NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
and Recently Issued Accounting Standards
We are a Fortune 500 global IT provider helping businesses of all sizes from small and
medium sized firms to worldwide enterprises, governments, schools and health care organizations define, architect, implement and manage Intelligent Technology Solutions
TM
. We empower our
clients to manage their IT environments so they can drive meaningful business outcomes today and transform their operations for tomorrow. Our company is organized in the following three operating segments, which are primarily defined by their
related geographies:
|
|
|
Operating Segment
|
|
Geography
|
North America
|
|
United States and Canada
|
EMEA
|
|
Europe, Middle East and Africa
|
APAC
|
|
Asia-Pacific
|
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, 2017, our results of operations for the three and nine months ended
September 30, 2017 and 2016 and our cash flows for the nine months ended September 30, 2017 and 2016. The consolidated balance sheet as of December 31, 2016 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, 2016. Our results of operations include the results of Caase Group B.V. (doing business as, and
referred to herein as, Caase.com) from its acquisition date of September 26, 2017, Datalink Corporation (Datalink) from its acquisition date of January 6, 2017 and Ignia, Pty Ltd (Ignia) from its
acquisition date of September 1, 2016. See Note 10 for further discussion of our acquisitions of Caase.com and Datalink.
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.
5
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Recently Issued Accounting Standards
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-09,
Improvements to Employee Share-Based Payment Accounting. This new standard simplifies the accounting for share-based payment transactions, including the income tax consequences, the
calculation of diluted earnings per share, the treatment of forfeitures, the classification of awards as either equity or liabilities and the classification on the statement of cash flows. This new standard increases volatility in the statement of
operations by requiring all excess tax benefits and deficiencies to be recognized as income tax benefit or expense in the statement of operations and treated as discrete items in the period in which they occur. We adopted the new standard as of
January 1, 2017, and prospectively applied the provisions in this guidance requiring recognition of excess tax benefits and deficits in the statement of operations, which resulted in an income tax benefit of $69,000 and $2,258,000 for the three
and nine months ended September 30, 2017, respectively. The corresponding increase in net earnings had no effect on diluted earnings per share during the three months ended September 30, 2017 and equated to $0.06 per diluted share during
the nine months ended September 30, 2017. Also, as a result of the adoption of the new standard, we made an accounting policy election to recognize forfeitures as they occur and no longer estimate expected forfeitures. The provisions in this
guidance requiring the use of a modified retrospective transition method would have required us to record a cumulative effect adjustment in retained earnings as of January 1, 2017. We elected not to adjust retained earnings and to record such
cumulative effect adjustment as stock-based compensation in the first quarter of 2017 on the basis of immateriality. Lastly, we applied the provisions of this guidance relating to classification on the statement of cash flows retrospectively. As a
result, excess tax benefits from employee gains on stock-based compensation of $293,000 were reclassified from cash flows from financing activities to cash flows from operating activities for the nine months ended September 30, 2016 to conform
to the current period presentation.
In July 2015, the FASB issued ASU
No. 2015-11,
Simplifying the Measurement of Inventory. This standard changes the measurement from lower of cost or market to lower of cost and net realizable value. We adopted the standard in the first quarter of 2017 and applied the provisions
prospectively. The standard did not have a material effect on our consolidated financial statements.
On May 28, 2014, the FASB
issued ASU
No. 2014-09,
Revenue from Contracts with Customers, which amends the existing accounting standards for revenue recognition. The core principle of the guidance is that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard, as amended,
will be effective for the Company beginning in the first quarter of 2018. The standard permits two methods of adoption: retrospectively to each prior reporting period presented (the full retrospective transition method) or retrospectively with the
cumulative effect adjustment of initially applying the new standard recognized at the date of initial application (the modified retrospective transition method).
We will adopt the standard on January 1, 2018, and expect to utilize the modified retrospective transition method. While we are still
finalizing our accounting policies under the new standard and are in the process of quantifying the cumulative effect adjustment from prior periods that will be recognized in our consolidated balance sheet as of the date of adoption as an adjustment
to retained earnings, to date we have concluded:
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|
|
The accounting for inventories not available for sale related to certain product net sales transactions in which
we are warehousing the product and will be deploying the product to our clients designated locations subsequent to
period-end
will change such that a portion of revenue under the contracts is generally
expected to be recognized at an earlier point in
|
6
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
time than we are recognizing under current accounting standards. The effect of the change on our financial results will be dependent on the amount of such transactions existing at the end of a
given quarter.
|
|
|
|
The accounting for renewals of certain software term licenses will change to delay revenue recognition until the beginning of the renewal period.
|
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|
|
In sales transactions for certain security software products that are sold with accompanying third-party delivered software maintenance, we believe the updates provided by the publisher are not separately identifiable
from the software. We will change to record both the software license and the accompanying software maintenance on a net basis, as the agent in the arrangement. Under current guidance, we bifurcate the sale of the software license from the sale of
the maintenance contract, record the sale of the software product on a gross basis, as the principal in the arrangement, and record the sale of the software maintenance on a net basis, as an agent in the arrangement.
|
|
|
|
Sales commissions on contracts with performance periods that exceed one year will be recorded as an asset and amortized to expense over the related contract performance period as opposed to being expensed in the period
the transaction is generated.
|
Our analysis and evaluation of the new standard will continue through its effective date in
the first quarter of 2018. A substantial amount of work has been completed, and findings and progress to date have been reported to management and the Audit Committee. Although we do not currently expect the changes resulting from the adoption of
the new standard to materially affect our results of operations, our conclusions are still being finalized.
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, 2016 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).
7
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
A reconciliation of the denominators of the basic and diluted EPS calculations follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
22,412
|
|
|
$
|
21,635
|
|
|
$
|
76,515
|
|
|
$
|
63,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic EPS
|
|
|
35,787
|
|
|
|
35,474
|
|
|
|
35,718
|
|
|
|
36,310
|
|
Dilutive potential common shares due to dilutive RSUs, net of tax effect
|
|
|
416
|
|
|
|
316
|
|
|
|
468
|
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute diluted EPS
|
|
|
36,203
|
|
|
|
35,790
|
|
|
|
36,186
|
|
|
|
36,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
$
|
0.63
|
|
|
$
|
0.61
|
|
|
$
|
2.14
|
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted
|
|
$
|
0.62
|
|
|
$
|
0.60
|
|
|
$
|
2.11
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended September 30, 2017, 36,000 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 5,000 and 48,000 anti-dilutive RSUs for the three and nine months ended
September 30, 2016, respectively.
3. 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,
2017
|
|
|
December 31,
2016
|
|
Senior revolving credit facility
|
|
$
|
216,000
|
|
|
$
|
|
|
Term Loan A (less unamortized debt issuance costs of $936)
|
|
|
167,502
|
|
|
|
|
|
Accounts receivable securitization financing facility
|
|
|
160,000
|
|
|
|
39,500
|
|
Capital leases and other financing obligations
|
|
|
6,227
|
|
|
|
1,231
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
549,729
|
|
|
|
40,731
|
|
Less: current portion of long-term debt
|
|
|
(15,344
|
)
|
|
|
(480
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
534,385
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|
|
$
|
40,251
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|
|
|
|
|
|
|
|
|
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Our senior revolving credit facility (revolving facility) has an aggregate U.S. dollar equivalent
maximum borrowing amount of $350,000,000, including a maximum borrowing capacity that may be used for borrowing in certain foreign currencies of $50,000,000, and matures on June 23, 2021. On January 6, 2017, we amended our revolving
facility to expand the facility by $175,000,000 in the form of an incremental Term Loan A (TLA). Pricing and all other general terms and conditions of the TLA are governed by the existing revolving facility. The TLA requires amortization
payments of 5%, 7.5%, 10%, 12.5% and 15% of the original principal balance in years one through five, respectively, to be paid quarterly through March 31, 2021, with the remaining balance of $107,187,500 due at maturity on June 23, 2021.
The revolving facility and TLA are guaranteed by the Companys material domestic subsidiaries and are secured by a lien on substantially all of the Companys and each guarantors assets. The interest rates applicable to borrowings
under the revolving facility and the TLA are based on the leverage ratio of the Company as set forth on a pricing grid in the amended agreement. Amounts outstanding under the revolving
8
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
facility and TLA bear interest, payable quarterly, at a floating rate equal to the prime rate plus a predetermined spread of 0.00% to 0.75% or, at our option, a LIBOR rate plus a
pre-determined
spread of 1.25% to 2.25%. The floating interest rate applicable at September 30, 2017 was 2.70% per annum for the revolving facility and 2.74% per annum for the TLA. In addition, we pay a
quarterly commitment fee on the unused portion of the revolving facility of 0.25% to 0.45%, and our letter of credit participation fee ranges from 1.25% to 2.25%. As of September 30, 2017, we had $216,000,000 outstanding under our revolving
facility and approximately $168,438,000 outstanding under the TLA.
Our accounts receivable securitization financing facility (the
ABS facility) has a maximum aggregate borrowing availability of $250,000,000, and matures on June 23, 2019. Interest is payable monthly, and the floating interest rate applicable at September 30, 2017 was 2.14% 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, 2017, qualified receivables were sufficient to permit access to the full $250,000,000 facility amount, of which $160,000,000 was outstanding.
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under our revolving facility, our TLA and our ABS
facility is limited by certain financial covenants, particularly a maximum leverage ratio. The maximum leverage ratio is calculated as aggregate debt outstanding divided by the sum of our trailing twelve month net earnings (loss) plus
(i) interest expense, excluding
non-cash
imputed interest on our inventory financing facility, (ii) income tax expense (benefit), (iii) depreciation and amortization,
(iv) non-cash
stock-based compensation, (v) extraordinary or
non-recurring
non-cash
losses or expenses and
(vi) certain cash restructuring and acquisition-related charges and synergies, not to exceed a specified cap (adjusted earnings). The maximum leverage ratio permitted under the facilities was increased to 3.50 times our trailing
twelve-month adjusted earnings in conjunction with the acquisition of Datalink effective January 6, 2017. A significant drop in our adjusted earnings would limit the amount of indebtedness that could be outstanding at the end of any fiscal
quarter to a level that would be below our consolidated maximum facility amount. Based on our maximum leverage ratio as of September 30, 2017, our aggregate debt balance that could have been outstanding under our revolving facility and our ABS
facility was the full amount of the maximum borrowing capacity of $768,438,000, of which $216,000,000 was outstanding under our revolving facility, $168,438,000 was outstanding under our TLA and $160,000,000 was outstanding under our ABS facility at
September 30, 2017.
Inventory Financing Facility
Our inventory financing facility has a maximum borrowing capacity of $325,000,000, of which $224,072,000 was outstanding at September 30,
2017, and matures on June 23, 2021. If balances are not paid within stated vendor terms, they will accrue interest at prime plus 1.25%. 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.
9
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Capital Lease and Other Financing Obligations
In March 2016 and May 2017, we entered into capitalized leases with
36-month
terms for certain IT
equipment. Additionally, in August 2017, we entered into two
12-month
capital leases for certain IT equipment. The capital leases were
non-cash
transactions and,
accordingly, have been excluded from our consolidated statement of cash flows for the nine months ended September 30, 2017 and 2016. Our capital lease obligations totaled $3,277,000 and $1,231,000 as of September 30, 2017 and
December 31, 2016, respectively.
In conjunction with our acquisition of Datalink effective January 6, 2017, we acquired certain
obligations associated with Datalinks financing of the equipment that it leased to its clients. These financing obligations totaled $2,950,000 as of September 30, 2017.
The current and long-term portions of our capital lease and other financing obligations are included in the current and long-term portions of
long-term debt in the table above and in our consolidated balance sheet as of September 30, 2017.
4. Severance and Restructuring Activities
During the three and nine months ended September 30, 2017, we recorded severance expense in each of our operating segments. The
North America charges for the nine months ended September 30, 2017 primarily related to severance actions taken to realign roles and responsibilities subsequent to the acquisition of Datalink. The EMEA charges for the nine months ended
September 30, 2017 primarily related to headcount reductions in France, Germany and the Netherlands as part of our cost reduction and restructuring initiatives. The APAC charges for the nine months ended September 30, 2017 primarily
related to severance actions taken subsequent to the acquisition of Ignia.
The following table details the activity related to these
resource actions for the nine months ended September 30, 2017 and the outstanding obligations as of September 30, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Balances at December 31, 2016
|
|
$
|
947
|
|
|
$
|
1,217
|
|
|
$
|
|
|
|
$
|
2,164
|
|
Severance costs, net of adjustments
|
|
|
2,045
|
|
|
|
4,062
|
|
|
|
104
|
|
|
|
6,211
|
|
Cash payments
|
|
|
(2,277
|
)
|
|
|
(2,716
|
)
|
|
|
(89
|
)
|
|
|
(5,082
|
)
|
Foreign currency translation adjustments
|
|
|
14
|
|
|
|
435
|
|
|
|
|
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2017
|
|
$
|
729
|
|
|
$
|
2,998
|
|
|
$
|
15
|
|
|
$
|
3,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
10
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. 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,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
North America
|
|
$
|
2,589
|
|
|
$
|
2,220
|
|
|
$
|
7,716
|
|
|
$
|
6,108
|
|
EMEA
|
|
|
694
|
|
|
|
681
|
|
|
|
2,130
|
|
|
|
1,858
|
|
APAC
|
|
|
102
|
|
|
|
124
|
|
|
|
288
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
3,385
|
|
|
$
|
3,025
|
|
|
$
|
10,134
|
|
|
$
|
8,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017, total compensation cost related to nonvested RSUs not yet recognized is
$20,543,000, which is expected to be recognized over the next 1.29 years on a weighted-average basis.
The following table summarizes our
RSU activity during the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted Average
Grant Date Fair Value
|
|
|
Fair Value
|
|
Nonvested at January 1, 2017
|
|
|
1,067,557
|
|
|
$
|
25.37
|
|
|
|
|
|
Granted(a)
|
|
|
331,250
|
|
|
|
44.29
|
|
|
|
|
|
Vested, including shares withheld to
cover taxes
|
|
|
(413,807
|
)
|
|
|
24.69
|
|
|
$
|
18,258,878
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(58,900
|
)
|
|
|
30.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2017(a)
|
|
|
926,100
|
|
|
|
32.13
|
|
|
$
|
42,526,512
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes 79,118 RSUs subject to remaining performance conditions. The number of RSUs subject to performance conditions are based on the Company achieving 100% of its 2017 targeted financial results. The number of RSUs
ultimately awarded under the performance-based RSUs varies based on actual achieved financial results for 2017.
|
(b)
|
The aggregate fair value of vested RSUs represents the total
pre-tax
fair value, based on the closing stock price on the day of vesting, which would have been received by holders
of RSUs had all such holders sold their underlying shares on that date.
|
(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 $45.92 as of September 29, 2017 (the last trading day of the quarter), which would have been received by holders of RSUs had all such holders sold their underlying shares on that date.
|
6. Income Taxes
Our effective tax rate
for the three and nine months ended September 30, 2017 was 36.8% and 35.6%, respectively. For the three months ended September 30, 2017, 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 the disallowance of the loss on the sale of a foreign entity. 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. For the nine months ended September 30, 2017, our effective tax rate approximated the United States federal
statutory rate of 35.0% due primarily to increases in the rate caused by state income taxes, net of federal benefit, and the disallowance of the loss on the sale of a foreign entity offset by decreases in the rate caused by the recognition of
$2,258,000 of tax benefits on the settlement of employee share-based awards during the first nine months of 2017 in accordance with a new accounting standard,
11
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
which was adopted effective January 1, 2017. See Note 1 for additional information relating to this new accounting standard. 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, 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 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.
As of September 30, 2017 and December 31, 2016, we had approximately
$3,877,000 and $2,246,000, respectively, of unrecognized tax benefits. Of these amounts, approximately $276,000 and $195,000, respectively, related to accrued interest. In the future, if recognized, the liability associated with uncertain tax
positions would affect our effective tax rate. We do not believe there will be any changes over the next 12 months that would have a material effect on our effective tax rate.
Several of our subsidiaries are currently under audit for tax years 2012 through 2015. Although the timing of the resolutions and/or closures
of audits is highly uncertain, it is reasonably possible that the examination phase of these audits may be concluded within the next 12 months, which could significantly increase or decrease the balance of our gross unrecognized tax benefits.
However, based on the status of the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible outcomes cannot be made at this time, but the estimated effect on our income tax expense and net earnings is not
expected to be significant.
7. Share Repurchase Programs
We did not repurchase shares of our common stock during the nine months ended September 30, 2017 and no share repurchase programs are
currently authorized by the Board of Directors. During the comparative nine months ended September 30, 2016, under previously authorized share repurchase programs, 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.
8. 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, 2017, we had approximately $2,704,000 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.
Management believes that payments, if any, related to these performance bonds are not probable at September 30, 2017. Accordingly, we
have not accrued any liabilities related to such performance bonds in our consolidated financial statements.
12
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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, 2017. 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.
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
13
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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.
9. 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
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Hardware
|
|
$
|
962,214
|
|
|
$
|
651,277
|
|
|
$
|
137,493
|
|
|
$
|
128,214
|
|
|
$
|
7,447
|
|
|
$
|
4,638
|
|
Software
|
|
|
342,601
|
|
|
|
323,436
|
|
|
|
163,260
|
|
|
|
174,180
|
|
|
|
20,153
|
|
|
|
22,182
|
|
Services
|
|
|
106,264
|
|
|
|
76,620
|
|
|
|
11,441
|
|
|
|
9,338
|
|
|
|
7,100
|
|
|
|
2,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,411,079
|
|
|
$
|
1,051,333
|
|
|
$
|
312,194
|
|
|
$
|
311,732
|
|
|
$
|
34,700
|
|
|
$
|
29,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Sales Mix
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Hardware
|
|
$
|
2,476,645
|
|
|
$
|
1,801,941
|
|
|
$
|
400,362
|
|
|
$
|
359,597
|
|
|
$
|
18,449
|
|
|
$
|
13,728
|
|
Software
|
|
|
1,012,725
|
|
|
|
898,193
|
|
|
|
552,800
|
|
|
|
586,332
|
|
|
|
91,430
|
|
|
|
106,435
|
|
Services
|
|
|
313,973
|
|
|
|
214,341
|
|
|
|
35,447
|
|
|
|
30,871
|
|
|
|
17,717
|
|
|
|
6,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,803,343
|
|
|
$
|
2,914,475
|
|
|
$
|
988,609
|
|
|
$
|
976,800
|
|
|
$
|
127,596
|
|
|
$
|
126,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017 or 2016.
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.
14
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, 2017
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
1,411,079
|
|
|
$
|
312,194
|
|
|
$
|
34,700
|
|
|
$
|
1,757,973
|
|
Costs of goods sold
|
|
|
1,235,058
|
|
|
|
270,576
|
|
|
|
26,258
|
|
|
|
1,531,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
176,021
|
|
|
|
41,618
|
|
|
|
8,442
|
|
|
|
226,081
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
132,853
|
|
|
|
39,948
|
|
|
|
7,589
|
|
|
|
180,390
|
|
Severance and restructuring expenses
|
|
|
398
|
|
|
|
53
|
|
|
|
43
|
|
|
|
494
|
|
Loss on sale of foreign entity
|
|
|
|
|
|
|
3,646
|
|
|
|
|
|
|
|
3,646
|
|
Acquisition-related expenses
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
$
|
42,770
|
|
|
$
|
(2,135
|
)
|
|
$
|
810
|
|
|
$
|
41,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
99,845
|
|
|
|
37,893
|
|
|
|
6,134
|
|
|
|
143,872
|
|
Severance and restructuring expenses
|
|
|
643
|
|
|
|
145
|
|
|
|
|
|
|
|
788
|
|
Acquisition-related expenses
|
|
|
575
|
|
|
|
|
|
|
|
166
|
|
|
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
35,755
|
|
|
$
|
270
|
|
|
$
|
382
|
|
|
$
|
36,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
North America
|
|
|
EMEA
|
|
|
APAC
|
|
|
Consolidated
|
|
Net sales
|
|
$
|
3,803,343
|
|
|
$
|
988,609
|
|
|
$
|
127,596
|
|
|
$
|
4,919,548
|
|
Costs of goods sold
|
|
|
3,286,235
|
|
|
|
848,712
|
|
|
|
98,914
|
|
|
|
4,233,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
517,108
|
|
|
|
139,897
|
|
|
|
28,682
|
|
|
|
685,687
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
395,423
|
|
|
|
121,863
|
|
|
|
21,488
|
|
|
|
538,774
|
|
Severance and restructuring expenses
|
|
|
2,045
|
|
|
|
4,062
|
|
|
|
104
|
|
|
|
6,211
|
|
Loss on sale of foreign entity
|
|
|
|
|
|
|
3,646
|
|
|
|
|
|
|
|
3,646
|
|
Acquisition-related expenses
|
|
|
3,223
|
|
|
|
106
|
|
|
|
|
|
|
|
3,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
116,417
|
|
|
$
|
10,220
|
|
|
$
|
7,090
|
|
|
$
|
133,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
301,147
|
|
|
|
121,663
|
|
|
|
17,367
|
|
|
|
440,177
|
|
Severance and restructuring expenses
|
|
|
2,451
|
|
|
|
487
|
|
|
|
115
|
|
|
|
3,053
|
|
Acquisition-related expenses
|
|
|
575
|
|
|
|
|
|
|
|
166
|
|
|
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
$
|
87,756
|
|
|
$
|
14,660
|
|
|
$
|
5,746
|
|
|
$
|
108,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
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,
2017
|
|
|
December 31,
2016
|
|
North America
|
|
$
|
2,291,321
|
|
|
$
|
2,204,351
|
|
EMEA
|
|
|
512,284
|
|
|
|
562,293
|
|
APAC
|
|
|
96,012
|
|
|
|
119,778
|
|
Corporate assets and intercompany eliminations, net
|
|
|
(320,325
|
)
|
|
|
(667,122
|
)
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,579,292
|
|
|
$
|
2,219,300
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Depreciation and amortization of property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
5,276
|
|
|
$
|
5,411
|
|
|
$
|
15,380
|
|
|
$
|
16,691
|
|
EMEA
|
|
|
1,287
|
|
|
|
1,300
|
|
|
|
3,662
|
|
|
|
3,753
|
|
APAC
|
|
|
138
|
|
|
|
111
|
|
|
|
388
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,701
|
|
|
|
6,822
|
|
|
|
19,430
|
|
|
|
20,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
4,012
|
|
|
|
2,112
|
|
|
|
12,036
|
|
|
|
7,007
|
|
EMEA
|
|
|
|
|
|
|
527
|
|
|
|
12
|
|
|
|
1,926
|
|
APAC
|
|
|
198
|
|
|
|
174
|
|
|
|
595
|
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,210
|
|
|
|
2,813
|
|
|
|
12,643
|
|
|
|
9,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,911
|
|
|
$
|
9,635
|
|
|
$
|
32,073
|
|
|
$
|
30,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Acquisitions
Caase.com
Effective September 26,
2017, we acquired Caase.com, a Dutch cloud service provider, for a purchase price, net of cash acquired, of approximately $6,038,000, subject to a final working capital adjustment. We believe that this acquisition strengthens our ability to deliver
Intelligent Technology Solutions
TM
to our clients in the Netherlands, with a view to expand into the wider European region in the near future.
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. Identified intangible assets and goodwill acquired approximated
$2,232,000 and $4,117,000, respectively, which were recorded in our EMEA operating segment. None of the goodwill is tax deductible.
We
consolidated the results of operations for Caase.com within our EMEA operating segment beginning on the September 26, 2017 effective date of the acquisition. Our historical results would not have been materially affected by the acquisition of
Caase.com and, accordingly, we have not presented pro forma information as if the acquisition had been completed at the beginning of each period presented in our statements of operations.
16
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Datalink
On January 6, 2017, we completed our acquisition of Datalink, a leading provider of IT services and enterprise data center solutions based
in Eden Prairie, Minnesota, for a cash purchase price of $257,456,000, which included cash and cash equivalents acquired of $76,597,000. We believe that this acquisition strengthened our position as a leading IT solutions provider with deep
technical talent delivering data center solutions to clients on premise or in the cloud.
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
|
|
|
|
|
|
$
|
257,456
|
|
Fair value of net assets acquired:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
238,577
|
|
|
|
|
|
Identifiable intangible assets see description below
|
|
|
94,500
|
|
|
|
|
|
Property and equipment
|
|
|
5,843
|
|
|
|
|
|
Other assets
|
|
|
17,888
|
|
|
|
|
|
Current liabilities
|
|
|
(129,071
|
)
|
|
|
|
|
Long-term liabilities, including deferred taxes
|
|
|
(34,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of net assets acquired
|
|
|
|
|
|
|
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 Datalinks
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 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.
17
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The identifiable intangibles resulting from the acquisition are amortized using the
straight-line method over the following estimated useful lives:
|
|
|
Intangible Assets
|
|
Estimated Economic Life
|
Customer relationships
|
|
10 Years
|
Trade name
|
|
1 Year
|
Non-compete
agreements
|
|
1 Year
|
Amortization expense recognized for the period from the acquisition date through September 30, 2017 was
$8,640,000.
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 goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal
year. The addition of the Datalink technical employees to our team and the opportunity to grow our data center solutions business are the primary factors making up the goodwill recognized as part of the transaction. None of the goodwill is tax
deductible.
The preliminary purchase price was allocated using information available at the time. During the second quarter of 2017, upon
analysis of additional information affecting our estimate of the fair value of net assets acquired, we adjusted the purchase price allocation and reduced the goodwill balance by $945,000. During the third quarter of 2017, no further adjustments to
the purchase price allocation were made. Further information regarding deferred tax amounts could lead to an additional adjustment of the purchase price allocation upon finalization of the fair value assumptions in the fourth quarter of 2017.
We have consolidated the results of operations for Datalink since its acquisition on January 6, 2017. Consolidated net sales and gross
profit for the three and nine months ended September 30, 2017 include $134,495,000 and $29,874,000, and $387,218,000 and $89,124,000, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales
|
|
As reported
|
|
$
|
1,757,973
|
|
|
$
|
1,392,716
|
|
|
$
|
4,919,548
|
|
|
$
|
4,017,932
|
|
|
|
Proforma
|
|
$
|
1,757,973
|
|
|
$
|
1,544,175
|
|
|
$
|
4,923,457
|
|
|
$
|
4,472,878
|
|
|
|
|
|
|
|
Net earnings
|
|
As reported
|
|
$
|
22,412
|
|
|
$
|
21,635
|
|
|
$
|
76,515
|
|
|
$
|
63,590
|
|
|
|
Proforma
|
|
$
|
22,412
|
|
|
$
|
20,721
|
|
|
$
|
74,461
|
|
|
$
|
63,285
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
As reported
|
|
$
|
0.62
|
|
|
$
|
0.60
|
|
|
$
|
2.11
|
|
|
$
|
1.74
|
|
|
|
Proforma
|
|
$
|
0.62
|
|
|
$
|
0.58
|
|
|
$
|
2.06
|
|
|
$
|
1.73
|
|
Changes in Goodwill
Other than the goodwill recorded in conjunction with the acquisitions of Datalink and Caase.com, the only other change in consolidated goodwill
as of September 30, 2017 compared to the balance as of December 31, 2016 resulted from foreign currency translation adjustments associated with the goodwill balance in our APAC operating segment.
18
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. Sale of Foreign Entity
On July 19, 2017, we concluded the sale of our operations in Russia, formerly a part of our EMEA operating segment, to one of our global
partners that is focused in the region. We recorded a loss on the sale of the foreign entity of approximately $3,646,000 during the third quarter of 2017, including a $2,903,000 charge upon the release of our cumulative translation adjustment
account balance as of the sale date.
19
INSIGHT ENTERPRISES, INC.