NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
and Recently Issued Accounting Standards
We are a Fortune 500-ranked global provider of IT hardware, software, Cloud and service
solutions to business, government, healthcare and educational clients. Our company is organized in the following three operating segments, which are primarily defined by their related geographies:
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Operating Segment
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Geography
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North America
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United States and Canada
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EMEA
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Europe, Middle East and Africa
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APAC
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Asia-Pacific
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Our offerings in North America and select 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 select software-related services.
In the opinion of
management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2016, our results of operations for the three and nine months ended
September 30, 2016 and 2015 and our cash flows for the nine months ended September 30, 2016 and 2015. The consolidated balance sheet as of December 31, 2015 was derived from the audited consolidated balance sheet at such date. The
accompanying unaudited consolidated financial statements and notes have been prepared in accordance with the rules and regulations promulgated by the Securities and Exchange Commission and consequently do not include all of the disclosures normally
required by United States generally accepted accounting principles (GAAP).
The results of operations for interim periods are
not necessarily indicative of results for the full year, due in part to the seasonal nature of our business. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements,
including the related notes thereto, in our Annual Report on Form 10-K for the year ended December 31, 2015. Our results of operations include the results of BlueMetal Architects, Inc. (BlueMetal) from its acquisition date of
October 1, 2015. See Note 12 for a discussion of our acquisition of Ignia Pty Ltd (Ignia) effective September 1, 2016.
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.
The preparation of consolidated financial statements in
conformity with 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.
Recently Issued Accounting Standards
In
February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-02, Leases (Topic 842), which supersedes the lease recognition requirements in Accounting Standards
Codification Topic 840, Leases. The core principal of the guidance is that an entity should recognize assets and liabilities arising from a lease for both financing and operating leases, along with
5
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
additional qualitative and quantitative disclosures. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal years.
Early adoption is permitted. The guidance is to be applied using a modified retrospective transition method with the option to elect a number of practical expedients. We expect to adopt the standard in the first quarter of 2019 and are in the
process of determining the effect that the adoption of ASU 2016-02 will have on our consolidated financial statements and disclosures. We have not yet selected our planned transition approach.
In March 2016, FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). This
ASU simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU requires that excess tax
benefits and deficiencies be recognized as income tax benefit or expense in the income statement, and, therefore, we anticipate increased income tax expense volatility after adoption of this ASU. The standard will be effective for fiscal years
beginning after December 15, 2016, including interim periods within such fiscal years. Early adoption is permitted. We expect to adopt the standard in the first quarter of 2017 and are currently evaluating the effect of this guidance on our
consolidated financial statements and disclosures.
There have been no other material changes or additions to the recently issued
accounting standards as previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015 that affect or may affect our financial
statements.
2. 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 period. 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 restricted stock units (RSUs). A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data):
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2016
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2015
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2016
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2015
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Numerator:
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Net earnings
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$
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21,635
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$
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20,825
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$
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63,590
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$
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57,275
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Denominator:
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Weighted average shares used to compute basic EPS
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35,474
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37,095
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36,310
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38,279
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Dilutive potential common shares due to dilutive RSUs, net of tax effect
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316
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256
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286
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278
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Weighted average shares used to compute diluted EPS
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35,790
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37,351
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36,596
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38,557
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Net earnings per share:
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Basic
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$
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0.61
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$
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0.56
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$
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1.75
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$
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1.50
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Diluted
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$
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0.60
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$
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0.56
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$
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1.74
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$
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1.49
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For the three and nine months ended September 30, 2016, 5,000 and 48,000, 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. There were 2,000 and 1,000 anti-dilutive RSUs for the three and nine months ended
September 30, 2015, respectively.
6
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. Goodwill and Intangible Assets
In June 2016, we resolved the working capital contingency associated with the acquisition of BlueMetal. We recorded the adjustment of the
purchase price allocation as a reduction of goodwill in our North America operating segment upon the receipt of $507,000 in cash during the nine months ended September 30, 2016.
See Note 12 for a discussion of our acquisition of Ignia effective September 1, 2016, which included the acquisition of $4,716,000 of
identifiable intangible assets and approximately $7,248,000 of goodwill.
In September 2016, the customer relationship intangible assets
associated with the 2006 acquisition of Software Spectrum Inc. and the 2008 acquisition of MINX Limited in the United Kingdom were fully amortized. As such, the gross intangible assets balance and the accumulated amortization balance were both
reduced by approximately $81,817,000, having no effect on the net intangible assets balance reported in the accompanying consolidated balance sheet as of September 30, 2016.
4. Debt, Inventory Financing Facility, Capital Leases and Other Financing Obligations
Debt
Our long-term debt consists of the
following (in thousands):
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September 30,
2016
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December 31,
2015
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Senior revolving credit facility
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$
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28,500
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$
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Accounts receivable securitization financing facility
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214,000
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89,000
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Capital leases and other financing obligations
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1,405
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1,535
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Total
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243,905
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90,535
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Less: current portion of capital leases and other financing obligations
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(533
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)
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(1,535
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)
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Less: current portion of revolving credit facilities
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Long-term debt
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$
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243,372
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$
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89,000
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On June 23, 2016, we entered into amendments to our senior revolving credit facility (revolving
facility) and our accounts receivable securitization financing facility (ABS facility).
Although the maximum borrowing
capacity remained at an aggregate U.S. dollar equivalent amount of $350,000,000, our revolving facility was amended to increase the portion of the maximum borrowing capacity that may be used for borrowing in certain foreign currencies from
$25,000,000 to $50,000,000. From time to time and at our option, we may request to increase the aggregate amount available for borrowing under the revolving facility by up to an aggregate of the U.S. dollar equivalent of $175,000,000, subject to
customary conditions. The revolving facility is guaranteed by the Companys material domestic subsidiaries and is secured by a lien on substantially all of the Companys and each guarantors assets. The interest rates applicable to
borrowings under the revolving facility are based on the leverage ratio of the Company as set forth on a pricing grid in the amended agreement. Amounts outstanding under the amended revolving facility bear interest, payable quarterly, at a floating
rate equal to the prime rate plus a predetermined spread of 0.00% to 0.75% or, at our option, a LIBOR rate plus a pre-determined spread of 1.25% to 2.25%. The floating interest rate applicable at September 30, 2016 was 1.71% per annum. In
addition, we pay a quarterly commitment fee on the unused portion of the facility of 0.25% to 0.45%, and our letter of credit participation fee ranges from 1.25% to 2.25%. The amended revolving facility matures on June 23, 2021.
7
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Our ABS facility was amended to increase the aggregate borrowing availability from
$200,000,000 to $250,000,000, to renew the borrowing program under the ABS facility for a three-year term expiring June 23, 2019, and to modify interest rates and fees for used and unused capacity under the facility. Under the amended ABS
facility, interest is payable monthly, and the floating interest rate applicable at September 30, 2016 was 1.52% per annum, including a 0.85% usage fee on any outstanding balances. In addition, we pay a monthly commitment fee on the unused
portion of the facility of 0.375%. While the ABS facility has a stated maximum amount, the actual availability under the ABS facility is limited by the quantity and quality of the underlying accounts receivable. As of September 30, 2016,
qualified receivables were sufficient to permit access to the full $250,000,000 facility amount, of which $214,000,000 was outstanding.
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under our revolving facility and our ABS facility is
limited by certain financial covenants, particularly a maximum leverage ratio. The maximum leverage ratio is calculated as aggregate debt outstanding divided by the sum of our trailing twelve month net earnings (loss) plus (i) interest expense,
excluding non-cash imputed interest on our inventory financing facility, (ii) income tax expense (benefit), (iii) depreciation and amortization, (iv) non-cash stock-based compensation, (v) extraordinary or non-recurring non-cash
losses or expenses and (vi) certain cash restructuring charges, not to exceed a specified cap (adjusted earnings). The maximum leverage ratio permitted under the facilities was increased from 2.75 times to 3.00 times our trailing
twelve-month adjusted earnings in conjunction with the amendments to the facilities. A significant drop in our adjusted earnings would limit the amount of indebtedness that could be outstanding at the end of any fiscal quarter to a level that would
be below our consolidated maximum facility amount. Based on our maximum leverage ratio as of September 30, 2016, our aggregate debt balance that could have been outstanding under our revolving facility and our ABS facility was reduced from the
maximum borrowing capacity of $600,000,000 to $569,002,000, of which $242,500,000 was outstanding at September 30, 2016.
Inventory Financing
Facility
On June 23, 2016, our inventory financing facility was also amended to increase our maximum borrowing capacity from
$250,000,000 to $325,000,000, of which $135,783,000 was outstanding at September 30, 2016, and to extend the maturity date of the facility to June 23, 2021. From time to time and at our option, we may request to increase the aggregate
amount available under the inventory financing facility by up to an aggregate of $25,000,000, subject to customary conditions. Amounts outstanding under this facility are classified separately as accounts payable - inventory financing facility in
the accompanying consolidated balance sheets. Interest does not accrue on advances paid within vendor terms. The inventory financing facility is guaranteed by the Company and each of its material domestic subsidiaries, and is secured by a lien on
substantially all of the Companys and each guarantors assets.
Capital Lease and Other Financing Obligations
In March 2016, we entered into a new capitalized lease with a 36-month term for certain IT equipment. The obligation under the capitalized
lease is included in long-term debt in our consolidated balance sheet as of September 30, 2016. The current and long-term portions of the obligation are included in the table above. The capital lease was a non-cash transaction and, accordingly,
has been excluded from our consolidated statement of cash flows for the nine months ended September 30, 2016.
Amounts owed under
other financing agreements were paid in installments through August 2016 under their original terms. No amounts remain outstanding under other financing obligations as of September 30, 2016.
8
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. Severance and Restructuring Activities
During the three and nine months ended September 30, 2016, we recorded severance expense associated with the realignment of certain roles
and responsibilities, primarily cost reduction initiatives across our U.S. business.
The following table details the activity related to
these resource actions for the nine months ended September 30, 2016 and the outstanding obligations as of September 30, 2016 (in thousands):
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North America
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EMEA
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APAC
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Consolidated
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Balances at December 31, 2015
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$
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505
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$
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2,983
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$
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$
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3,488
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Severance costs, net of adjustments
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2,451
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487
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115
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3,053
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Cash payments
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(2,100
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)
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(2,749
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)
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(105
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)
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(4,954
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)
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Foreign currency translation adjustments
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30
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1
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31
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Balances at September 30, 2016
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$
|
856
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$
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751
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$
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11
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$
|
1,618
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Adjustments were recorded as a reduction to severance and restructuring expense in North America and EMEA of
$338,000 and $344,000, respectively, in the nine months ended September 30, 2016, due to changes in estimates upon cash settlement of the related obligations.
The remaining outstanding obligations are expected to be paid during the next 12 months and, therefore, are included in accrued expenses and
other current liabilities in the accompanying consolidated balance sheets.
6. Stock-Based Compensation
We recorded the following pre-tax amounts in selling and administrative expenses for stock-based compensation, by operating segment, in the
accompanying consolidated financial statements (in thousands):
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2016
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|
2015
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2016
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2015
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|
North America
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$
|
2,220
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$
|
1,513
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|
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$
|
6,108
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|
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$
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4,968
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EMEA
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|
|
681
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|
|
|
449
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|
|
|
1,858
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|
|
|
1,435
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APAC
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|
|
124
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|
|
|
96
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|
|
|
342
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|
|
|
282
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|
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Total Consolidated
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$
|
3,025
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|
|
$
|
2,058
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|
|
$
|
8,308
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|
|
$
|
6,685
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|
|
|
|
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|
|
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|
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|
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|
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As of September 30, 2016, total compensation cost related to nonvested RSUs not yet recognized is
$19,039,000, which is expected to be recognized over the next 1.31 years on a weighted-average basis.
9
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following table summarizes our RSU activity during the nine months ended
September 30, 2016:
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Number
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Weighted Average
Grant Date Fair Value
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Fair Value
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Nonvested at January 1, 2016
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951,784
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|
$
|
24.35
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|
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Granted
(a)
|
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|
496,414
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|
|
|
25.88
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|
|
|
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Vested, including shares withheld to cover taxes
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|
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(345,506
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)
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|
|
23.57
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$
|
8,902,964
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(b)
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Forfeited
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(49,058
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)
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25.35
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Nonvested at September 30,
2016
(a)
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1,053,634
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25.28
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$
|
34,295,787
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(c)
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Expected to vest
|
|
|
961,071
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|
|
|
|
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$
|
31,282,861
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(c)
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(a)
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Includes 130,276 RSUs subject to remaining performance conditions. The number of RSUs subject to performance conditions are based on the Company achieving 100% of its 2016 targeted financial results. The number of RSUs
ultimately awarded under the performance-based RSUs varies based on actual achieved financial results for 2016.
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(b)
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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.
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(c)
|
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 $32.55 as of
September 30, 2016, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date.
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7. Gain on Assets Held for Sale
In May
2016, we sold real estate that we owned in Bloomingdale, Illinois that was previously classified as a held for sale asset and included in other current assets in the accompanying consolidated balance sheet as of December 31, 2015. In previous
years, we recorded non-cash charges to reduce the carrying amount of the related assets to their estimated fair value less costs to sell. During the second quarter of 2016, we recorded a gain on sale of approximately $338,000, which is included in
selling and administrative expenses in the accompanying consolidated statement of operations for the nine months ended September 30, 2016.
10
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
8. Income Taxes
Our effective tax rate for the three and nine months ended September 30, 2016 was 35.0% and 36.8%, respectively. For the three months
ended September 30, 2016, our effective tax rate was equal to the United States federal statutory rate of 35.0%. The decrease in rates resulting from the recognition of certain tax benefits related to the release of reserves for specific
uncertain tax positions during the quarter and to lower taxes on earnings in foreign jurisdictions fully offset the increase in rates caused by state income taxes, net of federal benefit. For the nine months ended September 30, 2016, our
effective tax rate was higher than the United States federal statutory rate of 35.0% due primarily to state income taxes, net of federal benefit, and losses in certain foreign jurisdictions, resulting in an increase in the valuation allowance for
deferred tax assets related to these foreign operating losses. Additionally, the effect of lower taxes on earnings in foreign jurisdictions was offset partially by losses in certain foreign jurisdictions, resulting in an increase in the valuation
allowance for deferred tax assets related to these foreign operating losses.
Our effective tax rate for the three and nine months ended
September 30, 2015 was 35.0% and 37.1%, respectively. For the nine months ended September 30, 2015, our effective tax rate was higher than the United States federal statutory rate of 35.0% due primarily to state income taxes, net of
federal benefit. Additionally, the effect of lower taxes on earnings in foreign jurisdictions was offset partially by higher losses in certain foreign jurisdictions in the 2015 periods, resulting in an increase in the valuation allowance for
deferred tax assets related to these foreign operating losses.
As of September 30, 2016 and December 31, 2015, we had
approximately $2,614,000 and $3,335,000, respectively, of unrecognized tax benefits. Of these amounts, approximately $252,000 and $296,000, respectively, related to accrued interest.
Several of our subsidiaries are currently under audit for tax years 2006 through 2014. 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.
9. Share Repurchase Programs
In February 2016, our Board of Directors authorized the repurchase of up to $50,000,000 of our common stock. During the nine months ended
September 30, 2016, we purchased 1,891,564 shares of our common stock on the open market at a total cost of approximately $50,000,000 (an average price of $26.43 per share). All shares repurchased were retired.
During the comparative nine months ended September 30, 2015, under previously authorized share repurchase programs, we purchased
3,300,210 shares of our common stock at a total cost of approximately $91,843,000 (an average price of $27.83 per share). All shares repurchased were retired.
10. Commitments and Contingencies
Contractual
In the ordinary course of business, we issue performance bonds to secure our performance under certain contracts or state tax
requirements. As of September 30, 2016, we had approximately $2,198,000 of performance bonds outstanding. These bonds are issued on our behalf by a surety company on an unsecured basis; however, if the surety company is ever required to pay out
under the bonds, we have contractually agreed to reimburse the surety company.
11
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Management believes that payments, if any, related to these performance bonds are not
probable at September 30, 2016. 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 severance 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 September 30, 2016. Accordingly, we have not accrued any liabilities related to such indemnifications in our 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
individuals 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
Companys 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 the consolidated financial statements. Such estimates are subject to change and
may affect our results of operations and our cash flows.
12
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Legal Proceedings
From time to time, we are party to various legal proceedings arising in the ordinary course of business, including preference payment claims
asserted in client bankruptcy proceedings, indemnification claims, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, claims of alleged non-compliance with contract provisions and claims related
to alleged violations of laws and regulations. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may
have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made for disclosure. Although
litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be
materially and adversely affected in any particular period by the resolution of a legal proceeding. Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
The Company is not involved in any pending or threatened legal proceedings that it believes would reasonably be expected to have a material
adverse effect on its business, financial condition or results of operations.
11. Segment Information
We operate in three reportable geographic operating segments: North America; EMEA; and APAC. Our offerings in North America and select
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 select software-related services. Net sales by offering for North America, EMEA and APAC
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
|
Three Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
Sales Mix
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Hardware
|
|
$
|
651,277
|
|
|
$
|
641,245
|
|
|
$
|
128,214
|
|
|
$
|
134,690
|
|
|
$
|
4,638
|
|
|
$
|
3,502
|
|
Software
|
|
|
323,436
|
|
|
|
312,989
|
|
|
|
174,180
|
|
|
|
150,109
|
|
|
|
22,182
|
|
|
|
21,315
|
|
Services
|
|
|
76,620
|
|
|
|
68,198
|
|
|
|
9,338
|
|
|
|
8,836
|
|
|
|
2,831
|
|
|
|
1,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,051,333
|
|
|
$
|
1,022,432
|
|
|
$
|
311,732
|
|
|
$
|
293,635
|
|
|
$
|
29,651
|
|
|
$
|
26,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Sales Mix
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Hardware
|
|
$
|
1,801,941
|
|
|
$
|
1,734,060
|
|
|
$
|
359,597
|
|
|
$
|
402,084
|
|
|
$
|
13,728
|
|
|
$
|
9,079
|
|
Software
|
|
|
898,193
|
|
|
|
897,673
|
|
|
|
586,332
|
|
|
|
598,624
|
|
|
|
106,435
|
|
|
|
119,493
|
|
Services
|
|
|
214,341
|
|
|
|
192,058
|
|
|
|
30,871
|
|
|
|
28,395
|
|
|
|
6,494
|
|
|
|
4,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,914,475
|
|
|
$
|
2,823,791
|
|
|
$
|
976,800
|
|
|
$
|
1,029,103
|
|
|
$
|
126,657
|
|
|
$
|
133,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 for the three or
nine months ended September 30, 2016 or 2015.
A portion of our operating segments selling and administrative expenses arise
from shared services and infrastructure that we have historically provided to them in order to realize economies of scale and to use resources efficiently. These expenses, collectively identified as corporate charges, include senior management
expenses, internal audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses. Charges are allocated to our operating segments, and the allocations have been determined on a basis that we considered to be a
reasonable reflection of the utilization of services provided to or benefits received by the operating segments.
13
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following tables present our results of operations by reportable operating segment for
the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
1,051,333
|
|
|
$
|
311,732
|
|
|
$
|
29,651
|
|
|
$
|
1,392,716
|
|
Costs of goods sold
|
|
|
914,515
|
|
|
|
273,424
|
|
|
|
22,969
|
|
|
|
1,210,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
136,818
|
|
|
|
38,308
|
|
|
|
6,682
|
|
|
|
181,808
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
100,420
|
|
|
|
37,893
|
|
|
|
6,300
|
|
|
|
144,613
|
|
Severance and restructuring expenses
|
|
|
643
|
|
|
|
145
|
|
|
|
|
|
|
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
35,755
|
|
|
$
|
270
|
|
|
$
|
382
|
|
|
$
|
36,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
1,022,432
|
|
|
$
|
293,635
|
|
|
$
|
26,128
|
|
|
$
|
1,342,195
|
|
Costs of goods sold
|
|
|
886,434
|
|
|
|
252,686
|
|
|
|
20,824
|
|
|
|
1,159,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
135,998
|
|
|
|
40,949
|
|
|
|
5,304
|
|
|
|
182,251
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
103,793
|
|
|
|
39,721
|
|
|
|
5,282
|
|
|
|
148,796
|
|
Severance and restructuring expenses
|
|
|
618
|
|
|
|
199
|
|
|
|
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
31,587
|
|
|
$
|
1,029
|
|
|
$
|
22
|
|
|
$
|
32,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
2,914,475
|
|
|
$
|
976,800
|
|
|
$
|
126,657
|
|
|
$
|
4,017,932
|
|
Costs of goods sold
|
|
|
2,522,546
|
|
|
|
839,990
|
|
|
|
103,263
|
|
|
|
3,465,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
391,929
|
|
|
|
136,810
|
|
|
|
23,394
|
|
|
|
552,133
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
301,722
|
|
|
|
121,663
|
|
|
|
17,533
|
|
|
|
440,918
|
|
Severance and restructuring expenses
|
|
|
2,451
|
|
|
|
487
|
|
|
|
115
|
|
|
|
3,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
87,756
|
|
|
$
|
14,660
|
|
|
$
|
5,746
|
|
|
$
|
108,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
2,823,791
|
|
|
$
|
1,029,103
|
|
|
$
|
133,011
|
|
|
$
|
3,985,905
|
|
Costs of goods sold
|
|
|
2,448,061
|
|
|
|
890,528
|
|
|
|
111,837
|
|
|
|
3,450,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
375,730
|
|
|
|
138,575
|
|
|
|
21,174
|
|
|
|
535,479
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
295,228
|
|
|
|
125,232
|
|
|
|
17,136
|
|
|
|
437,596
|
|
Severance and restructuring expenses
|
|
|
873
|
|
|
|
1,039
|
|
|
|
|
|
|
|
1,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
79,629
|
|
|
$
|
12,304
|
|
|
$
|
4,038
|
|
|
$
|
95,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The following is a summary of our total assets by reportable operating segment (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
North America
|
|
$
|
2,041,614
|
|
|
$
|
1,999,485
|
|
EMEA
|
|
|
412,456
|
|
|
|
543,146
|
|
APAC
|
|
|
101,648
|
|
|
|
114,973
|
|
Corporate assets and intercompany eliminations, net
|
|
|
(638,915
|
)
|
|
|
(643,587
|
)
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,916,803
|
|
|
$
|
2,014,017
|
|
|
|
|
|
|
|
|
|
|
We recorded the following pre-tax amounts, by reportable operating segment, for depreciation and amortization
in the accompanying consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
North America
|
|
$
|
7,523
|
|
|
$
|
7,555
|
|
|
$
|
23,698
|
|
|
$
|
22,743
|
|
EMEA
|
|
|
1,827
|
|
|
|
1,651
|
|
|
|
5,679
|
|
|
|
5,018
|
|
APAC
|
|
|
285
|
|
|
|
219
|
|
|
|
720
|
|
|
|
665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,635
|
|
|
$
|
9,425
|
|
|
$
|
30,097
|
|
|
$
|
28,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Acquisition
Effective September 1, 2016, we acquired Ignia, a business technology consulting and managed services provider headquartered in Perth,
Australia, with an additional office in Melbourne, for a cash purchase price, net of cash acquired, of approximately $10,804,000, subject to a final working capital adjustment. We believe that this acquisition expands our global footprint in the
areas of application design, digital solutions, Cloud, mobility and business analytics, while also building on our unique position to bring solutions powered by Intelligent Technology to our clients in the Asia-Pacific region.
The total fair value of net identifiable assets acquired was approximately $5,324,000, including $1,463,000 of cash acquired and $4,716,000 of
identifiable intangible assets, consisting primarily of customer relationships and restrictive covenant agreements which are being amortized using the straight-line method over their estimated economic lives of eight years and 33 months,
respectively. The preliminary purchase price was allocated using the information currently available. Further information obtained upon the finalization of the fair value assumptions for identifiable intangible assets acquired and the evaluation of
uncertain tax positions could lead to an adjustment of the purchase price allocation. Goodwill acquired approximated $7,248,000, which was recorded in our APAC operating segment. None of the goodwill is tax deductible.
We consolidated the results of operations for Ignia within our APAC operating segment beginning on the September 1, 2016 effective date
of the acquisition. Our historical results would not have been materially affected by the acquisition of Ignia and, accordingly, we have not presented pro forma information as if the acquisition had been completed at the beginning of each period
presented in our statements of operations.
15
INSIGHT ENTERPRISES, INC.