INSIGHT ENTERPRISES INC 10-Q

Item 1. Financial Statements. INSIGHT ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) September 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 75,237 $ 114,668 Accounts receivable, net of allowance for doubtful accounts of $ 15,406 and $ 10,762 , respectively 2,267,718 2,511,383 Inventories 158,400 190,833 Other current assets 225,052 231,148 Total current assets 2,726,407 3,048,032 Property and equipment, net of accumulated depreciation and amortization of $ 250,205 and $ 236,330 , respectively 127,580 130,907 Goodwill 425,800 415,149 Intangible assets, net of accumulated amortization of $ 103,102 and $ 73,492 , respectively 253,078 278,584 Other assets 294,445 305,507 $ 3,827,310 $ 4,178,179 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable—trade $ 1,275,187 $ 1,275,957 Accounts payable—inventory financing facilities 367,997 253,676 Accrued expenses and other current liabilities 319,397 352,204 Current portion of long-term debt 1,422 1,691 Total current liabilities 1,964,003 1,883,528 Long-term debt 294,722 857,673 Deferred income taxes 40,572 44,633 Other liabilities 265,122 232,027 2,564,419 3,017,861 Commitments and contingencies Stockholders’ equity: Preferred stock, $ 0.01 par value, 3,000 shares authorized; no shares issued — — Common stock, $ 0.01 par value, 100,000 shares authorized; 35,090 shares at September 30, 2020 and 35,263 shares at December 31, 2019 issued and outstanding 351 353 Additional paid-in capital 358,567 357,032 Retained earnings 939,857 841,097 Accumulated other comprehensive loss – foreign currency translation adjustments ( 35,884 ) ( 38,164 ) Total stockholders’ equity 1,262,891 1,160,318 $ 3,827,310 $ 4,178,179 See accompanying notes to consolidated financial statements. 1 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net sales: Products $ 1,661,568 $ 1,668,880 $ 5,182,817 $ 4,729,887 Services 274,910 243,667 866,447 704,147 Total net sales 1,936,478 1,912,547 6,049,264 5,434,034 Costs of goods sold: Products 1,500,312 1,519,240 4,688,497 4,315,464 Services 128,603 117,112 403,479 318,454 Total costs of goods sold 1,628,915 1,636,352 5,091,976 4,633,918 Gross profit 307,563 276,195 957,288 800,116 Operating expenses: Selling and administrative expenses 245,155 223,215 756,598 613,767 Severance and restructuring expenses 808 2,662 9,962 3,712 Acquisition and integration related expenses 118 5,896 2,195 9,059 Earnings from operations 61,482 44,422 188,533 173,578 Non-operating (income) expense: Interest expense, net 9,115 7,694 31,160 16,581 Other (income) expense, net 1,301 ( 538 ) 836 858 Earnings before income taxes 51,066 37,266 156,537 156,139 Income tax expense 12,160 10,134 37,285 39,682 Net earnings $ 38,906 $ 27,132 $ 119,252 $ 116,457 Net earnings per share: Basic $ 1.11 $ 0.76 $ 3.40 $ 3.27 Diluted $ 1.10 $ 0.76 $ 3.37 $ 3.23 Shares used in per share calculations: Basic 35,077 35,512 35,123 35,631 Diluted 35,348 35,868 35,418 36,027 See accompanying notes to consolidated financial statements. 2 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net earnings $ 38,906 $ 27,132 $ 119,252 $ 116,457 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 12,492 ( 8,903 ) 2,280 ( 7,278 ) Total comprehensive income $ 51,398 $ 18,229 $ 121,532 $ 109,179 See accompanying notes to consolidated financial statements. 3 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) Common Stock Treasury Stock Additional Paid-in Accumulated Other Comprehensive Retained Total Stockholders' Shares Par Value Shares Amount Capital Loss Earnings Equity Balances at June 30, 2019 35,781 $ 358 — $ — $ 325,263 $ ( 40,028 ) $ 793,990 $ 1,079,583 Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes 11 — — — ( 266 ) — — ( 266 ) Stock-based compensation expense — — — — 4,098 — — 4,098 Equity component of convertible senior notes, net of deferred tax of $ 14,819 and issuance costs of $ 1,700 — — — — 44,731 — — 44,731 Issuance of warrants related to convertible senior notes — — — — 34,440 — — 34,440 Purchase of note hedge related to convertible senior notes, net of deferred tax of $ 16,047 — — — — ( 50,278 ) — — ( 50,278 ) Repurchase of treasury stock — — ( 541 ) ( 27,899 ) — — — ( 27,899 ) Retirement of treasury stock ( 541 ) ( 5 ) 541 27,899 ( 4,919 ) — ( 22,975 ) — Foreign currency translation adjustments, net of tax — — — — — ( 8,903 ) — ( 8,903 ) Net earnings — — — — — — 27,132 27,132 Balances at September 30, 2019 35,251 $ 353 — $ — $ 353,069 $ ( 48,931 ) $ 798,147 $ 1,102,638 Balances at June 30, 2020 35,070 $ 351 — $ — $ 354,431 $ ( 48,376 ) $ 900,950 $ 1,207,356 Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes 20 — — — ( 377 ) — 1 ( 376 ) Stock-based compensation expense — — — — 4,513 — — 4,513 Foreign currency translation adjustments, net of tax — — — — — 12,492 — 12,492 Net earnings — — — — — — 38,906 38,906 Balances at September 30, 2020 35,090 $ 351 — $ — $ 358,567 $ ( 35,884 ) $ 939,857 $ 1,262,891 4 Common Stock Treasury Stock Additional Paid-in Accumulated Other Comprehensive Retained Total Stockholders' Shares Par Value Shares Amount Capital Loss Earnings Equity Balances at December 31, 2018 35,482 $ 355 — $ — $ 323,622 $ ( 41,653 ) $ 704,665 $ 986,989 Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes 310 3 — — ( 6,422 ) — — ( 6,419 ) Stock-based compensation expense — — — — 11,895 — — 11,895 Equity component of convertible senior notes, net of deferred tax of $ 14,819 and issuance costs of $ 1,700 — — — — 44,731 — — 44,731 Issuance of warrants related to convertible senior notes — — — — 34,440 — — 34,440 Purchase of note hedge related to convertible senior notes, net of deferred tax of $ 16,047 — — — — ( 50,278 ) — — ( 50,278 ) Repurchase of treasury stock — — ( 541 ) ( 27,899 ) — — — ( 27,899 ) Retirement of treasury stock ( 541 ) ( 5 ) 541 27,899 ( 4,919 ) — ( 22,975 ) — Foreign currency translation adjustments, net of tax — — — — — ( 7,278 ) — ( 7,278 ) Net earnings — — — — — — 116,457 116,457 Balances at September 30, 2019 35,251 $ 353 — $ — $ 353,069 $ ( 48,931 ) $ 798,147 $ 1,102,638 Balances at December 31, 2019 35,263 $ 353 — $ — $ 357,032 $ ( 38,164 ) $ 841,097 $ 1,160,318 Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes 272 2 — — ( 5,715 ) — — ( 5,713 ) Stock-based compensation expense — — — — 11,754 — — 11,754 Repurchase of treasury stock — — ( 445 ) ( 25,000 ) — — — ( 25,000 ) Retirement of treasury stock ( 445 ) ( 4 ) 445 25,000 ( 4,504 ) — ( 20,492 ) — Foreign currency translation adjustments, net of tax — — — — — 2,280 — 2,280 Net earnings — — — — — — 119,252 119,252 Balances at September 30, 2020 35,090 $ 351 — $ — $ 358,567 $ ( 35,884 ) $ 939,857 $ 1,262,891 See accompanying notes to consolidated financial statements. 5 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net earnings $ 119,252 $ 116,457 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 51,375 29,096 Provision for losses on accounts receivable 8,093 2,695 Non-cash stock-based compensation 11,754 11,895 Deferred income taxes ( 2,883 ) 2,501 Amortization of debt discount 12,091 2,322 Other adjustments 4,087 3,633 Changes in assets and liabilities: Decrease in accounts receivable 247,659 68,057 Decrease (increase) in inventories 28,002 ( 17,946 ) Decrease (increase) in other assets 19,643 ( 99,681 ) Decrease in accounts payable ( 4,842 ) ( 39,191 ) (Decrease) increase in accrued expenses and other liabilities ( 32,137 ) 88,757 Net cash provided by operating activities 462,094 168,595 Cash flows from investing activities: Proceeds from sale of assets held for sale 14,218 — Purchases of property and equipment ( 20,688 ) ( 16,922 ) Acquisitions, net of cash and cash equivalents acquired ( 6,405 ) ( 664,287 ) Net cash used in investing activities ( 12,875 ) ( 681,209 ) Cash flows from financing activities: Borrowings on senior revolving credit facility — 242,936 Repayments on senior revolving credit facility — ( 242,936 ) Borrowings on ABL revolving credit facility, net of initial lender fees 2,111,674 986,754 Repayments on ABL revolving credit facility ( 2,682,562 ) ( 454,544 ) Borrowings on accounts receivable securitization financing facility — 2,364,500 Repayments on accounts receivable securitization financing facility — ( 2,558,500 ) Net borrowings (repayments) under inventory financing facilities 114,321 ( 96,472 ) Proceeds from issuance of convertible senior notes — 341,250 Proceeds from issuance of warrants — 34,440 Purchase of note hedge related to convertible senior notes — ( 66,325 ) Repurchases of common stock ( 25,000 ) ( 27,899 ) Other payments ( 7,520 ) ( 8,762 ) Net cash (used in) provided by financing activities ( 489,087 ) 514,442 Foreign currency exchange effect on cash, cash equivalents and restricted cash balances 718 ( 3,960 ) Decrease in cash, cash equivalents and restricted cash ( 39,150 ) ( 2,132 ) Cash, cash equivalents and restricted cash at beginning of period 116,297 144,293 Cash, cash equivalents and restricted cash at end of period $ 77,147 $ 142,161 See accompanying notes to consolidated financial statements. 6 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation and Rece ntly Issued Accounting Standards We empower organizations of all sizes with Intelligent Technology Solutions TM and services to maximize the business value of Information Technology (“IT”) in North America; Europe, the Middle East and Africa (“EMEA”); and Asia-Pacific (“APAC”). As a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, connected workforce, and supply chain optimization solutions, we help clients innovate and optimize their operations to run smarter. Our company is organized in the following three operating segments, which are primarily defined by their related geographies: Operating Segment Geography North America United States and Canada EMEA Europe, Middle East and Africa APAC Asia-Pacific Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services. Our offerings in the remainder of our EMEA and APAC segments consist of largely software and certain 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, 2020 and our results of operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019. The consolidated balance sheet as of December 31, 2019 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 SEC 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, 2019. Our results of operations include the results of PCM, Inc. (“PCM”) from its acquisition date of August 30, 2019 and vNext from its acquisition date of February 28, 2020 . 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. 7 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Recently Issued Accounting Standards In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes.” The new standard is intended to simplify various aspects of accounting for income taxes by removing specific exceptions and amending certain requirements. The new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We do not expect this new standard to have a material effect on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.” The new standard is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held at each reporting date. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The new standard update provides changes for how a company considers expected recoveries and contractual extensions or renewal options when estimating expected credit losses. In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” The new standard update provides amendments to the reporting of expected recoveries. We adopted these new standards as of January 1, 2020. The adoption of these new standards did not have a material effect on our consolidated financial statements. There have been no other material changes in 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, 2019 that affect or may affect our current financial statements. 2 . Sales Recognition In the following table, revenue is disaggregated by our reportable operating segments, which are primarily defined by their related geographies, as well as by major product offering, by major client group and by recognition on either a gross basis as a principal in the arrangement, or on a net basis as an agent, for the three and nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended September 30, 2020 North America EMEA APAC Consolidated Major Offerings Hardware $ 1,028,045 $ 138,685 $ 6,421 $ 1,173,151 Software 306,925 165,301 16,191 488,417 Services 223,198 37,294 14,418 274,910 $ 1,558,168 $ 341,280 $ 37,030 $ 1,936,478 Major Client Groups Large Enterprise / Corporate $ 1,043,303 $ 242,925 $ 15,416 $ 1,301,644 Small and Medium-Sized Businesses 312,080 13,647 16,197 341,924 Public Sector 202,785 84,708 5,417 292,910 $ 1,558,168 $ 341,280 $ 37,030 $ 1,936,478 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition (Principal) $ 1,477,716 $ 320,445 $ 31,256 $ 1,829,417 Net revenue recognition (Agent) 80,452 20,835 5,774 107,061 $ 1,558,168 $ 341,280 $ 37,030 $ 1,936,478 8 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Three Months Ended September 30, 2019 North America EMEA APAC Consolidated Major Offerings Hardware $ 1,020,083 $ 137,416 $ 9,243 $ 1,166,742 Software 295,730 186,839 19,569 502,138 Services 199,349 31,453 12,865 243,667 $ 1,515,162 $ 355,708 $ 41,677 $ 1,912,547 Major Client Groups Large Enterprise / Corporate $ 1,110,817 $ 277,536 $ 17,811 $ 1,406,164 Small and Medium-Sized Businesses 239,260 18,998 17,688 275,946 Public Sector 165,085 59,174 6,178 230,437 $ 1,515,162 $ 355,708 $ 41,677 $ 1,912,547 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition (Principal) $ 1,448,385 $ 336,600 $ 35,979 $ 1,820,964 Net revenue recognition (Agent) 66,777 19,108 5,698 91,583 $ 1,515,162 $ 355,708 $ 41,677 $ 1,912,547 Nine Months Ended September 30, 2020 North America EMEA APAC Consolidated Major Offerings Hardware $ 3,180,501 $ 466,909 $ 21,001 $ 3,668,411 Software 898,290 553,164 62,952 1,514,406 Services 692,905 132,110 41,432 866,447 $ 4,771,696 $ 1,152,183 $ 125,385 $ 6,049,264 Major Client Groups Large Enterprise / Corporate $ 3,227,613 $ 808,360 $ 44,543 $ 4,080,516 Small and Medium-Sized Businesses 1,030,540 44,567 45,413 1,120,520 Public Sector 513,543 299,256 35,429 848,228 $ 4,771,696 $ 1,152,183 $ 125,385 $ 6,049,264 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition (Principal) $ 4,530,152 $ 1,071,910 $ 108,073 $ 5,710,135 Net revenue recognition (Agent) 241,544 80,273 17,312 339,129 $ 4,771,696 $ 1,152,183 $ 125,385 $ 6,049,264 Nine Months Ended September 30, 2019 North America EMEA APAC Consolidated Major Offerings Hardware $ 2,704,212 $ 451,892 $ 25,740 $ 3,181,844 Software 907,683 560,073 80,287 1,548,043 Services 551,215 113,092 39,840 704,147 $ 4,163,110 $ 1,125,057 $ 145,867 $ 5,434,034 Major Client Groups Large Enterprise / Corporate $ 3,159,269 $ 819,156 $ 47,903 $ 4,026,328 Small and Medium-Sized Businesses 585,258 59,318 50,536 695,112 Public Sector 418,583 246,583 47,428 712,594 $ 4,163,110 $ 1,125,057 $ 145,867 $ 5,434,034 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition (Principal) $ 3,969,411 $ 1,051,101 $ 127,129 $ 5,147,641 Net revenue recognition (Agent) 193,699 73,956 18,738 286,393 $ 4,163,110 $ 1,125,057 $ 145,867 $ 5,434,034 9 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) The following table provides information about receivables and contract liabilities as of September 30, 2020 and December 31, 2019 (in thousands): September 30, December 31, 2020 2019 Current receivables, which are included in “Accounts receivable, net” $ 2,267,718 $ 2,511,383 Non-current receivables, which are included in “Other assets” 137,431 154,417 Contract liabilities, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” 80,734 84,814 C hanges in the contract liabilities balances during the nine months ended September 30, 2020 are as follows (in thousands): Increase (Decrease) Contract Liabilities Balances at December 31, 2019 $ 84,814 Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied ( 53,454 ) Cash received in advance and not recognized as revenue 49,374 Balances at September 30, 2020 $ 80,734 The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020 that are expected to be recognized in the future (in thousands): Services Remainder of 2020 $ 54,939 2021 64,346 2022 25,076 2023 and thereafter 16,763 Total remaining performance obligations $ 161,124 With the exception of remaining performance obligations associated with our OneCall Support Services contracts which are included in the table above regardless of original duration, r emaining performance obligations that have original expected durations of one year or less are not included in the table above. Amounts not included in the table above have an average original expected duration of nine months. Additionally, for our time and material services contracts, whereby we have the right to consideration from a client in an amount that corresponds directly with the value to the client of our performance completed to date, we recognized revenue in the amount to which we have a right to invoice as of September 30, 2020 and do not disclose information about related remaining performance obligations in the table above. Our time and material contracts have an average expected duration of 20 months. The majority of our backlog historically has been and continues to be open cancelable purchase orders. We do not believe that backlog as of any particular date is predictive of future results, therefore we do not include performance obligations under open cancelable purchase orders, which do not qualify for revenue recognition, in the table above. 10 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 3. Assets Held for Sale During 2019, we completed the purchase of real estate in Chandler, Arizona that we intend to use as our global corporate headquarters. During the fourth quarter of 2019, properties in Tempe, Arizona, El Segundo and Santa Monica, California and Woodbridge, Illinois were classified as held for sale, for approximately $ 68,916,000 , which is included in other current assets in the accompanying consolidated balance sheet as of September 30, 2020, as we look to sell current properties in preparation for our move to Chandler. During the first quarter of 2020, we completed the sale of our property in Irvine, California for approximately $ 14,218,000 . 4 . 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): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net earnings $ 38,906 $ 27,132 $ 119,252 $ 116,457 Denominator: Weighted average shares used to compute basic EPS 35,077 35,512 35,123 35,631 Dilutive potential common shares due to dilutive RSUs, net of tax effect 271 356 295 396 Weighted average shares used to compute diluted EPS 35,348 35,868 35,418 36,027 Net earnings per share: Basic $ 1.11 $ 0.76 $ 3.40 $ 3.27 Diluted $ 1.10 $ 0.76 $ 3.37 $ 3.23 For the three and nine months ended September 30, 2020, 3,000 and 163,000 , 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 3,000 and 56,000 anti-dilutive RSUs for the three and nine months ended September 30, 2019, respectively. 11 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 5 . Debt, Inventory Financing Facilities, Finance Leases and Other Financing Obligations Debt Our long-term debt consists of the following (in thousands): September 30, 2020 December 31, 2019 ABL revolving credit facility $ — $ 570,706 Convertible senior notes due 2025 293,469 284,836 Finance leases and other financing obligations 2,675 3,822 Total 296,144 859,364 Less: current portion of long-term debt ( 1,422 ) ( 1,691 ) Long-term debt $ 294,722 $ 857,673 On August 30, 2019, we entered into a credit agreement (the “credit agreement”) providing for a senior secured revolving credit facility (the “ABL facility”), which has an aggregate U.S. dollar equivalent maximum borrowing amount of $ 1,200,000,000 , including a maximum borrowing capacity that could be used for borrowing in certain foreign currencies of $ 150,000,000 . While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by specified percentages of eligible accounts receivable and certain eligible inventory, in each case as set forth in the credit agreement. From time to time and at our option, we may request to increase the aggregate amount available for borrowing under the ABL facility by up to an aggregate of the U.S. dollar equivalent of $ 500,000,000 , subject to customary conditions, including receipt of commitments from lenders. On July 31, 2020, we entered into the First Amendment to Credit Agreement (the “Amendment”) to the ABL facility. The Amendment, among other things, amends the credit agreement to provide additional flexibility for certain asset sale transactions by the Company and its subsidiaries. The ABL facility is guaranteed by certain of our material subsidiaries and is secured by a lien on certain of our assets and certain of each other borrower’s and each guarantor’s assets. The interest rates applicable to borrowings under the ABL facility are based on the average aggregate excess availability under the ABL facility as set forth on a pricing grid in the credit agreement. The ABL facility matures on August 30, 2024 . As of September 30, 2020, eligible accounts receivable and inventory were sufficient to permit access to the full $ 1,200,000,000 facility amount, none of which was outstanding. The ABL facility contains customary affirmative and negative covenants and events of default. If a default occurs (subject to customary grace periods and materiality thresholds) under the credit agreement, certain actions may be taken, including, but not limited to, possible termination of commitments and required payment of all outstanding principal amounts plus accrued interest and fees payable under the credit agreement. Convertible Senior Notes due 2025 On August 15, 2019, we issued $ 300,000,000 aggregate principal amount of convertible senior notes (the “notes”) that mature on February 15, 2025 . On August 23, 2019, we issued an additional $ 50,000,000 aggregate principal amount of the notes pursuant to the exercise in full by the initial purchasers of the notes of their option to purchase additional notes. The notes bear interest at an annual rate of 0.75 % payable semiannually, in arrears, on February 15 th and August 15 th of each year. The notes are general unsecured obligations of Insight and are guaranteed on a senior unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight. 12 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Holders of the notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 15, 2024, under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price of our common stock per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver cash, shares of our common stock or a combination of the two, at our discretion. The conversion rate will initially be 14.6376 shares of common stock per $ 1,000 principal amount of notes (equivalent to an initial conversion price of approximately $ 68.32 per share of common stock). The conversion rate is subject to change in certain circumstances and will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date or following our issuance of a notice of redemption, the conversion rate is subject to an increase for a holder who elects to convert their notes in connection with those events or during the related redemption period in certain circumstances. If we undergo a fundamental change, the holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100 % of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of September 30, 2020, none of the criteria for a fundamental change or a conversion rate adjustment had been met. The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to other conversion rate adjustments, would be 6,788,208 . We may redeem for cash all or any portion of the notes, at our option, on or after August 20, 2022 if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100 % of the then outstanding principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes. The notes are subject to certain customary events of default and acceleration clauses. As of September 30, 2020, no such events have occurred. 13 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) The notes consist of the following balances reported within the consolidated balance sheets (in thousands): September 30, 2020 December 31, 2019 Liability: Principal $ 350,000 $ 350,000 Less: debt discount and issuance costs, net of accumulated accretion ( 56,531 ) ( 65,164 ) Net carrying amount $ 293,469 $ 284,836 Equity, net of deferred tax $ 44,731 $ 44,731 The remaining life of the debt discount and issuance cost accretion is approximately 4.375 years. The effective interest rate on the liability component of the notes is 4.325 %. I nterest expense resulting from the notes reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 is made up of contractual coupon interest, amortization of debt discount and amortization of debt issuance costs. Convertible Note Hedge and Warrant Transaction In connection with the issuance of the notes, we entered into certain convertible note hedge and warrant transactions (the “Call Spread Transactions”) with respect to the Company’s common stock. The convertible note hedge consists of an option to purchase up to 5,123,160 common stock shares at a price of $ 68.32 per share. The hedge expires on February 15, 2025 and can only be concurrently executed upon the conversion of the notes. We paid approximately $ 66,325,000 for the convertible note hedge transaction. Additionally, we sold warrants to purchase 5,123,160 shares of common stock at a price of $ 103.12 per share. The warrants expire on May 15, 2025 and can only be exercised at maturity. The Company received aggregate proceeds of approximately $ 34,440,000 for the sale of the warrants. The Call Spread Transactions have no effect on the terms of the notes and reduce potential dilution by effectively increasing the initial conversion price of the notes to $ 103.12 per share of the Company’s common stock. Inventory Financing Facilities During 2020, we increased our maximum availability for vendor purchases under our unsecured inventory financing facility with MUFG Bank Ltd (“MUFG”) from $ 200,000,000 to $ 250,000,000 . On July 6, 2020, we entered into a new unsecured inventory financing facility with a subsidiary of PNC Bank, N.A. (“PNC”), which replaced our previous facility with Wells Fargo Capital Finance, LLC. The aggregate availability for vendor purchases under the PNC facility is $ 250,000,000 . As of September 30, 2020, our combined inventory financing facilities had a total maximum capacity of $ 500,000,000 , of which $ 367,997,000 was outstanding. The inventory financing facilities will remain in effect until they are terminated by any of the parties. If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00 % and LIBOR plus 4.50 % on the MUFG and PNC facilities, respectively. The PNC facility allows for an alternative rate to be identified if LIBOR is no longer available. Amounts outstanding under these facilities are classified separately as accounts payable – inventory financing facilities in the accompanying 14 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) consolidated balance sheets and within cash flows from financing activities in the accompanying consolidated statements of cash flows . Finance Lease and Other Financing Obligations From time to time, we enter into finance leases and other financing agreements with financial intermediaries to facilitate the purchase of products from certain vendors . The current and long-term portions of our finance leases and other financing obligations are included in the current and long-term portions of long-term debt in the table above and in our consolidated balance sheets as of September 30, 2020 and December 31, 2019. See Note 6 for additional information. 6 . Leases We lease office space, distribution centers, land, vehicles and equipment. Lease agreements with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. Some agreements also include options to purchase the leased property. The estimated life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of September 30, 2020 and December 31, 2019 (in thousands): Leases Classification September 30, 2020 December 31, 2019 Assets Operating lease assets Other assets $ 81,481 $ 74,684 Finance lease assets Property and equipment (a) 2,326 3,297 Total lease assets $ 83,807 $ 77,981 Liabilities Current Operating lease liabilities Accrued expenses and other current liabilities $ 20,556 $ 19,648 Finance lease liabilities Current portion of long-term debt 1,422 1,691 Non-current Operating lease liabilities Other liabilities 67,421 60,285 Finance lease liabilities Long-term debt 1,253 2,131 Total lease liabilities $ 90,652 $ 83,755 (a) Recorded net of accumulated amortization of $ 1,833,000 and $ 861,000 as of September 30, 2020 and December 31, 2019, respectively. 15 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 (in thousands): Lease cost Classification Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Operating lease cost (a) (b) Selling and administrative expenses $ 6,460 $ 19,412 Finance lease cost Amortization of leased assets Selling and administrative expenses 324 972 Interest on lease liabilities Interest expense, net 24 84 Total lease cost $ 6,808 $ 20,468 (a) Includes immaterial amounts recorded to cost of goods sold. (b) Excludes short-term and variable lease costs, which are immaterial. Future minimum lease payments under non-cancelable leases as of September 30, 2020 are as follows (in thousands): Operating leases Finance leases Total Remainder of 2020 $ 6,021 $ 564 $ 6,585 2021 22,194 1,077 23,271 2022 19,099 645 19,744 2023 13,477 449 13,926 2024 8,430 45 8,475 After 2024 28,999 — 28,999 Total lease payments 98,220 2,780 101,000 Less: Interest ( 10,243 ) ( 105 ) ( 10,348 ) Present value of lease liabilities $ 87,977 $ 2,675 $ 90,652 Operating lease payments include $ 13.4 million related to options to extend lease terms that are reasonably certain of being exercised . The following table provides information about the remaining lease terms and discount rates applied as of September 30, 2020: September 30, 2020 September 30, 2019 Weighted average remaining lease term (years) Operating leases 6.13 6.19 Finance leases 2.45 1.69 Weighted average discount rate (%) Operating leases 3.43 3.65 Finance leases 3.46 4.85 16 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) The following table provides other information related to leases for the three and nine months ended September 30, 2020 (in thousands): Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 6,360 $ 19,444 Leased assets obtained in exchange for new operating lease liabilities $ 577 $ 23,178 7. 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): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 North America $ 3,347 $ 3,102 $ 8,732 $ 8,965 EMEA $ 1,006 860 2,588 2,544 APAC $ 160 136 434 386 Total Consolidated $ 4,513 $ 4,098 $ 11,754 $ 11,895 As of September 30, 2020, total compensation cost related to nonvested RSUs not yet recognized is $ 25,871,000 , which is expected to be recognized over the next 1.33 years on a weighted-average basis. The following table summarizes our RSU activity during the nine months ended September 30, 2020: Number Weighted Average Grant Date Fair Value Fair Value Nonvested at January 1, 2020 923,400 $ 45.58 Granted (a) 322,506 57.78 Vested, including shares withheld to cover taxes ( 368,377 ) 42.54 $ 15,670,905 (b) Forfeited ( 73,284 ) 51.66 Nonvested at September 30, 2020 (a) 804,245 51.31 $ 45,504,182 (c) (a) Includes 83,661 RSUs subject to remaining performance conditions. The number of RSUs subject to performance conditions are based on the Company achieving 100% of its 2020 targeted financial results. We currently estimate that these RSUs will be awarded at 90 % this annual period based on achievement towards the 2020 performance targets. ( 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 $ 56.58 as of September 30, 2020, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date. 17 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 8 . Income Taxes Our effective tax rate was 23.8 % for the three and nine months ended September 30, 2020. For the three months ended September 30, 2020, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by the recognition of tax benefits related to research and development activities and the beneficial impact of certain income tax regulations issued during the quarter. For the nine months ended September 30, 2020, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by the remeasurement of acquired net operating losses under the CARES Act, and the recognition of tax benefits related to research and development activities. Our effective tax rate for the three and nine months ended September 30, 2019 was 27.2 % and 25.4 %, respectively. For the three months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, higher taxes on earnings in foreign jurisdictions, and the effect of non-deductible acquisition-related expenses partially offset by the recognition of tax benefits related to research and development activities . For the nine months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions partially offset by tax benefits on the settlement of employee share-based awards and the recognition of tax benefits related to research and development activities. As of September 30, 2020, and December 31, 2019, we had approximately $ 10,659,000 and $ 9,736,000 , respectively, of unrecognized tax benefits. Of these amounts, approximately $ 610,000 and $ 442,000 , 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 2013 through 2018 . Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that the examination phase of these audits may be concluded within the next 12 months, which could 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 Program On February 26, 2020, our Board of Directors authorized the repurchase of up to $ 50,000,000 of our common stock. Our share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at management’s discretion. The amount of shares purchased and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors. We intend to retire the repurchased shares. During the nine months ended September 30, 2020, we repurchased 444,813 shares of our common stock on the open market at a total cost of approximately $ 24,999,996 (an average price of $ 56.20 per share). All shares repurchased were retired. During the comparative nine months ended September 30, 2019, we repurchased 541,117 shares of our common stock on the open market at a total cost of approximately $ 27,899,000 (an average price of $ 51.56 per share). All shares repurchased were retired . 18 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 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. 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, 2020. 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, 2020. 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 individual’s status or service as our executive officer or director (subject to exceptions such as where the individual failed to act in good faith or in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the Company) and to advance expenses incurred by such individual with respect to which such individual may be entitled to indemnification by us. There are no pending legal proceedings that involve the indemnification of any of the Company’s directors or officers. 19 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 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 incidental to the business, including preference payment claims asserted in client bankruptcy proceedings, indemnification claims, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, employment claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are required. If accruals are not required, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the work required pursuant to any legal proceedings or the resolution of any legal proceedings during such period. Legal expenses related to defense of any legal proceeding or the negotiations, settlements, rulings and advice of outside legal counsel in connection with any legal proceedings are expensed as incurred. In connection with the acquisition of PCM, the Company has effectively assumed responsibility for PCM litigation matters, including various disputes related to PCM’s acquisition of certain assets of En Pointe Technologies in 2015. The seller of En Pointe Technologies and related entities providing various post-closing support functions to PCM have asserted claims regarding the sufficiency of earnout payments paid by PCM under the asset purchase agreement and the unwinding of the support functions post-closing. PCM has rejected and vigorously responded to those claims and is pursuing various counterclaims. The disputes are being heard by multiple courts and arbitrators in several different jurisdictions including California, Delaware and Pakistan. The Company cannot determine with certainty the costs or outcome of these matters. However, the Company is not involved in any pending or threatened legal proceedings, including the PCM litigation matters, that it believes would reasonably be expected to have a material adverse effect on its business, financial condition or results of operations. 20 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 11. Segment Information We operate in three reportable geographic operating segments: North America; EMEA; and APAC with PCM being included in our North America and EMEA segments for the three and nine months ended September 30, 2020. Our offerings in North America and certain countries in EMEA and APAC include IT hardware, software and services. Our offerings in the remainder of our EMEA and APAC segments are largely software and certain software-related services. The following table summarizes net sales by offering for North America, EMEA and APAC for the three and nine months ended September 30, 2020 and 2019 (in thousands): North America EMEA APAC Three Months Ended September 30, Three Months Ended September 30, Three Months Ended September 30, Sales Mix 2020 2019 2020 2019 2020 2019 Hardware $ 1,028,045 $ 1,020,083 $ 138,685 $ 137,416 $ 6,421 $ 9,243 Software 306,925 295,730 165,301 186,839 16,191 19,569 Services 223,198 199,349 37,294 31,453 14,418 12,865 $ 1,558,168 $ 1,515,162 $ 341,280 $ 355,708 $ 37,030 $ 41,677 North America EMEA APAC Nine Months Ended September 30, Nine Months Ended September 30, Nine Months Ended September 30, Sales Mix 2020 2019 2020 2019 2020 2019 Hardware $ 3,180,501 $ 2,704,212 $ 466,909 $ 451,892 $ 21,001 $ 25,740 Software 898,290 907,683 553,164 560,073 62,952 80,287 Services 692,905 551,215 132,110 113,092 41,432 39,840 $ 4,771,696 $ 4,163,110 $ 1,152,183 $ 1,125,057 $ 125,385 $ 145,867 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 and nine months ended September 30, 2020 or 2019. 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 consider to be a reasonable reflection of the utilization of services provided to or benefits received by the operating segments. 21 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, 2020 North America EMEA APAC Consolidated Net sales: Products $ 1,334,970 $ 303,986 $ 22,612 $ 1,661,568 Services 223,198 37,294 14,418 274,910 Total net sales 1,558,168 341,280 37,030 1,936,478 Costs of goods sold: Products 1,202,743 277,025 20,544 1,500,312 Services 108,257 13,955 6,391 128,603 Total costs of goods sold 1,311,000 290,980 26,935 1,628,915 Gross profit 247,168 50,300 10,095 307,563 Operating expenses: Selling and administrative expenses 192,033 45,438 7,684 245,155 Severance and restructuring expenses 773 19 16 808 Acquisition and integration related expenses 118 — — 118 Earnings from operations $ 54,244 $ 4,843 $ 2,395 $ 61,482 Three Months Ended September 30, 2019 North America EMEA APAC Consolidated Net sales: Products $ 1,315,813 $ 324,255 $ 28,812 $ 1,668,880 Services 199,349 31,453 12,865 243,667 Total net sales 1,515,162 355,708 41,677 1,912,547 Costs of goods sold: Products 1,195,020 297,789 26,431 1,519,240 Services 101,498 10,028 5,586 117,112 Total costs of goods sold 1,296,518 307,817 32,017 1,636,352 Gross profit 218,644 47,891 9,660 276,195 Operating expenses: Selling and administrative expenses 170,993 44,568 7,654 223,215 Severance and restructuring expenses 2,449 213 — 2,662 Acquisition and integration related expenses 5,896 — — 5,896 Earnings from operations $ 39,306 $ 3,110 $ 2,006 $ 44,422 Nine Months Ended September 30, 2020 North America EMEA APAC Consolidated Net sales: Products $ 4,078,791 $ 1,020,073 $ 83,953 $ 5,182,817 Services 692,905 132,110 41,432 866,447 Total net sales 4,771,696 1,152,183 125,385 6,049,264 Costs of goods sold: Products 3,678,118 933,053 77,326 4,688,497 Services 344,586 41,876 17,017 403,479 Total costs of goods sold 4,022,704 974,929 94,343 5,091,976 Gross profit 748,992 177,254 31,042 957,288 Operating expenses: Selling and administrative expenses 590,549 143,859 22,190 756,598 Severance and restructuring expenses 7,799 2,118 45 9,962 Acquisition and integration related expenses 1,991 204 — 2,195 Earnings from operations $ 148,653 $ 31,073 $ 8,807 $ 188,533 22 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Nine Months Ended September 30, 2019 North America EMEA APAC Consolidated Net sales: Products $ 3,611,895 $ 1,011,965 $ 106,027 $ 4,729,887 Services 551,215 113,092 39,840 704,147 Total net sales 4,163,110 1,125,057 145,867 5,434,034 Costs of goods sold: Products 3,290,555 926,712 98,197 4,315,464 Services 272,245 29,021 17,188 318,454 Total costs of goods sold 3,562,800 955,733 115,385 4,633,918 Gross profit 600,310 169,324 30,482 800,116 Operating expenses: Selling and administrative expenses 452,441 139,365 21,961 613,767 Severance and restructuring expenses 3,260 328 124 3,712 Acquisition-related expenses 9,059 — — 9,059 Earnings from operations $ 135,550 $ 29,631 $ 8,397 $ 173,578 The following is a summary of our total assets by reportable operating segment (in thousands): September 30, 2020 December 31, 2019 North America $ 4,145,070 $ 3,814,408 EMEA 627,644 699,856 APAC 110,561 123,349 Corporate assets and intercompany eliminations, net ( 1,055,965 ) ( 459,434 ) Total assets $ 3,827,310 $ 4,178,179 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, 2020 2019 2020 2019 Depreciation and amortization of property and equipment: North America $ 5,907 $ 4,371 $ 17,559 $ 12,114 EMEA 1,269 1,013 3,846 2,980 APAC 143 140 415 412 7,319 5,524 21,820 15,506 Amortization of intangible assets: North America 8,730 5,765 27,594 13,037 EMEA 585 67 1,625 205 APAC 118 114 336 348 9,433 5,946 29,555 13,590 Total $ 16,752 $ 11,470 $ 51,375 $ 29,096 23 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 12. Acquisitions PCM On August 30, 2019, we completed our acquisition of PCM, acquiring 100 percent of the issued and outstanding shares of PCM for a cash purchase price of $ 745,562,000 , which included cash and cash equivalents acquired of $ 84,637,000 and the payment of PCM’s outstanding debt. PCM is a provider of multi-vendor technology offerings, including hardware, software and services to small, mid-sized and corporate/enterprise commercial clients, state, local and federal governments and educational institutions across the United States, Canada and the United Kingdom. Based in El Segundo, California, PCM had 40 office locations globally and more than 4,000 teammates. We believe that this acquisition allows us to help existing PCM clients in positioning their businesses for future growth, transforming and securing their data platforms, creating modern and mobile experiences for their workforce and optimizing the procurement of technology. The addition of PCM complements our supply chain optimization solution offering, adding scale and clients in the mid-market and corporate space primarily in North America. The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands): Purchase price net of cash and cash equivalents acquired $ 660,925 Fair value of net assets acquired: Current assets $ 531,941 Identifiable intangible assets - see description below 191,370 Property and equipment 91,213 Other assets 32,699 Current liabilities ( 369,183 ) Long-term liabilities, including deferred taxes ( 71,009 ) Total fair value of net assets acquired 407,031 Excess purchase price over fair value of net assets acquired ("goodwill") $ 253,894 Under the acquisition method of accounting, the total purchase price as shown in the table above was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over fair value of net assets acquired was recorded as goodwill. In the fourth quarter of 2019, an adjustment of $ 56,700,000 was recorded to goodwill primarily due to a change in the customer relationships valuation based on updated information received for key inputs as well as an associated change in deferred taxes. The fair values of current assets and liabilities are based upon their historical costs on the date of acquisition due to their short-term nature. The estimated fair values of the majority of property and equipment, excluding acquired real estate, are also based upon historical costs net of depreciation, as they approximated fair value. Certain long-term assets, including PCM’s IT systems, were written down to their estimated fair value. The estimated fair value of net assets acquired was approximately $ 407,031,000 , including $ 191,370,000 of identified intangible assets, consisting primarily of customer relationships of $ 178,900,000 . The fair value of the customer relationships were determined using the multiple-period excess earnings method. The identifiable intangible assets resulting from the acquisition are amortized using the straight-line method over the following estimated useful lives: customer relationships – 10 - 12 years ; trade names – 1 year; non-compete agreements – 2 - 3 years . 24 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Goodwill of $ 253,894,000 , which was recorded in our North America and EMEA operating segments, represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from PCM. The goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year. The addition of the PCM technical employees to our team and the opportunity to grow our business are the primary factors making up the goodwill recognized as part of the transaction. No ne of the goodwill is tax deductible. The purchase price allocation was finalized during the third quarter of 2020. We have consolidated the results of operations for PCM since its acquisition on August 30, 2019. The following table reports pro forma information as if the acquisition of PCM had been completed at the beginning of the earliest period presented (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2019 2019 Net sales As reported $ 1,912,547 $ 5,434,034 Pro forma $ 2,322,828 $ 6,910,356 Net earnings As reported $ 27,132 $ 116,457 Pro forma $ 24,678 $ 115,321 Diluted earnings per share As reported $ 0.76 $ 3.23 Pro forma $ 0.69 $ 3.20 Changes in Goodwill and Intangible Assets Other than the goodwill and intangible assets recorded in conjunction with the acquisitions of vNext and PCM, the only other change in consolidated goodwill and intangible assets as of September 30, 2020 compared to the balance as of December 31, 2019 resulted from foreign currency translation adjustments associated with the balances in our North America, EMEA and APAC operating segments. 25 INSIGHT ENTERPRISES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS