agreements include rental payments adjusted periodically for inflation. Our
lease agreements do not contain any material residual value guarantees or material restrictive
covenants.
The following table provides information about the financial statement classification of our lease
balances reported within the consolidated balance sheets as of December 31, 2019 and January 1, 2019
(in thousands):
Leases
Assets
Operating lease assets
Finance lease assets
Total lease assets
Liabilities
Current
Operating lease liabilities
Finance lease liabilities
Classification
Other assets
Property and equipment(a)
Accrued expenses and other
current liabilities
Current portion of long-
term debt
Non-current
Operating lease liabilities
Finance lease liabilities
Other liabilities
Long-term debt
Total lease liabilities
December 31,
2019
January 1,
2019
$
$
$
$
74,684
3,297
77,981
$
$
65,922
1,693
67,615
19,648
$
15,788
1,691
60,285
2,131
83,755
$
1,395
54,724
1,525
73,432
(a) Recorded net of accumulated amortization of $861,000 as of December 31, 2019 and there is no
accumulated amortization as of January 1, 2019.
69
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table provides information about the financial statement classification of our lease
expenses reported within the consolidated statement of operations for the year ended December 31,
2019 (in thousands):
Lease cost
Operating lease cost (a) (b)
Finance lease cost
Amortization of leased
assets
Interest on lease liabilities
Total lease cost
Classification
Selling and administrative
expenses
Selling and administrative
expenses
Interest expense, net
$
$
(a) Includes immaterial amounts recorded to cost of goods sold.
(b) Excludes short-term and variable lease costs, which are immaterial.
Year ended
December 31, 2019
21,393
861
110
22,364
Future minimum lease payments under non-cancelable leases as of December 31, 2019 are as
follows (in thousands):
2020........................................... $
2021...........................................
2022...........................................
2023...........................................
2024...........................................
After 2024 ...................................
Total lease payments ....................
Less: Interest .............................
Present value of lease liabilities ...... $
Operating leases
22,234
18,279
14,767
9,220
5,653
19,559
89,712
(9,779)
79,933
$
$
Finance leases
Total
$
1,795
1,076
645
449
45
—
4,010
(188)
3,822
$
24,029
19,355
15,412
9,669
5,698
19,559
93,722
(9,967)
83,755
Operating lease payments include $13.4 million related to options to extend lease terms that are
reasonably certain of being exercised.
The following table provides information about the remaining lease terms and discount rates applied
as of December 31, 2019:
Weighted average remaining lease term (years)
Operating leases ..........................................................................
Finance leases .............................................................................
Weighted average discount rate (%)
Operating leases ..........................................................................
Finance leases .............................................................................
December 31, 2019
6.03
2.92
3.62
3.65
The following table provides other information related to leases for the year ended December 31,
2019 (in thousands):
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows from operating leases ........................................... $
Leased assets obtained in exchange for new operating lease liabilities(a) .......
20,928
10,460
(a) Excludes operating lease assets acquired as part of the PCM acquisition of $17,951,000.
December 31, 2019
70
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Operating Leases pre-Topic 842 adoption:
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
$20,114,000 and $19,126,000 in 2018 and 2017, 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, 2018 are as follows (in thousands):
Years Ending December 31,
2019........................................................................................................... $
2020...........................................................................................................
2021...........................................................................................................
2022...........................................................................................................
2023...........................................................................................................
Thereafter ...................................................................................................
Total minimum lease payments .................................................................. $
21,499
15,580
12,121
9,150
6,296
7,238
71,884
(10)
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 ............................................................. $
EMEA .........................................................................
APAC..........................................................................
Total Consolidated........................................................ $
12,055 $
3,437
519
16,011 $
11,697 $
3,170
488
15,355 $
9,697
2,737
392
12,826
Years Ended December 31,
2019
2018
2017
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 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
71
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2019, of the 7,250,000 shares of common stock reserved and available for grant under
the Plan, 2,567,260 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, 2019, total compensation cost related to nonvested RSUs not yet recognized
is $25,243,000, which is expected to be recognized over the next 1.26 years on a weighted-average
basis.
The following table summarizes our RSU activity during 2019:
Nonvested at the beginning of year .............................. 1,020,930 $
418,709 $
Granted ....................................................................
(437,789) $
Vested, including shares withheld to cover taxes ............
(78,450) $
Forfeited...................................................................
923,400 $
Nonvested at the end of year ......................................
Number
Fair Value
Weighted
Average
Grant Date
Fair Value
36.10
56.17
34.07 $24,837,997 (a)
42.97
45.58 $64,905,786 (b)
(a) 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 2018 and 2017 was
$14,302,223 and $20,284,762, respectively.
(b) 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 $70.29 as of December 31, 2019, 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, 2019, 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 2019, 2018 and 2017 of 115,831, 88,638 and
122,255, respectively, were based on the value of the RSUs on their vesting dates as determined by
our closing stock price on such dates. For 2019, 2018 and 2017, total payments for our teammates’
tax obligations to the taxing authorities were $6,572,000, $3,230,000 and $5,318,000, 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.
72
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11)
Income Taxes
The following table presents the U.S. and foreign components of earnings before income taxes and
the related income tax expense (in thousands):
Earnings before income taxes:
United States .......................................................... $
Foreign...................................................................
$
Income tax expense:
Current:
U.S. Federal........................................................ $
U.S. State and local .............................................
Foreign ..............................................................
Deferred:
U.S. Federal........................................................
U.S. State and local .............................................
Foreign ..............................................................
$
Years Ended December 31,
2019
2018
2017
142,410
69,306
211,716
20,254
5,457
19,180
44,891
9,180
1,210
(2,972)
7,418
52,309
$
$
$
$
$
$
145,907
65,995
211,902
18,334
3,218
17,547
39,099
8,123
1,142
(139)
9,126
48,225
$
$
119,330
39,768
159,098
31,067
3,636
14,573
49,276
20,327
(427)
(761)
19,139
68,415
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 .......... $44,460
State income tax expense, net of
21.0% $44,499
21.0% $55,684
35.0%
2019
2018
2017
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
7,239
2,556
(2,739)
3.4
1.2
(1.3)
6,767
2,659
60
3.2
1.3
—
2,808
(313)
2,472
4,024
—
1.9
—
2,639
(1,396)
1.2
(0.7)
(6,057)
5,625
for enacted U.S. federal tax reform .....
(5,438)
Research and development credits.........
Other, net ..........................................
2,207
Effective tax rate................................. $52,309
—
—
(2.6)
1.1
(4,198)
(4,132)
1,327
24.7% $48,225
(2.0)
(1.9)
0.7
7,738
—
458
22.8% $68,415
1.8
(0.2)
1.5
(3.8)
3.5
4.9
—
0.3
43.0%
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 and the first nine months of 2018, we recorded provisional amounts for certain tax enactment-
date effects of the new law by applying the guidance of SEC Staff Accounting Bulletin 118 because we
had not yet completed our enactment-date accounting for these effects. In 2017 and 2018, the
company recorded tax expense and benefit, respectively, related to the new tax law that included
remeasurement of U.S. deferred income taxes, the mandatory deemed repatriation provision and the
state tax effects of these items. The changes to 2017 provisional amounts resulted in a benefit of
$5,600,000, which reduced our annual effective tax rate by 2.7% in 2018. The accounting for the
enactment-date income tax effects for the new tax law was completed in 2018.
At December 31, 2017, all undistributed foreign earnings were taxed as part of the deemed
repatriation of previously untaxed foreign earnings required by the U.S. Tax Cuts and Jobs Act of
73
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2017. For foreign entities not treated as branches for U.S. tax purposes, we continue to assert
indefinite reinvestment of foreign earnings, and accordingly have not accrued any additional income or
withholding taxes on the potential repatriation of these earnings. At the present time, given the
various complexities involved in repatriating earnings, it is not practicable to estimate the amount of
tax that may be payable if these earnings were not reinvested indefinitely.
The significant components of deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Net operating losses .............................................................. $
Foreign tax credits .................................................................
Other ...................................................................................
Gross deferred tax assets ...................................................
Valuation allowances..............................................................
Total deferred tax assets ....................................................
Deferred tax liabilities:
Goodwill and other intangibles.................................................
Property and equipment .........................................................
Other ...................................................................................
Total deferred tax liabilities.................................................
Net deferred tax (liabilities) assets....................................... $
December 31,
2019
2018
$
27,328
16,091
20,153
63,572
(38,247)
25,325
(48,279)
(12,702)
(5,406)
(66,387)
(41,062) $
23,926
16,800
16,335
57,061
(40,630)
16,431
(1,202)
(998)
(6,947)
(9,147)
7,284
The net non-current deferred tax assets and liabilities are as follows (in thousands):
December 31,
2019
2018
Net non-current deferred tax assets, which are included in
"Other assets"........................................................................ $
3,571
$
7,967
Net non-current deferred tax liabilities, which are included in
"Other liabilities" ....................................................................
Net deferred tax (liabilities) assets .......................................... $
(44,633)
(41,062) $
(683)
7,284
As of December 31, 2019, we have a federal net operating loss carryforward (“NOL”) and U.S.
state NOLs that will expire between 2020 and 2038. We also have NOLs from various non-U.S.
jurisdictions of $93,090,000. While the majority of the non-U.S. NOLs have no expiration date,
certain of them will expire between 2020 and 2026. Certain federal and state NOLs relate to pre-
acquisition losses from acquired subsidiaries, and accordingly, are subject to annual limitations as to
their use under the provisions of Internal Revenue Code Section 382 – Limitation on net operating loss
carry forwards and certain built-in losses following ownership change.
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, 2019 and 2018, our valuation allowances totaled $38,247,000 and
$40,630,000, 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 refunded are not more likely than not, we will need to increase our valuation allowances
and record additional income tax expense. Changes to our valuation allowance for the years ended
December 31, 2019 and 2018 were primarily driven by U.S. federal tax reform, specifically related to U.S.
mandatory deemed repatriation, foreign currency translation and other adjustments. 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.
74
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2019 and 2018, we had approximately $9,736,000 and $6,849,000,
respectively, of unrecognized tax benefits. Of these amounts, approximately $442,000 and $313,000,
respectively, related to accrued interest. The immaterial changes in the unrecognized tax benefits
balance during the year reflect additions for tax positions in prior and current periods, subtractions
due to foreign currency translation and subtractions due to audit settlements and statute expirations.
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 2018. 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 U.S., federal income tax returns for 2016, 2017 and
2018 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. However, to the extent
allowable by law, the tax authorities may have a right to examine and make adjustment to prior
periods when amended returns have been filed, or when net operating losses or tax credits were
generated and carried forward for subsequent utilization.
(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 variable. We had $570,706,000 outstanding under our ABL facility and $284,836,000
outstanding under our senior convertible notes at December 31, 2019. The interest rate attributable
to the borrowings under our ABL facility and our senior convertible notes was 2.94% and 0.75%,
respectively, per annum at December 31, 2019. 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.
Although our senior convertible notes are based on a fixed rate, changes in interest rates could
impact the fair market value of such notes. As of December 31, 2019, the fair market value of our
convertible senior notes was $414,295,000.
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 in other expense (income), net within 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
75
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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)
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.
As of December 31, 2019, 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. 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.
(14) 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 $19,126,000, $15,216,000 and $14,083,000 for 2019, 2018 and
2017, respectively.
(15)
Share Repurchase Programs
In February 2018, our Board of Directors authorized share repurchase programs of $50,000,000. No
share repurchase program was authorized in 2019 or 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, 2019, 2018 and 2017, respectively, in thousands, except per share
amounts:
Year
2019 ..........................................................................
2018 ..........................................................................
2017 ..........................................................................
Total ..........................................................................
All shares repurchased were retired.
(16)
Commitments and Contingencies
Contractual
Total
Number
of Shares
Purchased
Average
Price
Paid per
Share
Approximate
Dollar Value
of Shares
Purchased
541 $
641
—
1,182
51.56 $
34.42
—
$
27,899
22,069
—
49,968
In the ordinary course of business, we issue performance bonds to secure our performance under
certain contracts or state tax requirements. 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.
76
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Management believes that payments, if any, related to these performance bonds are not probable
at December 31, 2019. 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, 2019. 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 incidental to the 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,
employment claims, 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. Although litigation is inherently unpredictable,
we believe that we have adequate provisions for any probable and estimable losses. It is possible,
nevertheless, that our consolidated financial position, results of operations or liquidity could be
materially and adversely affected in any particular period by the work required pursuant to any legal
proceedings or the resolution of any legal proceedings during such period. Legal expenses related to
77
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
defense of any legal proceeding or the negotiations, settlements, rulings and advice of outside legal
counsel in connection with any legal proceedings are expensed as incurred.
In connection with the acquisition of PCM, the Company has effectively assumed responsibility for
PCM litigation matters, including various disputes related to PCM’s acquisition of certain assets of En
Pointe Technologies in 2015. The seller of En Pointe Technologies and related entities providing
various post-closing support functions to PCM have asserted claims regarding the sufficiency of
earnout payments paid by PCM under the asset purchase agreement and the unwinding of the support
functions post-closing. PCM has rejected and vigorously responded to those claims and is pursuing
various counterclaims. The disputes are being heard by multiple courts and arbitrators in several
different jurisdictions including California, Delaware and Pakistan. The Company cannot determine
with certainty the costs or outcome of these matters. However, the Company is not involved in any
pending or threatened legal proceedings, including the PCM litigation matters, that it believes would
reasonably be expected to have a material adverse effect on its business, financial condition or results
of operations.
(17)
Supplemental Financial Information
Additions and deductions related to the allowance for doubtful accounts receivable for 2019, 2018
and 2017 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, 2019....................... $ 10,462 $
5,079 $
(4,779) $
10,762
Year ended December 31, 2018....................... $ 10,158 $
4,776 $
(4,472) $
10,462
Year ended December 31, 2017....................... $
9,138 $
5,245 $
(4,225) $
10,158
(18)
Cash Flows
Cash payments for interest on indebtedness and cash payments for taxes on income were as
follows (in thousands):
Years Ended December 31,
2018
2019
2017
Supplemental disclosures of cash flow information:
Cash paid during the year for interest......................... $
6,246 $
10,155 $
10,976
Cash paid during the year for income taxes, net of
refunds................................................................ $
42,484 $
31,218 $
55,470
(19)
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.
The following tables summarize net sales by offering for North America, EMEA and APAC by sales
mix amounts (in thousands):
Sales Mix
Hardware.................................................................... $ 3,957,507 $ 3,610,356 $ 3,352,355
1,310,118
Software.....................................................................
519,261
Services .....................................................................
$ 6,024,305 $ 5,362,981 $ 5,181,734
1,112,715
639,910
1,269,983
796,815
2017
2019
North America
Years Ended December 31,
2018
78
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Sales Mix
Hardware.................................................................... $
Software.....................................................................
Services .....................................................................
EMEA
Years Ended December 31,
2018
653,499 $
736,509
140,233
2017
536,500
710,452
108,464
$ 1,526,644 $ 1,530,241 $ 1,355,416
2019
622,949 $
753,729
149,966
Sales Mix
Hardware.................................................................... $
Software.....................................................................
Services .....................................................................
APAC
Years Ended December 31,
2018
2019
34,965 $
92,988
52,288
29,496 $
107,363
50,055
$
180,241 $
186,914 $
2017
27,907
101,412
37,154
166,473
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.
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 2019, 2018 or 2017.
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):
Net Sales:
Year Ended December 31, 2019
North
America
EMEA
APAC
Consolidated
Products ...................................................... $5,227,490 $1,376,678 $ 127,953 $ 6,732,121
999,069
Services ......................................................
7,731,190
796,815
Total net sales.......................................... 6,024,305
149,966
1,526,644
52,288
180,241
Costs of goods sold:
Products ...................................................... 4,748,608
404,583
Services ......................................................
Total costs of goods sold............................ 5,153,191
871,114
Gross profit..............................................
1,258,974
40,587
1,299,561
227,083
117,778
22,562
140,340
39,901
6,125,360
467,732
6,593,092
1,138,098
Operating expenses:
Selling and administrative expenses ....................
Severance and restructuring expenses .................
Acquisition-related expenses ..............................
664,374
4,946
11,342
186,957
334
—
29,406
145
—
Earnings from operations ........................... $ 190,452 $
39,792 $ 10,350 $
880,737
5,425
11,342
240,594
79
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Sales:
Year Ended December 31, 2018
North
America
EMEA
APAC
Consolidated
Products ...................................................... $4,723,071 $1,390,008 $ 136,859 $ 6,249,938
830,198
Services.......................................................
7,080,136
639,910
Total net sales .......................................... 5,362,981
140,233
1,530,241
50,055
186,914
Costs of goods sold:
Products ...................................................... 4,313,070
317,216
Services.......................................................
Total costs of goods sold ............................ 4,630,286
732,695
Gross profit ..............................................
1,273,422
35,352
1,308,774
221,467
124,908
22,450
147,358
39,556
5,711,400
375,018
6,086,418
993,718
Operating expenses:
Selling and administrative expenses.....................
Severance and restructuring expenses .................
Acquisition-related expenses...............................
545,091
1,617
282
182,470
1,677
—
28,968
130
—
Earnings from operations ........................... $ 185,705 $
37,320 $ 10,458 $
756,529
3,424
282
233,483
Net Sales:
Year Ended December 31, 2017
North
America
EMEA
APAC
Consolidated
Products ...................................................... $4,662,473 $1,246,952 $ 129,319 $ 6,038,744
664,879
Services.......................................................
6,703,623
519,261
Total net sales .......................................... 5,181,734
108,464
1,355,416
37,154
166,473
Costs of goods sold:
Products ...................................................... 4,253,587
236,470
Services.......................................................
Total costs of goods sold ............................ 4,490,057
691,677
Gross profit ..............................................
1,140,204
24,902
1,165,106
190,310
118,611
11,279
129,890
36,583
5,512,402
272,651
5,785,053
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
Earnings from operations ........................... $ 153,652 $
164,305
4,888
3,646
106
17,365 $
28,231
104
—
—
8,248 $
723,328
9,002
3,646
3,329
179,265
The following table is a summary of our total assets by reportable operating segment (in
thousands):
North America........................................................................... $
EMEA .......................................................................................
APAC .......................................................................................
Corporate assets and intercompany eliminations, net .....................
December 31,
2019
3,814,408
699,856
123,349
(459,434)
$
December 31,
2018
2,660,886
611,338
98,959
(595,236)
Total assets...................................................................... $
4,178,179
$
2,775,947
80
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
2019
Net sales.......................................................... $5,696,422 $ 776,051 $1,258,717 $7,731,190
Total long-lived assets ....................................... $ 103,678 $ 13,448 $
13,781 $ 130,907
2018
Net sales.......................................................... $5,100,456 $ 843,145 $1,136,535 $7,080,136
Total long-lived assets ....................................... $
72,954
2017
Net sales.......................................................... $4,933,805 $ 684,632 $1,085,186 $6,703,623
52,346 $ 12,434 $
8,174 $
Net sales by geographic area are presented by attributing net sales to external customers based
on the domicile of the selling location.
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,
2018
2019
2017
Depreciation and amortization of property and
equipment:
North America ......................................................... $
EMEA .....................................................................
APAC......................................................................
Amortization of intangible assets:
North America .........................................................
EMEA .....................................................................
APAC......................................................................
Total .......................................................................... $
17,827 $
17,164 $
4,166
545
22,538
4,058
499
21,721
22,382
828
461
23,671
46,209 $
14,791
285
661
15,737
37,458 $
20,241
5,025
521
25,787
15,971
73
768
16,812
42,599
(20) Acquisitions
PCM
Effective August 30,2019, we acquired 100 percent of the issued and outstanding shares of PCM
for a cash purchase price of $745,562,000, which included cash and cash equivalents acquired of
$84,637,000 and the payment of PCM’s outstanding debt. PCM is a provider of multi-vendor
technology offerings, including hardware, software and services to small, mid-sized and
corporate/enterprise commercial clients, state, local and federal governments and educational
institutions across the United States, Canada and the United Kingdom. Based in El Segundo,
California, PCM has 40 office locations in North America and the United Kingdom and more than 4,000
teammates. We believe that this acquisition allows us to help existing PCM clients in positioning their
businesses for future growth, transforming and securing their data platforms, creating modern and
mobile experiences for their workforce and optimizing the procurement of technology. The addition of
PCM complements our supply chain optimization solution offering, adding scale and clients in the mid-
market and corporate space primarily in North America.
81
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):
Purchase price net of cash and cash equivalents acquired ...........
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") ..........................................................................
532,433
187,990
91,213
32,699
(368,647)
(63,623)
$
660,925
412,065
$
248,860
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. In the fourth quarter of 2019, an adjustment of $56,700,000 was recorded
to goodwill primarily due to a change in the customer relationships valuation based on updated
information received for key inputs as well as an associated change in deferred taxes.
The estimated fair values of current assets and liabilities are based upon their historical costs on
the date of acquisition due to their short-term nature. The estimated fair values of the majority of
property and equipment excluding acquired real estate are also based upon historical costs as they
approximate fair value. Certain long-term assets, including PCM’s IT systems, have been written
down to the estimated fair value.
The preliminary estimated fair value of net assets acquired was approximately $412,065,000,
including $187,990,000 of identifiable intangible assets, consisting primarily of customer relationships
of $175,500,000. The fair value of the customer relationships were determined using the multiple-
period excess earnings method.
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 - 12 Years
1 Year
1 - 3 Years
Acquisition-related expenses recognized for the period from the acquisition date through
December 31, 2019 was $11,342,000.
Goodwill of $248,860,000, which was recorded in our North America and EMEA operating
segments, represents the excess of the purchase price over the estimated fair value assigned to
tangible and identifiable intangible assets acquired and liabilities assumed from PCM. The goodwill is
not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year. The
addition of the PCM technical employees to our team and the opportunity to grow our business are the
primary factors making up the goodwill recognized as part of the transaction. None of the goodwill is
tax deductible.
The purchase price allocation is preliminary and was allocated using information currently
available. Further information related to legal accruals, taxes and other statutory assessments may
lead to an adjustment of the purchase price allocation.
We have consolidated the results of operations for PCM since its acquisition on August 30, 2019.
Consolidated net sales and gross profit for the year ended December 31, 2019 include $733,774,000
and $105,961,000, respectively, from PCM.
82
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reports unaudited pro forma information as if the acquisition of PCM had been
completed at the beginning of the earliest period presented (in thousands, except per share amounts):
Net sales ..........................................As reported
Pro forma
Net earnings .....................................As reported
Diluted earnings per share ..................As reported
Pro forma
Pro forma
Cardinal
2019
2017
Year Ended December 31,
2018
$ 7,731,190 $ 7,080,136 $6,703,623
$ 9,207,512 $ 9,241,183 $8,894,128
90,683
$
77,496
$
2.50
$
2.14
$
159,407 $
171,102 $
4.43 $
4.76 $
163,677 $
167,499 $
4.55 $
4.65 $
Effective August 1, 2018, we acquired 100 percent of the issued and outstanding shares of
Cardinal, a digital solutions provider based in Cincinnati, Ohio, with offices across the Midwest and
Southeast United States, for a cash purchase price, net of cash acquired, of approximately
$78,400,000, including final working capital and tax gross up adjustments of $3,400,000. Cardinal
provides technology solutions to digitally transform organizations through their expertise in mobile
applications development, Internet of Things and cloud enabled business intelligence. We believe that
this acquisition strengthens our services capabilities and will bring value to our clients within our
digital innovation services solution offering.
The fair value of net assets acquired was approximately $42,360,000, including $27,540,000 of
identifiable intangible assets, consisting primarily of customer relationships that will be amortized
using the straight line method over the estimated economic life of ten years. The fair value of the
customer relationships was determined using the multiple-period excess earnings method. The
preliminary purchase price was allocated using the acquisition method of accounting using the
information available at the time. During the fourth quarter of 2018, we finalized the fair value
assumptions for identifiable intangible assets with no changes being made to amounts previously
recorded. Goodwill acquired approximated $36,040,000 which was recorded in our North America
operating segment. The goodwill is tax deductible. The working capital adjustment was finalized in
the fourth quarter of 2018 and paid in January 2019. Additionally, we finalized the purchase price
allocation when the tax gross up adjustment was agreed upon in April 2019. This resulted in a
reduction of the previously recorded purchase price in the second quarter of 2019.
We consolidated the results of operations for Cardinal within our North America operating segment
beginning on August 1, 2018, the effective date of the acquisition. Our historical results would not
have been materially affected by the acquisition of Cardinal 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 statement of operations.
Datalink
Effective January 6, 2017, we acquired 100 percent of the issued and outstanding shares 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.
83
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:
$
257,456
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..............................
238,577
94,500
5,843
17,888
(129,071)
(34,421)
193,316
Excess purchase price over fair value of net assets acquired
(“goodwill”) ...........................................................................
$
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.
84
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
We 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):
Net sales ................................................................................... As reported
Proforma
Net earnings .............................................................................. As reported
Proforma
Diluted earnings per share ........................................................... As reported
Proforma
Year Ended
December 31,
2017
$ 6,703,623
$ 6,707,533
$
$
$
$
90,683
92,276
2.50
2.55
(21)
Selected Quarterly Financial Information (unaudited)
The following tables set forth selected unaudited consolidated quarterly financial information for
2019 and 2018 (in thousands, except per share data):
Quarters Ended
Net sales..................................................... $ 2,297,156 $
Costs of goods sold ......................................
Gross profit .............................................
1,959,174
337,982
December 31
,
2019
September 30
June 30,
,
2019
2019
1,912,547 $1,836,021 $1,685,466
1,560,572 1,436,994
1,636,352
248,472
276,195
March 31,
2019
275,449
Operating expenses:
Selling and administrative expenses ...........
Severance and restructuring expenses ........
Acquisition-related expenses .....................
Earnings from operations ......................
266,970
1,713
2,283
67,016
223,215
2,662
5,896
44,422
199,489
680
3,163
72,117
191,063
370
—
57,039
Non-operating (income) expense:
Interest expense, net ...............................
Other (income) expense, net .....................
Earnings before income taxes ................
Income tax expense .....................................
Net earnings ....................................... $
Net earnings per share:
11,897
(458)
55,577
12,627
42,950 $
7,694
(538)
37,266
10,134
27,132 $
4,335
346
67,436
17,438
49,998 $
4,552
1,050
51,437
12,110
39,327
Basic ...................................................... $
Diluted ................................................... $
1.22 $
1.20 $
0.76 $
0.76 $
1.40 $
1.38 $
1.10
1.09
Shares used in per share calculations:
Basic ......................................................
Diluted ...................................................
35,259
35,755
35,512
35,868
35,772
36,111
35,609
36,103
85
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Quarters Ended
Net sales...................................................... $ 1,749,046 $
Costs of goods sold........................................
Gross profit ..............................................
1,494,882
254,164
December 31
,
2018
September 30
June 30,
,
2018
2018
1,747,726 $1,840,870 $1,742,494
1,512,812 1,576,493 1,502,231
240,263
March 31,
2018
264,377
234,914
Operating expenses:
Selling and administrative expenses ............
Severance and restructuring expenses .........
Acquisition-related expenses.......................
Earnings from operations .......................
194,790
715
—
58,659
184,095
683
188
49,948
189,464
382
94
74,437
188,180
1,644
—
50,439
Non-operating (income) expense:
Interest expense, net ................................
Other (income) expense, net ......................
Earnings before income taxes .................
Income tax expense ......................................
Net earnings ........................................ $
Net earnings per share:
5,141
(1,194)
54,712
7,671
47,041 $
5,802
932
43,214
11,060
32,154 $
4,932
49
69,456
17,977
51,479 $
5,862
57
44,520
11,517
33,003
Basic ....................................................... $
Diluted .................................................... $
1.33 $
1.31 $
0.91 $
0.89 $
1.45 $
1.44 $
0.92
0.91
Shares used in per share calculations:
Basic .......................................................
Diluted ....................................................
35,480
35,999
35,468
35,957
35,483
35,815
35,913
36,263
86
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, 2019. 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, 2019, based on the criteria established in COSO’s Internal Control – Integrated
Framework (2013). We completed the acquisition of PCM on August 30, 2019. As permitted under
SEC guidance, management’s assessment as of December 31, 2019 did not include an assessment of
the effectiveness of internal control over financial reporting of PCM, which constituted approximately
17.8% of total assets as of December 31, 2019 and 9.5% of net sales for the year ended December
31, 2019.
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, 2019.
(b) Changes in Internal Control Over Financial Reporting
Except as described below, 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, 2019 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
As noted above, on August 30, 2019 we completed the acquisition of PCM. We are currently
integrating PCM into our control environment. In executing this integration, we are analyzing,
evaluating, and where necessary, making changes in controls and procedures related to the PCM
business, which is expected to be completed in the year ended December 31, 2020.
(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, 2019 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. We completed the acquisition of PCM on August 30, 2019. As permitted
under SEC guidance, management’s assessment as of December 31, 2019 did not include an
assessment of the effectiveness of disclosure controls and procedures of PCM, which constituted
approximately 17.8% of total assets as of December 31, 2019 and 9.5% of net sales for the year
ended December 31, 2019.
(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.
87
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 2020 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.
88
INSIGHT ENTERPRISES, INC.
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.
89
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31, 2019
Commission File No. 000-25092
Exhibit
Number
2.1(1)
Exhibit Description
Agreement and Plan of Merger, dated as of
November 6, 2016, by and among Insight
Enterprises, Inc., Reef Acquisition Co., and
Datalink Corporation
Form
8-K
Incorporated by Reference
File
No.
Exhibit
Number
Filing
Date
Filed/Furnished
Herewith
000-
25092
2.1
November 7,
2016
2.2(1)
Agreement and Plan of Merger, dated as of
June 23, 2019, by and among Insight
Enterprises, Inc., Trojan Acquisition Corp.
and PCM
3.1
3.2
3.3
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.
4.1 (P) Specimen Common Stock Certificate
4.2
Indenture (including Form of Note) with
respect to Insight Enterprises, Inc.’s
0.750% Convertible Senior Notes due 2025,
dated August 15, 2019, by and among
Insight Enterprises, Inc., Insight Direct
USA, Inc. and U.S. Bank National
Association, as trustee.
4.3
Description of Company’s securities
8-K
000-
25092
2.1
June 24, 2019
10-K
8-K
8-K
S-1
8-K
000-
25092
000-
25092
000-
25092
33-
86142
000-
25092
3.1
February 17,
2006
3.1
May 21, 2015
3.2
May 21, 2015
4.1
January 20,
1995
4.1
August 15, 2019
10.1(2)
Form of Indemnification Agreement
10-K
000-
25092
10.1
July 26, 2007
10.2(3) Amended Insight Enterprises, Inc. 2007
Omnibus Plan
Proxy
Statement
000-
25092
Annex A April 4, 2011
10.3(3)
First Amendment to the Amended Insight
Enterprises, Inc. 2007 Omnibus Plan
Proxy
Statement
000-
25092
Annex A April 5, 2016
10.4(3) Executive Management Separation Plan
effective as of January 1, 2008
10-Q
000-
25092
10.5
November 7,
2008
10.5(3)
First Amendment to the Insight Enterprises,
Inc. Executive Management Separation Plan
effective as of February 1, 2020
10.6(3) Amended and Restated Employment
8-K
Agreement between Insight Enterprises,
Inc. and Glynis A. Bryan dated as of
January 1, 2009
000-
25092
10.3
January 7, 2009
10.7(3) Executive Employment Agreement between
10-K
Insight Enterprises, Inc. and Kenneth T.
Lamneck, dated as of December 14, 2009
000-
25092
10.24
February 25,
2010
10.8(3) Employment Agreement between Insight
10-K
Enterprises, Inc. and Steven W. Dodenhoff,
dated as of January 30, 2012
000-
25092
10.16
February 24,
2012
X
X
90
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2019
Commission File No. 000-25092
Exhibit
Number
Exhibit Description
Form
Incorporated by Reference
File
No.
Exhibit
Number
Filing
Date
Filed/Furnished
Herewith
10.9(3) Employment Agreement between Insight
10-Q
Enterprises, Inc. and Rachael A. Bertrandt,
dated as of September 30, 2018
000-
25092
10.1
November 7,
2018
10.10(3) Managing Director Service Agreement dated
October 25, 2013 between Insight
Technology Solutions GmbH and Wolfgang
Ebermann
8-K
000-
25092
10.1
October 30,
2013
10.11(3) Executive Employment Agreement between
10-K
Insight Enterprises, Inc. and Samuel C.
Cowley, dated June 7, 2016
000-
25092
10.12
February 2,
2017
10.12(3) Executive Employment Agreement between
Insight Enterprises, Inc. and Jeffery
Shumway, dated May 6, 2019
10.13
Form of Bond Hedge Confirmation.
10.14
Form of Warrant Confirmation.
10.15(4) Credit Agreement, dated as of August 30,
2019, by and among Insight Enterprises,
Inc., the subsidiaries of Insight Enterprises,
Inc. party thereto as borrowers and
guarantors, JPMorgan Chase Bank, N.A., as
administrative agent, and the lenders party
thereto.
21
Subsidiaries of Insight Enterprises, Inc.
23.1
Consent of KPMG LLP
24.1
24.2
24.3
24.4
24.5
24.6
24.7
24.8
31.1
31.2
Power of Attorney for Timothy A. Crown
dated February 11, 2020
Power of Attorney for Richard E. Allen dated
February 11, 2020
Power of Attorney for Bruce W. Armstrong
dated February 11, 2020
Power of Attorney for Linda M. Breard dated
February 11, 2020
Power of Attorney for Catherine Courage
dated February 11, 2020
Power of Attorney for Anthony A. Ibarguen
dated February 11, 2020
Power of Attorney for Kathleen S. Pushor
dated February 11, 2020
Power of Attorney for Girish Rishi dated
February 4, 2020
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
8-K
8-K
8-K
000-
25092
000-
25092
000-
25092
10.1 August 15, 2019
10.2 August 15, 2019
10.1 August 30, 2019
91
X
X
X
X
X
X
X
X
X
X
X
X
X
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2019
Commission File No. 000-25092
Exhibit Description
Form
Incorporated by Reference
File
No.
Exhibit
Number
Filing
Date
Filed/Furnished
Herewith
Exhibit
Number
32.1
Certification of Chief Executive Office 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.INS XBRL Instance Document - the instance
document does not appear in the
Interactive Data File because its XBRL tags
are embedded within the Inline XBRL
document
101.SCH Inline XBRL Taxonomy Extension Schema
Document
101.CAL Inline XBRL Taxonomy Extension
Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label
Linkbase Document
101.PRE Inline XBRL Taxonomy Extension
Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted
as Inline XBRL with applicable taxonomy
extension information contained in Exhibits
101)
X
X
X
X
X
X
X
X
(1) Certain schedules and exhibits (or similar attachments) have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The Company agrees to furnish copies of any such schedules and exhibits (or similar
attachments) to the SEC upon request.
(2) 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, Rachael A.
Bertrandt, Linda Breard, Glynis A. Bryan, Catherine Courage, Samuel C. Cowley, Timothy A. Crown,
Steven W. Dodenhoff, Wolfgang Ebermann, Anthony A. Ibargüen, Helen K. Johnson, Kenneth T. Lamneck,
Kathleen S. Pushor, Girish Rishi and Jeffery Shumway. Pursuant to the instructions accompanying Item
601 of Regulation S-K, the Registrant is filing the form of such indemnification agreement.
(3) Management contract or compensatory plan or arrangement.
(4) Certain schedules and exhibits (or similar attachments) have been omitted pursuant to Item
601(b)(10)(iv) of Regulation S-K. The Company agrees to furnish copies of any such schedules and
exhibits (or similar attachments) to the SEC upon request.
(P) Paper exhibit.
92
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 21, 2020
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/ Rachael A. Bertrandt
Rachael A. Bertrandt
/s/ Timothy A. Crown*
Timothy A. Crown
/s/ Richard E. Allen*
Richard E. Allen
/s/ Bruce W. Armstrong*
Bruce W. Armstrong
/s/ Linda M. Breard*
Linda Breard
/s/ Catherine Courage*
Catherine Courage
/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)
Chief Financial Officer
(principal financial officer)
Global Corporate Controller
(principal accounting officer)
February 21, 2020
February 21, 2020
February 21, 2020
Chairman of the Board
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
February 21, 2020
Director
Director
Director
Director
Director
Director
Director
93
I, Kenneth T. Lamneck, certify that:
CERTIFICATION
Exhibit 31.1
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 21, 2020
By:
/s/ Kenneth T. Lamneck
Kenneth T. Lamneck
Chief Executive Officer
I, Glynis A. Bryan, certify that:
CERTIFICATION
Exhibit 31.2
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 21, 2020
By:
/s/ Glynis A. Bryan
Glynis A. Bryan
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Insight Enterprises, Inc. (the “Company”) on Form
10-K for the period ended December 31, 2019 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 21, 2020
By: /s/ Glynis A. Bryan
Glynis A. Bryan
Chief Financial Officer
February 21, 2020
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