INSIGHT ENTERPRISES INC 10-K

Item 8. Financial Statements and Supplementary Data Page Reports of Independent Registered Public Accounting Firm 48 Consolidated Balance Sheets – December 31, 2020 and 2019 51 Consolidated Statements of Operations – For each of the years in the three-year period ended December 31, 2020 52 Consolidated Statements of Comprehensive Income – For each of the years in the three-year period ended December 31, 2020 53 Consolidated Statements of Stockholders’ Equity – For each of the years in the three-year period ended December 31, 2020 54 Consolidated Statements of Cash Flows – For each of the years in the three-year period ended December 31, 2020 56 Notes to Consolidated Financial Statements 57 47 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Insight Enterprises, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Insight Enterprises, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of the FASB’s Accounting Standards Codification (ASC) Topic 842, Leases. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of revenue recognition As discussed in Note 1 to the consolidated financial statements, the Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service or by arranging for the sales of a vendor’s product or service to a client. The Company measures revenue based on the consideration received in a contract with a client, and excludes any sales incentives and amounts collected on behalf of third parties. The Company offers hardware and software products, as well as services. Given the number of product and service offerings, significant judgment is exercised by the Company in recognizing revenue, including the following decisions: 48 • Determining the point in time when a customer takes control of hardware . • Determining the point in time when the customer acquires or renews the right to use or copy software under license and control transfers to the customer. • Evaluating the Company as either a principal or an agent for hardware and software products and services, and the related recognition of revenue from the customer on a gross or a net basis. • Determining an appropriate pattern of revenue recognition for service performance obligations. We identified the evaluation of revenue recognition as a critical audit matter because the audit effort to evaluate the Company’s revenue recognition judgments, including those noted above, was extensive and required a high degree of auditor judgment. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the revenue recognition process, including controls related to the timing and pattern of revenue recognition and gross versus net revenue recognition. As part of testing the Company’s internal controls, we also involved information technology (IT) professionals with specialized skills and knowledge, who assisted in testing of general IT controls over significant systems and the evaluation of system interface controls and automated controls designed to determine the existence, accuracy, and completeness of revenue. We evaluated the Company’s significant accounting policies related to its product and service offerings by reviewing the terms of certain vendor and customer contracts and comparing the policies to the revenue recognition standard. We selected a sample of revenue transactions and performed the following for each selection: • Obtained evidence of a contract with the customer. • Compared the amounts recognized and timing of revenue recognition to underlying documentation, including purchase orders, shipping documentation, and evidence of payment, if applicable. • Evaluated the Company’s application of their accounting policies to determine the timing and amount of revenue to be recognized. • Tested the presentation of revenue as gross or net by comparing the Company’s gross or net presentation to the attributes of the underlying vendor support and the Company’s accounting policy. /s/ KPMG LLP We have served as the Company’s auditor since 1990. Phoenix, Arizona February 16, 2021 49 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Insight Enterprises, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Insight Enterprises, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 16, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A(a) Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Phoenix, Arizona February 16, 2021 50 INSIGHT ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) ASSETS December 31, 2020 2019 Current assets: Cash and cash equivalents $ 128,313 $ 114,668 Accounts receivable, net 2,685,448 2,511,383 Inventories 185,650 190,833 Other current assets 177,039 231,148 Total current assets 3,176,450 3,048,032 Property and equipment, net 146,016 130,907 Goodwill 429,368 415,149 Intangible assets, net 246,915 278,584 Other assets 311,983 305,507 $ 4,310,732 $ 4,178,179 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable—trade $ 1,461,312 $ 1,275,957 Accounts payable—inventory financing facilities 356,930 253,676 Accrued expenses and other current liabilities 408,117 352,204 Current portion of long-term debt 1,105 1,691 Total current liabilities 2,227,464 1,883,528 Long-term debt 437,581 857,673 Deferred income taxes 33,209 44,633 Other liabilities 270,049 232,027 2,968,303 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; 35,103 and 35,263 shares issued and outstanding, respectively 351 353 Additional paid-in capital 364,288 357,032 Retained earnings 993,245 841,097 Accumulated other comprehensive loss – foreign currency translation adjustments ( 15,455 ) ( 38,164 ) Total stockholders’ equity 1,342,429 1,160,318 $ 4,310,732 $ 4,178,179 See accompanying notes to consolidated financial statements. 51 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Years Ended December 31, 2020 2019 2018 Net sales: Products $ 7,172,155 $ 6,732,121 $ 6,249,938 Services 1,168,424 999,069 830,198 Total net sales 8,340,579 7,731,190 7,080,136 Costs of goods sold: Products 6,497,001 6,125,360 5,711,400 Services 543,636 467,732 375,018 Total costs of goods sold 7,040,637 6,593,092 6,086,418 Gross profit 1,299,942 1,138,098 993,718 Operating expenses: Selling and administrative expenses 1,013,765 880,737 756,529 Severance and restructuring expenses 12,394 5,425 3,424 Acquisition-related expenses 2,208 11,342 282 Earnings from operations 271,575 240,594 233,483 Non-operating (income) expense: Interest expense, net 41,594 28,478 21,737 Other expense (income), net 1,529 400 ( 156 ) Earnings before income taxes 228,452 211,716 211,902 Income tax expense 55,812 52,309 48,225 Net earnings $ 172,640 $ 159,407 $ 163,677 Net earnings per share: Basic $ 4.92 $ 4.49 $ 4.60 Diluted $ 4.87 $ 4.43 $ 4.55 Shares used in per share calculations: Basic 35,117 35,538 35,586 Diluted 35,444 35,959 36,009 See accompanying notes to consolidated financial statements. 52 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Years Ended December 31, 2020 2019 2018 Net earnings $ 172,640 $ 159,407 $ 163,677 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 22,710 3,489 ( 17,389 ) Total comprehensive income $ 195,350 $ 162,896 $ 146,288 See accompanying notes to consolidated financial statements. 53 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) 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, 2017 35,829 $ 358 — $ — $ 317,155 $ ( 24,264 ) $ 550,220 $ 843,469 Cumulative effect of accounting change — — — — — — 7,176 7,176 Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes 294 3 — — ( 3,233 ) — — ( 3,230 ) Stock-based compensation expense — — — — 15,355 — — 15,355 Repurchase of treasury stock — — ( 641 ) ( 22,069 ) - — — ( 22,069 ) Retirement of treasury stock ( 641 ) ( 6 ) 641 22,069 ( 5,655 ) — ( 16,408 ) - Foreign currency translation adjustments, net of tax — — — — — ( 17,389 ) — ( 17,389 ) Net earnings — — — — — — 163,677 163,677 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 322 3 — — ( 6,575 ) — — ( 6,572 ) Stock-based compensation expense — — — — 16,011 — — 16,011 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 — — — — — 3,489 — 3,489 Net earnings — — — — — — 159,407 159,407 Balances at December 31, 2019 35,263 353 — — 357,032 ( 38,164 ) 841,097 1,160,318 54 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued) (in thousands) 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, 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 285 3 — — ( 5,967 ) — — ( 5,964 ) Stock-based compensation expense — — — — 17,727 — — 17,727 Repurchase of treasury stock — — ( 445 ) ( 25,000 ) — — — ( 25,000 ) Retirement of treasury stock ( 445 ) ( 5 ) 445 25,000 ( 4,504 ) ( 1 ) ( 20,492 ) ( 2 ) Foreign currency translation adjustments, net of tax — — — — — 22,710 — 22,710 Net earnings — — — — — — 172,640 172,640 Balances at December 31, 2020 35,103 $ 351 — $ — $ 364,288 $ ( 15,455 ) $ 993,245 $ 1,342,429 See accompanying notes to consolidated financial statements. 55 INSIGHT ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands ) Years Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net earnings $ 172,640 $ 159,407 $ 163,677 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 65,560 46,209 37,458 Provision for losses on accounts receivable 10,163 5,079 4,776 Non-cash stock-based compensation 17,727 16,011 15,355 Deferred income taxes ( 13,246 ) 7,418 9,126 Amortization of debt discount and issuance costs 16,217 6,652 — Other adjustments 6,272 4,894 3,929 Changes in assets and liabilities: Increase in accounts receivable ( 132,599 ) ( 118,971 ) ( 46,883 ) Decrease in inventories 1,029 11,944 46,534 Decrease (increase) in other assets 7,367 ( 129,745 ) 12,424 Increase (decrease) in accounts payable 152,235 ( 612 ) 29,844 Increase in accrued expenses and other liabilities 52,217 119,590 16,407 Net cash provided by operating activities 355,582 127,876 292,647 Cash flows from investing activities: Proceeds from sale of assets held for sale 40,295 — — Acquisitions, net of cash and cash equivalents acquired ( 6,405 ) ( 664,287 ) ( 74,938 ) Purchases of property and equipment ( 24,184 ) ( 69,086 ) ( 17,251 ) Proceeds from sale of foreign entity — — 479 Net cash provided by (used in) investing activities 9,706 ( 733,373 ) ( 91,710 ) Cash flows from financing activities: Borrowings on senior revolving credit facility — 242,936 569,232 Repayments on senior revolving credit facility — ( 242,936 ) ( 686,732 ) Borrowings on ABL revolving credit facility, net of initial lender fees 3,030,679 1,680,515 — Repayments on ABL revolving credit facility ( 3,462,063 ) ( 1,130,544 ) — Borrowings on accounts receivable securitization financing facility — 2,364,500 3,357,000 Repayments on accounts receivable securitization financing facility — ( 2,558,500 ) ( 3,188,000 ) Repayments under Term Loan A — — ( 166,250 ) Net borrowing (repayments) under inventory financing facility 103,254 ( 50,454 ) ( 15,338 ) 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 treasury stock ( 25,000 ) ( 27,899 ) ( 22,069 ) Other payments ( 8,661 ) ( 9,396 ) ( 6,871 ) Net cash (used in) provided by financing activities ( 361,791 ) 577,587 ( 159,028 ) Foreign currency exchange effect on cash, cash equivalents and restricted cash balances 10,788 ( 86 ) ( 5,061 ) Increase (decrease) in cash, cash equivalents and restricted cash 14,285 ( 27,996 ) 36,848 Cash, cash equivalents and restricted cash at beginning of year 116,297 144,293 107,445 Cash, cash equivalents and restricted cash at end of year $ 130,582 $ 116,297 $ 144,293 See accompanying notes to consolidated financial statements. 56 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Operations and Summary of Significant Accounting Policies Description of Business We empower organizations of all sizes with Intelligent Technology 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 solutions, together with our supply chain optimization expertise, 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 ("U.S.") 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 are largely software and certain software-related services. Acquisitions Effective February 28, 2020 , we acquired vNext SAS (“vNext”), a French digital consulting services and managed services provider. The acquisition was funded using cash on hand. Effective August 30, 2019 , we acquired PCM, Inc. (“PCM”), a provider of multi-vendor technology offerings, including hardware, software and services, for a purchase price of approximately $ 745,562,000 , including cash and cash equivalents of $ 84,637,000 and the payment of PCM’s outstanding debt. The acquisition was funded through a combination of using cash on hand and borrowings under our senior secured revolving credit facility (the “ABL facility”). Effective August 1, 2018 , we acquired Cardinal Solutions Group, Inc. (“Cardinal”), a digital solutions provider, for a purchase price, net of cash acquired, of approximately $ 78,400,000 , including the final working capital adjustment and tax gross up adjustments. The acquisition was funded using cash on hand. Our results of operations include the results of vNext, PCM and Cardinal from their respective acquisition dates. (See Note 20 for a discussion of our acquisitions). Principles of Consolidation and Presentation The consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Included in our accounts receivable, net balance at December 31, 2020 and 2019 is $ 8,398,000 and $ 15,078,000 , respectively, of accounts receivable from an unconsolidated affiliate. References to “the Company,” “Insight,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise. Acquisition Accounting The Company accounts for all business combinations using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes estimates and assumptions. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred. 57 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Additionally, these estimates and assumptions affect the reported amounts of net sales and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to sales recognition, anticipated achievement levels under partner funding programs, assumptions related to stock-based compensation valuation, allowances for doubtful accounts, valuation of inventories, litigation-related obligations, valuation allowances for deferred tax assets and impairment of long-lived assets, including purchased intangibles and goodwill, if indicators of potential impairment exist. Cash, Cash Equivalents and Restricted Cash We consider all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. Book overdrafts represent the amount by which outstanding checks issued, but not yet presented to our banks for disbursement, exceed balances on deposit in applicable bank accounts and a legal right of offset with our positive cash balances in other financial institution accounts does not exist. Our book overdrafts, which are not directly linked to a credit facility or other bank overdraft arrangement, do not result in an actual bank financing, but rather constitute normal unpaid trade payables at the end of a reporting period. These amounts are included within our accounts payable balance in our consolidated balance sheets. The changes in these book overdrafts are included within the changes in accounts payable line item as a component of cash flows from operating activities in our consolidated statements of cash flows. Restricted cash generally includes any cash that is restricted as to withdrawal or usage. These amounts are included with cash and cash equivalents on the consolidated statement of cash flows. All cash receipts/payments with third parties directly to/from restricted cash accounts are reported as an operating, investing or financing cash flow, based on the nature of the transaction. Allowance for Doubtful Accounts We establish an allowance for doubtful accounts to reflect our best estimate of probable losses inherent in our accounts receivable balance. The allowance is based on our evaluation of the aging of the receivables, historical write-offs and the current economic environment. We write off individual accounts against the reserve when we no longer believe that it is probable that we will collect the receivable because we become aware of a client’s or partner’s inability to meet its financial obligations. Such awareness may be as a result of bankruptcy filings, or deterioration in the client’s or partner’s operating results or financial position. Inventories We state inventories, principally purchased IT hardware, at the lower of weighted average cost (which approximates cost under the first-in, first-out method) or net realizable value. We evaluate inventories for excess, obsolescence or other factors that may render inventories unmarketable at normal margins. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into account contractual provisions with our partners governing price protection, stock rotation and return privileges relating to obsolescence. Because of the large number of transactions and the complexity of managing the price protection and stock rotation process, estimates are made regarding write-downs of the carrying amount of inventories. Additionally, assumptions about future demand, market conditions and decisions by manufacturers/publishers to discontinue certain products or product lines can affect our decision to write down inventories. 58 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Property and Equipment We record property and equipment at cost. We capitalize major improvements and betterments, while maintenance, repairs and minor replacements are expensed as incurred. Depreciation or amortization is provided using the straight-line method over the following estimated economic lives of the assets: Estimated Economic Life Leasehold improvements Shorter of underlying lease term or asset life Furniture and fixtures 2 – 7 years Equipment 3 – 5 years Software 3 – 10 years Buildings 29 years External direct costs of materials and services consumed in developing or obtaining internal-use computer software and payroll and payroll-related costs for teammates who are directly associated with and who devote time to internal-use computer software development projects, to the extent of the time spent directly on the project and specific to application development, are capitalized. Reviews are regularly performed to determine whether facts and circumstances exist which indicate that the economic life is shorter than originally estimated or the carrying amount of assets may not be recoverable. When an indication exists that the carrying amount of long-lived assets may not be recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the carrying amount over the estimated fair value of those assets. Goodwill Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. We may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform a quantitative goodwill impairment test. Otherwise, the goodwill impairment test is not required. The quantitative goodwill impairment review process compares the fair value of the reporting unit in which goodwill resides to its carrying value. The Company has three reporting units, which are the same as our operating segments. Multiple valuation techniques would likely be used to assess the fair value of the reporting unit. These techniques include the use of estimates and assumptions that are inherently uncertain. Changes in these estimates and assumptions could materially affect the determination of fair value or goodwill impairment, or both. Intangible Assets We amortize finite lived intangible assets acquired in business combinations using the straight-line method over the estimated economic lives of the intangible assets from the date of acquisition. We regularly perform reviews to determine if facts and circumstances exist which indicate that the economic lives of our intangible assets are shorter than originally estimated or the carrying amount of these assets may not be recoverable. When an indication exists that the carrying amount of intangible assets may not be recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the carrying amount over the estimated fair value of those assets. 59 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Leases We adopted ASU No. 2016-02, “Leases” (Topic 842) with a date of initial application of January 1, 2019. As a result, we updated our accounting policy for leases. We determine if a contract or arrangement is, or contains, a lease at inception. Balances related to operating leases are included in other assets, other current liabilities, and other liabilities in our consolidated balance sheet. Balances related to financing leases are included in property and equipment, current portion of long-term debt, and long-term debt in our consolidated balance sheet. Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities of $ 65,922,000 and $ 70,512,000 , respectively, were recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset includes any prepaid lease payments and additional direct costs and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Self-Insurance We are self-insured in the U.S. for medical insurance up to certain annual stop-loss limits and workers’ compensation claims up to certain deductible limits. We establish reserves for claims, both reported and incurred but not reported, using currently available information as well as our historical claims experience. Treasury Stock We record repurchases of our common stock as treasury stock at cost. We also record the subsequent retirement of these treasury shares at cost. The excess of the cost of the shares retired over their par value is allocated between additional paid-in capital and retained earnings. The amount recorded as a reduction of paid-in capital is based on the excess of the average original issue price of the shares over par value. The remaining amount is recorded as a reduction of retained earnings. Sales Recognition Revenue is measured based on the consideration specified in a contract with a client, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service or by arranging for the sales of a vendor’s products or service to a client. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a client, are excluded from revenue. We record the freight we bill to our clients as product net sales and the related freight costs we pay as product costs of goods sold. Nature of Goods and Services We sell hardware and software products on both a stand-alone basis without any services and as solutions bundled with services. When we provide a combination of hardware and software products with the provision of services, we separately identify our performance obligations under our contract with the client as the distinct goods (hardware and/or software products) or services that will be provided. The total transaction price for an arrangement with multiple performance obligations is allocated at contract inception to each distinct performance obligation in proportion to its stand-alone selling price. The stand-alone selling price is the price at which we would sell a promised good or service separately to a client. We estimate the price based on observable inputs, including direct labor hours and allocable costs, or use observable stand-alone prices when they are available. 60 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Product Offerings Hardware We recognize hardware product revenue on a gross basis at the point in time when a client takes control of the hardware, which typically occurs when title and risk of loss have passed to the client at its destination. Our selling terms and conditions specify Free On Board (“F.O.B.”) destination contractual terms such that control is transferred from the Company at the point in time when the product is received by the client. The transaction price for hardware sales is adjusted for estimated product returns that we expect to occur under our return policy based upon historical return rates. We leverage drop-shipment arrangements with many of our partners and suppliers to deliver products to our clients without having to physically hold the inventory at our warehouses, thereby increasing efficiency and reducing costs. We recognize revenue for drop-shipment arrangements on a gross basis as the principal in the transaction when the product is received by the client because we control the product prior to transfer to the client. In addition to other factors considered, we assume primary responsibility for fulfillment in the arrangement, we assume inventory risk if the product is returned by the client, we set the price of the product charged to the client and we work closely with our clients to determine their hardware specifications. Bill and Hold Transactions We offer a service to our customers whereby clients may purchase product that we procure on their behalf and, at our clients’ direction, store the product in our warehouse for a designated period of time, with the intention of deploying the product to the clients’ designated locations at a later date. These warehousing services are designed to help our clients with inventory management challenges associated with technology roll-outs, product that is moving to end of life, or clients needing integrated stock available for immediate deployment. The client is invoiced and title transfers to the client upon receipt of the product at our warehouse. These product contracts are non-cancelable with customary credit terms beginning the date the product is received in our warehouse and the warranty periods begin on the date of invoice. Revenue is recognized for the sale of the product to the client upon receipt of the product at our warehouse. Software We recognize revenue from software sales on a gross basis at the point in time when the client acquires the right to use or copy software under license and control transfers to the client. For renewals, revenue is recognized upon the commencement of the software license agreement or when the renewal term begins, as applicable. A substantial portion of the software licenses we sell are perpetual software licenses and do not require renewal or extension after their initial purchase by the client. Such perpetual licenses are periodically subject to true-up, whereby additional perpetual licenses are sold under the client’s pre-existing master agreement. Such true-ups are generally sold in arrears, and clients are invoiced for the additional licenses they had already been utilizing. Since the client already possessed copies of the licensed software prior to the true-up, software revenue related to the underlying additional licenses is recognized when we agree to the true-up with our client and the partner. For sales transactions for certain security software products that are sold with integral third-party delivered software maintenance, we record the software license on a net basis, as the agent in the arrangement. Services Offerings Software Maintenance Software maintenance agreements provide our clients with the right to obtain any software upgrades, bug fixes and help desk and other support services directly from the software publisher at no additional charge during the term of the software maintenance agreements. We act as the software publisher’s agent in selling these software maintenance agreements and do not assume any performance obligation to the client under the agreements. As a result, we are the agent in these transactions and these sales are recorded on a net sales recognition basis. Under net sales recognition, the cost of the software maintenance agreement is recorded as a reduction to sales, resulting in net sales equal to the gross profit on the transaction, and there are no costs of goods sold. 61 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Because we are acting as the software publisher’s agent, revenue is recognized when the parties agree to the initial purchase, renewal or extension as our agency services are then complete. W e report all fees earned from activities reported net within our services net sales category in our consolidated statements of operations. Vendor Direct Support Services Contracts Clients may purchase a vendor direct support services contract through us. Under these contracts, our clients call the manufacturer/publisher or its designated service organization directly for both the initial technical triage and any follow-up assistance. We act as the manufacturer/publisher’s agent in selling these support service contracts and do not assume any performance obligation to the client under the arrangements. As a result, these sales are recorded on a net sales recognition basis similar to software maintenance agreements, as discussed above. Because we are acting as the agent, revenue is recognized when the parties agree to the purchase of the support services contract as our agency services are then complete. Cloud / Software-as-a-Service Offerings Cloud or software-as-a-service (“SaaS”) subscription products provide our clients with access to software products hosted in the public cloud without the client taking possession of the software. We act as the agent in selling these software-as-a service subscription products. We do not take control of the software products or assume any performance obligations to the clients related to the provisioning of the offerings in the cloud. As a result, these sales are recorded on a net sales recognition basis. We report all fees earned from activities recognized net within our services net sales category in our consolidated statements of operations. Because we are acting as the agent in the transaction, revenue is recognized when the parties agree to the purchase of the cloud or SaaS offerings as our agency services are then complete. Often, these agency fees are based on end-client usage and therefore are variable throughout the term of the service contract. Where this variable consideration is uncertain, we recognize our agency revenue to the extent that a significant reversal will not occur. Insight Delivered Services We design, procure, deploy, implement and manage solutions that combine hardware, software and services to help businesses run smarter. Such services are provided by us or third-party sub-contract vendors as part of bundled arrangements, or are provided separately on a stand-alone basis as technical, consulting or managed services engagements. If the services are provided as part of a bundled arrangement with hardware and software, the hardware, software and services are generally distinct performance obligations. In general, we recognize revenue from services engagements as we perform the underlying services and satisfy our performance obligations. We recognize revenue from sales of services by measuring progress toward complete satisfaction of the related service performance obligation. Billings for such services that are made in advance of the related revenue recognized are recorded as a contract liability. Specific revenue recognition practices for certain of our services offerings are described in further detail below. Time and Materials Services Contracts We recognize revenue for professional services engagements that are on a time and materials basis based upon hours incurred for the performance completed to date for which we have the right to consideration, even if such amounts have not yet been invoiced as of period end. Fixed Fee Services Contracts We recognize revenue on fixed fee professional services contracts using a proportional performance method of revenue recognition based on the ratio of direct labor and other allocated costs incurred to total estimated direct labor and other allocated costs. OneCall Support Services Contracts When we sell certain hardware and/or software products to our clients, we also enter into service contracts with them. These contracts are support service agreements for the hardware and/or 62 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) software products that were purchased from us. Under certain support services contracts, although we purchase third-party support contracts for maintenance on the specific hardware or software products we have sold, our internal support desk assists the client first by performing an initial technical triage to determine the source of the problem and whether we can direct the client on how to fix the problem. We refer to these services as “OneCall.” We act as the principal in the transaction because we perform the OneCall services over the term of the support service contract and we set the price of the service charged to the client . As a result, we recognize revenue from OneCall extended service contracts on a gross sales recognition basis . We recognize the revenue ratably over the contract term of the stand ready obligation, generally one to three years . On our consolidated balance sheet, a significant portion of our contract liabilities balance relates to OneCall support services agreements for which clients have paid or have been invoiced but for which we have not yet recognized the applicable services revenue. We also defer incremental direct costs to fulfill our service contracts that we prepay to third parties for direct support of our fulfillment of the service contract to our clients under our contract terms and amortize them into operations over the term of the contracts. Third-party Provided Services A majority of our third-party sub-contractor services contracts are entered into in conjunction with other services contracts under which the services are performed by Insight teammates. We have concluded that we control all services under the contract and can direct the third-party sub-contractor to provide the requested services. As such, we act as the principal in the transaction and record the services under a gross sales recognition basis, with the selling price being recorded in sales and our cost to the third-party service provider being recorded in costs of goods sold. For certain third-party service contracts in which we do not control the services prior to transferring to our clients because we are not responsible for fulfillment of the services, we have concluded that we are an agent in the transaction and record revenue on a net sales recognition basis. Costs of Goods Sold Costs of goods sold include product costs, direct costs incurred associated with delivering services, outbound and inbound freight costs and provisions for inventory reserves. These costs are reduced by provisions for supplier discounts and certain payments and credits received from partners, as described under “Partner Funding” below. Selling and Administrative Expenses Selling and administrative expenses include salaries and wages for teammates who are not directly associated with delivering services, bonuses and incentives, stock-based compensation expense, employee-related expenses, facility-related expenses, marketing and advertising expense, reduced by certain payments and credits received from partners related to shared marketing expense programs, as described under “Partner Funding” below, depreciation of property and equipment, professional fees, amortization of intangible assets, provisions for losses on accounts receivable and other operating expenses. Partner Funding We receive payments and credits from partners, including consideration pursuant to volume sales incentive programs, volume purchase incentive programs and shared marketing expense programs. Partner funding received pursuant to volume sales incentive programs is recognized as it is earned as a reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive programs is allocated as a reduction to inventories based on the applicable incentives earned from each partner and is recorded in cost of goods sold as the related inventory is sold. Partner funding received pursuant to shared marketing expense programs is recorded as it is earned as a reduction of the related selling and administrative expenses in the period the program takes place if the consideration represents a reimbursement of specific, incremental, identifiable costs. Consideration that exceeds the specific, incremental, identifiable costs is classified as a reduction of costs of goods sold. The amount of partner funding recorded as a reduction of selling and administrative expenses in our statements of operations totaled $ 85,888,000 , $ 77,668,000 and $ 68,571,000 in 2020, 2019 and 2018, respectively. 63 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Concentrations of Risk Credit Risk Although we are affected by the international economic climate, management does not believe material credit risk concentration existed at December 31, 2020. We monitor our clients’ financial condition and do not require collateral. No single client accounted for more than 10 % of our consolidated net sales in 2020. Partner Risk Purchases from Microsoft and Tech Data (a distributor) accounted for approximately 21 % and 11 %, respectively, of our aggregate purchases in 2020. No other partner accounted for more than 10 % of purchases in 2020. Our top five partners as a group for 2020 were Microsoft, Tech Data (a distributor), Dell, Ingram Micro (a distributor) and Cisco Systems, and approximately 56 % of our total purchases during 2020 came from this group of partners. Although brand names and individual products are important to our business, we believe that competitive sources of supply are available in substantially all of our product categories such that, with the exception of Microsoft, we are not dependent on any single partner for sourcing products. Advertising Costs Advertising costs are expensed as they are incurred. Advertising expense of $ 60,865,000 , $ 62,913,000 and $ 57,448,000 was recorded in 2020, 2019 and 2018, respectively. These amounts were predominantly offset by partner funding earned pursuant to shared marketing expense programs recorded as a reduction of selling and administrative expenses, as discussed in “Partner Funding” above. Stock-Based Compensation Stock-based compensation is measured based on the fair value of the award on the date of grant and the corresponding expense is recognized over the period during which an employee is required to provide service in exchange for the reward. Stock-based compensation expense is classified in the same line item of our consolidated statements of operations as other payroll-related expenses specific to the employee. Compensation expense related to service-based restricted stock units (“RSUs”) is recognized on a straight-line basis over the requisite service period for the entire award. Compensation expense related to performance-based RSUs is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards (i.e., a graded vesting basis). Forfeitures are recognized as they occur. Foreign Currencies We use the U.S. dollar as our reporting currency. The functional currencies of our foreign subsidiaries are the local currencies. Accordingly, assets and liabilities of the subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet dates. Income and expense items are translated at the average exchange rate for each month within the year. The resulting translation adjustments are recorded directly in accumulated other comprehensive income, net of tax – foreign currency translation adjustments as a separate component of stockholders’ equity. Net foreign currency transaction gains/losses, including transaction gains/losses on intercompany balances that are not of a long-term investment nature and non-functional currency cash balances, are reported in other expense (income), net within non-operating (income) expense in our consolidated statements of operations. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. 64 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Interest and penalties related to unrecognized tax benefits are recognized within the income tax expense line in our consolidated statements of operations. Accrued interest and penalties are included within the related tax liability line in our consolidated balance sheets. Contingencies From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various government agency, client and partner audits. We continually assess whether or not such claims have merit and warrant accrual. An accrual is made if it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Such estimates are subject to change and may affect our results of operations and our cash flows. Net Earnings Per Share (“EPS”) Basic EPS is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during each year. Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding RSUs. A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data): Years Ended December 31, 2020 2019 2018 Numerator: Net earnings $ 172,640 $ 159,407 $ 163,677 Denominator: Weighted-average shares used to compute basic EPS 35,117 35,538 35,586 Dilutive potential common shares due to dilutive: RSUs, net of tax effect 327 421 423 Weighted-average shares used to compute diluted EPS 35,444 35,959 36,009 Net earnings per share: Basic $ 4.92 $ 4.49 $ 4.60 Diluted $ 4.87 $ 4.43 $ 4.55 In 2020, 2019 and 2018, approximately 122,000 , 42,000 and 17,000 , respectively, of our RSUs were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive. These share-based awards could be dilutive in the future. In the years ended December 31, 2020 and 2019, certain potential outstanding shares from convertible senior notes and warrants were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive. 65 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Recently Issued Accounting Standards In August 2020, the FASB issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity”. The new guidance is intended to simplify the accounting for certain convertible instruments with characteristics of both liability and equity. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after the adoption of this guidance, an entity’s convertible debt instrument will be wholly accounted for as debt. The guidance also expands disclosure requirements for convertible instruments and simplifies areas of the guidance for diluted earnings-per-share calculations by requiring the use of the if-converted method. The guidance will be effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements. In December 2019, the Financial Accounting Standards Board’s (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, “Simplifying the Accounting for Income Taxes.” The new standard is intended to simplify various aspects of accounting for income taxes by removing specific exceptions and amending certain requirements. The new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. We adopted the new standard as of January 1, 2021. The adoption of this new standard did not have a material effect on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses.” The new standard is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held at each reporting date. The new standard is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted. We adopted the new standard as of January 1, 2020. The adoption of this new standard did not have a material effect on our consolidated financial statements. In November 2019, the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” The new standard provides amendments to the reporting of expected recoveries. The new standard is effective with the adoption of ASU No. 2016-13. We adopted the new standard as of January 1, 2020. The adoption of this new standard did not have a material effect on our consolidated financial statements. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The new standard provides changes for how a company considers expected recoveries and contractual extensions or renewal options when estimating expected credit losses. The new standard is effective with the adoption of ASU No. 2016-13. We adopted the new standard as of January 1, 2020. The adoption of this new standard did not have a material effect on our consolidated financial statements. 66 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (2) Sales Recognition Disaggregation of Revenue In the following table, revenue is disaggregated by our reportable operating segments, which are primarily defined by their related geographies, as well as by major product offering, by major client group and by recognition on either a gross basis as a principal in the arrangement, or on a net basis as an agent, for the years ended December 31, 2020, 2019 and 2018 (in thousands): Year Ended December 31, 2020 North America EMEA APAC Consolidated Major Offerings Hardware $ 4,418,295 $ 617,825 $ 31,953 $ 5,068,073 Software 1,260,757 760,562 82,763 2,104,082 Services 935,980 176,838 55,606 1,168,424 $ 6,615,032 $ 1,555,225 $ 170,322 $ 8,340,579 Major Client Groups Large Enterprise / Corporate $ 4,507,041 $ 1,101,557 $ 62,734 $ 5,671,332 Small and Medium-Sized Businesses 1,395,298 61,535 60,740 1,517,573 Public Sector 712,693 392,133 46,848 1,151,674 $ 6,615,032 $ 1,555,225 $ 170,322 $ 8,340,579 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition (Principal) $ 6,284,948 $ 1,452,115 $ 146,770 $ 7,883,833 Net revenue recognition (Agent) 330,084 103,110 23,552 456,746 $ 6,615,032 $ 1,555,225 $ 170,322 $ 8,340,579 Year Ended December 31, 2019 North America EMEA APAC Consolidated Major Offerings Hardware $ 3,957,507 $ 622,949 $ 34,965 $ 4,615,421 Software 1,269,983 753,729 92,988 2,116,700 Services 796,815 149,966 52,288 999,069 $ 6,024,305 $ 1,526,644 $ 180,241 $ 7,731,190 Major Client Groups Large Enterprise / Corporate $ 4,466,384 $ 1,126,388 $ 59,786 $ 5,652,558 Small and Medium-Sized Businesses 960,432 76,666 65,033 1,102,131 Public Sector 597,489 323,590 55,422 976,501 $ 6,024,305 $ 1,526,644 $ 180,241 $ 7,731,190 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition (Principal) $ 5,759,247 $ 1,432,300 $ 156,279 $ 7,347,826 Net revenue recognition (Agent) 265,058 94,344 23,962 383,364 $ 6,024,305 $ 1,526,644 $ 180,241 $ 7,731,190 67 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended December 31, 2018 North America EMEA APAC Consolidated Major Offerings Hardware $ 3,610,356 $ 653,499 $ 29,496 $ 4,293,351 Software 1,112,715 736,509 107,363 1,956,587 Services 639,910 140,233 50,055 830,198 $ 5,362,981 $ 1,530,241 $ 186,914 $ 7,080,136 Major Client Groups Large Enterprise / Corporate $ 3,951,900 $ 1,134,696 $ 49,826 $ 5,136,422 Small and Medium-Sized Businesses 912,208 67,727 60,521 1,040,456 Public Sector 498,873 327,818 76,567 903,258 $ 5,362,981 $ 1,530,241 $ 186,914 $ 7,080,136 Revenue Recognition based on acting as Principal or Agent in the Transaction Gross revenue recognition (Principal) $ 5,143,228 $ 1,439,979 $ 164,394 $ 6,747,601 Net revenue recognition (Agent) 219,753 90,262 22,520 332,535 $ 5,362,981 $ 1,530,241 $ 186,914 $ 7,080,136 Contract Balances The following table provides information about receivables and contract liabilities as of December 31, 2020 and 2019 (in thousands): December 31, December 31, 2020 2019 Current receivables, which are included in “Accounts receivable, net” $ 2,685,448 $ 2,511,383 Non-current receivables, which are included in “Other assets” 154,662 154,417 Contract liabilities, which are included in “Accrued expenses and other current liabilities” and “Other liabilities” 107,158 84,814 Significant changes in the contract liabilities balances during the year ended December 31, 2020 are as follows (in thousands): Increase (Decrease) Balances at December 31, 2018 $ 82,117 Recognition of the beginning contract liabilities to revenue, as the result of performance obligations satisfied ( 73,750 ) Cash received in advance and not recognized as revenue 69,376 Contract liabilities assumed in an acquisition 7,071 Balances at December 31, 2019 $ 84,814 Recognition of the beginning contract liabilities to revenue, as the result of performance obligations satisfied ( 59,553 ) Cash received in advance and not recognized as revenue 81,897 Balances at December 31, 2020 $ 107,158 68 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Transaction price allocated to the remaining performance obligations The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2020 that are expected to be recognized in the future (in thousands): Services 2021 111,295 2022 34,948 2023 14,105 2024 and thereafter 6,631 Total remaining performance obligations $ 166,979 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, remaining performance obligations that have original expected duration 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 December 31, 2020 and do not disclose information about related remaining performance obligations in the table above. Our open time and material contracts at December 31, 2020, have an average expected duration of 21 months. The majority of our backlog historically has been and continues to be open cancelable purchase orders. We do not believe that backlog as of any particular date is predictive of future results, therefore we do not include performance obligations under open cancelable purchase orders, which do not qualify for revenue recognition as of December 31, 2020, in the table above. (3) Assets Held for Sale During 2020, we completed the sale of our properties in Irvine, California and El Segundo, California for approximately $ 14,218,000 and $ 26,404,000 , respectively. Our property in Santa Monica, California was reclassified as held-in-use as we reevaluate our sale options. Our properties in Tempe, Arizona and Woodbridge, Illinois continued to be classified as held-for-sale for the remainder of 2020. During 2019, we completed the purchase of real estate in Chandler, Arizona that we intend to use as our global corporate headquarters. See note 22 for additional information on the subsequent event regarding the sale of our Tempe, Arizona and Woodbridge, Illinois properties. (4) Property and Equipment Property and equipment consist of the following (in thousands): December 31, 2020 2019 Software $ 159,413 $ 114,674 Buildings 66,842 92,092 Equipment 62,209 60,661 Furniture and fixtures 38,133 34,768 Leasehold improvements 35,665 33,668 Land 39,819 31,374 402,081 367,237 Accumulated depreciation and amortization ( 256,065 ) ( 236,330 ) Property and equipment, net $ 146,016 $ 130,907 Depreciation and amortization expense related to property and equipment was $ 28,025,000 , $ 22,538,000 and $ 21,721,000 in 2020, 2019 and 2018, respectively. On November 1, 2019, we completed the purchase of real estate in Chandler, Arizona for approximately $ 48,000,000 that we intend to use as our global corporate headquarters. The property contains a building and some infrastructure in place that we will complete readying for our use in 2021. 69 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) We intend to sell our current properties in Tempe, Arizona. See note 22 for additional information on the subsequent event regarding the sale of our Tempe, Arizona and Woodbridge, Illinois properties. In 2020, we completed the sale of our property in Irvine, California and El Segundo, California for approximately $ 14,218,000 and $ 26,404,000 , respectively . Included within the software, buildings and land values presented above are assets in the process of being readied for use in the amounts of approximately $ 5,650,000 , $ 29,427,000 and $ 11,700,000 , respectively. Depreciation on these assets will commence, as appropriate, when they are ready for use and placed in service. (5) Goodwill The changes in the carrying amount of goodwill for the year ended December 31, 2020 are as follows (in thousands): North America EMEA APAC Consolidated Goodwill $ 479,690 $ 155,188 $ 20,797 $ 655,675 Accumulated impairment losses ( 323,422 ) ( 151,439 ) ( 13,973 ) ( 488,834 ) Goodwill acquired during 2019 240,550 7,910 — 248,460 Foreign currency translation adjustment — ( 87 ) ( 65 ) ( 152 ) Balance at December 31, 2019 $ 396,818 $ 11,572 $ 6,759 $ 415,149 Goodwill acquired during 2020 — 4,865 — 4,865 Measurement period adjustments during 2020 5,711 ( 677 ) — 5,034 Foreign currency translation adjustment 947 2,767 606 4,320 Balance at December 31, 2020 $ 403,476 $ 18,527 $ 7,365 $ 429,368 On February 28, 2020, we acquired vNext, which has been integrated into our EMEA business. Under the acquisition method of accounting, the purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired was recorded as goodwill in the EMEA reporting unit. The primary driver for this acquisition was to strengthen our capacity to deliver consulting and implementation services to support clients’ digital transformation initiatives. On August 30, 2019 , we acquired PCM, which has been integrated into our North America and EMEA businesses. Under the acquisition method of accounting, the preliminary purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired of approximately $ 253,894,000 , net of measurement period adjustment of $ 5,034,000 recognized in 2020, was recorded as goodwill in the North America and EMEA reporting units (see Note 20). The primary driver for this acquisition was to help existing PCM clients in positioning their businesses for future growth, transforming and securing their data platforms, creating modern and mobile experiences for their workforce and optimizing the procurement of technology. The addition of PCM complements our supply chain optimization solution offering, adding scale and clients in the mid-market and corporate space in North America. On August 1, 2018 , we acquired Cardinal, which has been integrated into our North America business. Under the acquisition method of accounting, the purchase price for the acquisition was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired of approximately $ 36,040,000 , net of a measurement period adjustment of $ 400,000 recognized in 2019, was recorded as goodwill in the North America reporting unit (see Note 20). The primary driver for this acquisition was to strengthen our services capabilities and bring value to our clients within our digital innovation services solution offering. During 2020, we periodically assessed whether any indicators of impairment existed which would require us to perform an interim impairment review. As of each interim period end during the year, we concluded that a triggering event had not occurred that would more likely than not reduce the fair value of our reporting units below their carrying values. We performed our annual test of goodwill for impairment during the fourth quarter of 2020. The results of the qualitative goodwill impairment test 70 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) indicated that the fair value s of our North America , EMEA and APAC reporting unit s w ere in excess of the ir respective carrying value s . (6) Intangible Assets Intangible assets consist of the following (in thousands): December 31, 2020 2019 Customer relationships $ 342,492 $ 336,455 Other 7,906 15,621 350,398 352,076 Accumulated amortization ( 103,483 ) ( 73,492 ) Intangible assets, net $ 246,915 $ 278,584 During 2020, we periodically assessed whether any indicators of impairment existed related to our intangible assets. As of each interim period end during the year, we concluded that a triggering event had not occurred that would more likely than not reduce the fair value of our intangible assets below their carrying values. Amortization expense recognized in 2020, 2019 and 2018 was $ 37,535,000 , $ 23,671,000 and $ 15,737,000 , respectively. Future amortization expense for the remaining unamortized balance as of December 31, 2020 is estimated as follows (in thousands): Years Ending December 31, Amortization Expense 2021 $ 31,957 2022 31,084 2023 29,825 2024 28,344 2025 28,008 Thereafter 97,697 Total amortization expense $ 246,915 (7) Accounts Payable - Inventory Financing Facilities We have entered into agreements with financial intermediaries to facilitate the purchase of inventory from various suppliers under certain terms and conditions, as described below. These amounts outstanding under these facilities are classified separately as accounts payable - inventory financing facilities in the accompanying consolidated balance sheets. 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 December 31, 2020, our combined inventory financing facilities had a total maximum capacity of $ 500,000,000 , of which $ 356,930,000 was outstanding at December 31, 2020. The facilities 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. Net amounts drawn down or repaid during the year on these facilities are classified within cash flows from financing activities in the accompanying consolidated statements of cash flows. Interest does not accrue on accounts payable under these facilities provided the accounts payable are paid within stated vendor terms (typically 60 days); however, we impute interest on the average daily balance outstanding during these stated vendor terms based on our incremental borrowing rate during the period. Imputed interest of $ 13,076,000 , $ 10,801,000 and $ 10,593,000 was recorded in 2020, 2019 and 2018, respectively . 71 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (8) Debt, Finance Leases and Other Financing Obligations Debt Our long-term debt consists of the following (in thousands): December 31, 2020 2019 ABL revolving credit facility $ 140,000 $ 570,706 Convertible senior notes due 2025 296,419 284,836 Finance leases and other financing obligations 2,267 3,822 Total 438,686 859,364 Less: current portion of long-term debt ( 1,105 ) ( 1,691 ) Long-term debt $ 437,581 $ 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. The ABL facility is guaranteed by certain of our material subsidiaries and is secured by a lien on certain of our assets and certain of each other borrower’s and each guarantor’s assets. The ABL facility matures on August 30, 2024 . As of December 31, 2020, eligible accounts receivable and inventory were sufficient to permit access to the full $ 1,200,000,000 facility amount, of which $ 140,000,000 was outstanding. The interest rates applicable to borrowings under the ABL facility are based on the average aggregate excess availability under the ABL facility as set forth on a pricing grid in the credit agreement. Amounts outstanding under the ABL facility bear interest, payable quarterly, at a floating rate equal to a LIBOR rate plus a pre-determined spread of 1.25 % to 1.50 %. The floating interest rate applicable at December 31, 2020 was 1.40 % per annum for the ABL facility. In addition, we pay a quarterly commitment fee on the unused portion of the facility of 0.25 %, and our letter of credit participation fee ranges from 1.25 % to 1.50 %. During 2020, weighted average borrowings under our ABL facility were $ 339,474,000 . Interest expense associated with the ABL facility was $ 14,541,000 in 2020, including the commitment fee and amortization of deferred financing fees. The ABL facility contains customary affirmative and negative covenants and events of default. If a default occurs (subject to customary grace periods and materiality thresholds) under the credit agreement, certain actions may be taken, including, but not limited to, possible termination of commitments and required payment of all outstanding principal amounts plus accrued interest and fees payable under the credit agreement. Convertible Senior Notes On August 15, 2019, we issued $ 300,000,000 aggregate principal amount of convertible senior notes (the “notes”) that mature on February 15, 2025 . On August 23, 2019, we issued an additional $ 50,000,000 aggregate principal amount of the notes pursuant to the exercise in full by the initial purchasers of the notes of their option to purchase additional notes. The notes bear interest at an annual rate of 0.75 % payable semiannually, in arrears, on February 15th and August 15th of each year. The notes are general unsecured obligations of Insight and are guaranteed on a senior unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight. Holders of the notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 15, 2024, under the following 72 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price of our common stock per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after June 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, the holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, we will pay or deliver cash, shares of our common stock or a combination of the two, at our discretion. The conversion rate will initially be 14.6376 shares of common stock per $ 1,000 principal amount of notes (equivalent to an initial conversion price of approximately $ 68.32 per share of common stock). The conversion rate is subject to change in certain circumstances and will not be adjusted for any accrued and unpaid interest. In addition, following certain events that occur prior to the maturity date or following our issuance of a notice of redemption, the conversion rate is subject to an increase for a holder who elects to convert their notes in connection with those events or during the related redemption period in certain circumstances. If we undergo a fundamental change, the holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100 % of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. As of December 31, 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 principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes. The notes are subject to certain customary events of default and acceleration clauses. As of December 31, 2020, no such events have occurred. The notes consist of the following balances reported within the consolidated balance sheet as of December 31, 2020 and 2019 (in thousands): December 31, 2020 2019 Liability: Principal $ 350,000 $ 350,000 Less: debt discount and issuance costs, net of accumulated accretion ( 53,581 ) ( 65,164 ) Net carrying amount $ 296,419 $ 284,836 Equity, net of deferred tax $ 44,731 $ 44,731 The remaining life of the debt discount and issuance cost accretion is approximately 4.125 years. The effective interest rate on the liability component of the notes is 4.325 %. 73 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes the interest expense components resulting from the notes reported within the consolidated statement of operations for the year ended December 31, 2020 and 2019 (in thousands): December 31, 2020 2019 Contractual coupon interest $ 2,625 $ 984 Amortization of debt discount $ 10,226 $ 3,728 Amortization of debt issuance costs $ 1,359 $ 479 Convertible Note Hedge and Warrant Transaction In connection with the issuance of the notes, we entered into certain convertible note hedge and warrant transactions (the “Call Spread Transactions”) with respect to the Company’s common stock. The convertible note hedge consists of an option to purchase up to 5,123,160 common stock shares at a price of $ 68.32 per share. The hedge expires on February 15, 2025 and can only be concurrently executed upon the conversion of the notes. We paid approximately $ 66,325,000 for the convertible note hedge transaction. Additionally, we sold warrants to purchase 5,123,160 shares of common stock at a price of $ 103.12 per share. The warrants expire on May 15, 2025 and can only be exercised at maturity. The Company received aggregate proceeds of approximately $ 34,440,000 for the sale of the warrants. The Call Spread Transactions have no effect on the terms of the notes and reduce potential dilution by effectively increasing the initial conversion price of the notes to $ 103.12 per share of the Company’s common stock. Finance Leases and Other Financing Obligations From time to time, we enter into finance leases and other financing agreements with financial intermediaries to facilitate the purchase of products from certain vendors. The current and long-term portions of our finance lease and other financing obligations are included in the current and long-term portions of long-term debt in the table above and in our consolidated balance sheets as of December 31, 2020 and 2019. (9) 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. 74 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of December 31, 2020 and December 31, 2019 (in thousands): Leases Classification December 31, 2020 December 31, 2019 Assets Operating lease assets Other assets $ 79,418 $ 74,684 Finance lease assets Property and equipment (a) 2,103 3,297 Total lease assets $ 81,521 $ 77,981 Liabilities Current Operating lease liabilities Accrued expenses and other current liabilities $ 20,848 $ 19,648 Finance lease liabilities Current portion of long-term debt 1,105 1,691 Non-current Operating lease liabilities Other liabilities 65,192 60,285 Finance lease liabilities Long-term debt 1,162 2,131 Total lease liabilities $ 88,307 $ 83,755 (a) Recorded net of accumulated amortization of $ 2,162,000 and $ 861,000 as of December 31, 2020 and 2019, respectively. The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the year ended December 31, 2020 and 2019 (in thousands): Lease cost Classification Year ended December 31, 2020 Year ended December 31, 2019 Operating lease cost (a) (b) Selling and administrative expenses $ 25,918 $ 21,393 Finance lease cost Amortization of leased assets Selling and administrative expenses 1,301 861 Interest on lease liabilities Interest expense, net 104 110 Total lease cost $ 27,323 $ 22,364 (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 December 31, 2020 are as follows (in thousands): Operating leases Finance leases Total 2021 $ 23,144 $ 1,114 $ 24,258 2022 19,898 682 20,580 2023 14,104 476 14,580 2024 8,958 45 9,003 2025 7,061 — 7,061 After 2025 22,549 — 22,549 Total lease payments 95,714 2,317 98,031 Less: Interest ( 9,674 ) ( 50 ) ( 9,724 ) Present value of lease liabilities $ 86,040 $ 2,267 $ 88,307 Operating lease payments include $ 13.4 million related to options to extend lease terms that are reasonably certain of being exercised . 75 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table provides information about the remaining lease terms and discount rates applied as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Weighted average remaining lease term (years) Operating leases 6.01 6.03 Finance leases 2.37 2.92 Weighted average discount rate (%) Operating leases 3.35 3.62 Finance leases 3.27 3.65 The following table provides other information related to leases for the year ended December 31, 2020 and 2019 (in thousands): December 31, 2020 December 31, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 25,849 $ 20,928 Leased assets obtained in exchange for new operating lease liabilities (a) 25,583 10,460 (a) Excludes operating lease assets acquired as part of the PCM acquisition of $ 17,951,000 in 2019. There were no major acquisitions in 2020. (10) Stock-Based Compensation We recorded the following pre-tax amounts in selling and administrative expenses for stock-based compensation, by operating segment, in the accompanying consolidated financial statements (in thousands): Years Ended December 31, 2020 2019 2018 North America $ 13,151 $ 12,055 $ 11,697 EMEA 3,953 3,437 3,170 APAC 623 519 488 Total Consolidated $ 17,727 $ 16,011 $ 15,355 Company Plan On April 3, 2020, our Board of Directors adopted and approved the new Insight Enterprises, Inc. 2020 Omnibus Plan (the “Plan”), subject to stockholder approval. The Plan was approved by our stockholders at our 2020 annual meeting on May 20, 2020 and, unless sooner terminated, will remain in place until May 30, 2030. The Plan allows the Company to grant options, stock appreciation rights, stock awards, restricted stock, stock units (which may also be referred to as “restricted stock units”), performance shares, performance units, cash-based awards and other awards payable in cash or shares of common stock to eligible non-employee directors, employees and consultants. Consultants and independent contractors are eligible if they provide bona fide services that are not related to capital raising or promoting or maintaining a market for the Company’s stock. The Company previously adopted the Amended Insight Enterprises, Inc. 2007 Omnibus Plan (the “Prior Plan”). The Prior Plan was approved by our stockholders on May 18, 2011 at our 2011 annual meeting. The Prior Plan shall remain in effect until all awards granted under the Prior Plan have been exercised, forfeited or cancelled or have otherwise expired or terminated. Any shares that remain outstanding or otherwise become available under the terms of the Prior Plan following the date the Plan is approved by the Company’s stockholders shall become available for issuance under the Plan. No further awards will be made under the Prior Plan. 76 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Plan is administered by the Compensation Committee of Insight’s Board of Directors, and, except as provided below, the Compensation Committee has the exclusive authority to administer the Plan, including the power to determine eligibility, the types of awards to be granted, the price and the timing of awards. Under the Plan, the Compensation Committee may delegate some of its authority to our Chief Executive Officer to grant awards to individuals other than individuals who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended. As of December 31, 2020, of the 2,571,000 shares of common stock reserved and available for grant under the Plan, 2,491,000 shares of common stock remain available for grant under the Plan. Accounting for Restricted Stock Units We issue RSUs as incentives to certain officers and teammates and as compensation to members of our Board of Directors. We recognize compensation expense associated with the issuance of such RSUs over the vesting period for each respective RSU. The total compensation expense associated with RSUs represents the value based upon the number of RSUs awarded multiplied by the closing price of our common stock on the date of grant. The number of RSUs to be awarded under our service-based RSUs is fixed at the grant date. The number of RSUs ultimately awarded under our performance-based RSUs varies based on whether the Company achieves certain financial results. We record compensation expense each period based on our estimate of the most probable number of RSUs that will be issued under the grants of performance-based RSUs. Recipients of RSUs do not have voting or dividend rights until the vesting conditions are satisfied and shares are released. As of December 31, 2020, total compensation cost related to nonvested RSUs not yet recognized is $ 27,413,000 , which is expected to be recognized over the next 1.27 years on a weighted-average basis. The following table summarizes our RSU activity during 2020: Number Weighted Average Grant Date Fair Value Fair Value Nonvested at the beginning of year 923,400 $ 45.58 Granted 401,805 $ 59.31 Vested, including shares withheld to cover taxes ( 385,216 ) $ 42.60 $ 16,410,202 (a) Forfeited ( 76,271 ) $ 51.60 Nonvested at the end of year 863,718 $ 52.77 $ 65,720,303 (b) (a) The aggregate fair value of vested RSUs represents the total pre-tax fair value, based on the closing stock price on the day of vesting, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date. The aggregate intrinsic value for RSUs which vested during 2019 and 2018 was $ 24,837,997 and $ 14,302,223 , respectively. (b) The aggregate fair value of the nonvested RSUs and the RSUs expected to vest represents the total pre-tax fair value, based on our closing stock price of $ 76.09 as of December 31, 2020, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date. During each of the years in the three-year period ended December 31, 2020, the RSUs that vested for teammates in the United States were net-share settled such that we withheld shares with value equivalent to the teammates’ minimum statutory United States tax obligation for the applicable income and other employment taxes and remitted the equivalent cash amount to the appropriate taxing authorities. The total shares withheld during 2020, 2019 and 2018 of 101,159 , 115,831 and 88,638 , respectively, were based on the value of the RSUs on their vesting dates as determined by our closing stock price on such dates. For 2020, 2019 and 2018, total payments for our teammates’ tax obligations to the taxing authorities were $ 5,964,000 , $ 6,572,000 and $ 3,230,000 , respectively, and are reflected as a financing activity within the accompanying consolidated statements of cash flows. These net-share settlements had the effect of repurchases of our common stock as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to us. 77 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ( 1 1 ) Income Taxes The following table presents the U.S. and foreign components of earnings before income taxes and the related income tax expense (in thousands): Years Ended December 31, 2020 2019 2018 Earnings before income taxes: United States $ 154,788 $ 142,410 $ 145,907 Foreign 73,664 69,306 65,995 $ 228,452 $ 211,716 $ 211,902 Income tax expense: Current: U.S. Federal $ 38,732 $ 20,254 $ 18,334 U.S. State and local 8,203 5,457 3,218 Foreign 22,123 19,180 17,547 69,058 44,891 39,099 Deferred: U.S. Federal ( 10,048 ) 9,180 8,123 U.S. State and local ( 1,779 ) 1,210 1,142 Foreign ( 1,419 ) ( 2,972 ) ( 139 ) ( 13,246 ) 7,418 9,126 $ 55,812 $ 52,309 $ 48,225 The following schedule reconciles the differences between the U.S. federal income taxes at the U.S. statutory rate and our income tax expense (dollars in thousands): 2020 2019 2018 Statutory federal income tax rate $ 47,975 21.0 % $ 44,460 21.0 % $ 44,499 21.0 % State income tax expense, net of federal income tax benefit 6,280 2.7 7,239 3.4 6,767 3.2 Audits and adjustments, net 662 0.3 2,556 1.2 2,659 1.3 Change in valuation allowances 476 0.2 ( 2,739 ) ( 1.3 ) 60 — Foreign income taxed at different rates 3,825 1.7 4,024 1.9 2,639 1.2 Effects of U.S. tax reform — — — — ( 5,594 ) ( 2.7 ) Research and development credits ( 1,858 ) ( 0.8 ) ( 5,438 ) ( 2.6 ) ( 4,132 ) ( 1.9 ) Other, net ( 1,548 ) ( 0.7 ) 2,207 1.1 1,327 0.7 Effective tax rate $ 55,812 24.4 % $ 52,309 24.7 % $ 48,225 22.8 % On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“TCJA 2017”), which significantly changed the U.S. tax law. In 2018 we completed our accounting for the tax effects of TCJA 2017 and recorded an incremental benefit of $ 5,600,000 against provisional amounts previously reported. On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide certain relief as a result of the COVID-19 pandemic, which included, among other things, provisions relating to net operating loss carrybacks and other beneficial income tax changes. In 2020, we recorded a tax benefit of approximately $ 1,712,000 related to the CARES Act, which was reflected in our effective tax rate reconciliation in ‘Other, net’. As of December 31, 2020, we have accumulated undistributed earnings generated by our foreign subsidiaries, most of which have been taxed in the U.S. as a result of TCJA 2017. For foreign subsidiary earnings not yet taxed under these provisions, we continue to assert permanent reinvestment of earnings earned in foreign jurisdictions which impose a withholding tax on dividends and, accordingly, have not accrued any additional income or withholding taxes on the potential repatriation of these earnings. At the present time, given the various complexities involved in repatriating earnings, it is not practicable to estimate the amount of tax that may be payable if these earnings were not reinvested indefinitely. 78 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The significant components of deferred tax assets and liabilities are as follows (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating losses $ 27,453 $ 27,328 Foreign tax credits 16,027 16,091 Other 25,786 20,153 Gross deferred tax assets 69,266 63,572 Valuation allowances ( 40,098 ) ( 38,247 ) Total deferred tax assets 29,168 25,325 Deferred tax liabilities: Goodwill and other intangibles ( 48,831 ) ( 48,279 ) Property and equipment ( 6,715 ) ( 12,702 ) Other ( 2,540 ) ( 5,406 ) Total deferred tax liabilities ( 58,086 ) ( 66,387 ) Net deferred tax (liabilities) assets $ ( 28,918 ) $ ( 41,062 ) The net non-current deferred tax assets and liabilities are as follows (in thousands): December 31, 2020 2019 Net non-current deferred tax assets, which are included in "Other assets" $ 4,291 $ 3,571 Net non-current deferred tax liabilities ( 33,209 ) ( 44,633 ) Net deferred tax (liabilities) assets $ ( 28,918 ) $ ( 41,062 ) As of December 31, 2020, we have U.S. state net operating loss carryforward (“NOLs”) that will expire between 2021 and 2039 . We also have foreign NOLs of $ 100,070,000 , certain of which will expire between 2022 and 2027 , while the majority have no expiration date. Certain state NOLs relate to pre-acquisition losses from acquired subsidiaries and are subject to annual limitations as to their use under the provisions of Internal Revenue Code Section 382. W e have provided valuation allowances for certain of our deferred tax assets where we believe it is more likely than not that the related tax benefits will not be realized. At December 31, 2020 and 2019, our valuation allowances totaled $ 40,098,000 and $ 38,247,000 , respectively, relating primarily to state and foreign NOLs and foreign tax credits . Changes to our valuation allowance for the year ended December 31, 2020 were driven by the utilization of foreign tax credits and changes in our foreign and state NOLs. As of December 31, 2020 and 2019, we had approximately $ 10,546,000 and $ 9,736,000 , respectively, of unrecognized tax benefits. Of these amounts, approximately $ 749,000 and $ 442,000 , respectively, related to accrued interest . The changes in the unrecognized tax benefits balance during the year reflect additions for tax positions taken in prior and current periods, net of reductions related to audit settlements and statute expirations. In the future, if recognized, the liability associated with uncertain tax positions would affect our effective tax rate. We do not believe there will be any changes over the next 12 months that would have a material effect on our effective tax rate. We are currently under audit in various jurisdictions for tax years 2014 through 2018 . Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that the examination phase of these audits may be concluded within the next 12 months which could significantly increase or decrease the balance of our gross unrecognized tax benefits. However, based on the status of the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible outcomes cannot be made at this time, but the estimated effect on our income tax expense and net earnings is not expected to be significant. In the U.S., federal income tax returns for years subsequent to 2015 remain open to examination. For state and foreign jurisdictions, the statute of limitations generally varies between three and ten years . However, to the extent allowable by law, the tax authorities may have a right to examine and 79 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) make adjustment to prior periods when amended returns have been filed, or when net operating losses or tax credits were generated and carried forward for subsequent utilization . ( 1 2 ) Market Risk Management Interest Rate Risk We have interest rate exposure arising from our financing facilities, which have variable interest rates. These variable interest rates are affected by changes in short-term interest rates. We currently do not hedge our interest rate exposure. We do not believe that the effect of reasonably possible near-term changes in interest rates will be material to our financial position, results of operations and cash flows. Our financing facilities expose our net earnings to changes in short-term interest rates since interest rates on the underlying obligations are variable. We had $ 140,000,000 outstanding under our ABL facility and $ 296,419,000 outstanding under our senior convertible notes at December 31, 2020. The interest rate attributable to the borrowings under our ABL facility and our senior convertible notes was 1.40 % and 0.75 %, respectively, per annum at December 31, 2020. The change in annual pre-tax earnings from operations resulting from a hypothetical 10% increase or decrease in the applicable interest rate would have been immaterial. Although our senior convertible notes are based on a fixed rate, changes in interest rates could impact the fair market value of such notes. As of December 31, 2020, the fair market value of our convertible senior notes was $ 454,790,000 . Foreign Currency Exchange Risk We have foreign currency exchange risk related to the translation of our foreign subsidiaries’ operating results, assets and liabilities (see Note 1 for a description of our Foreign Currencies policy). We also maintain cash accounts denominated in currencies other than the functional currency, which expose us to fluctuations in foreign exchange rates. Remeasurement of these cash balances results in gains/losses that are also reported in other expense (income), net within non-operating (income) expense. We monitor our foreign currency exposure and selectively enter into forward exchange contracts to mitigate risk associated with certain non-functional currency monetary assets and liabilities related to foreign denominated payables, receivables and cash balances. Transaction gains and losses resulting from non-functional currency assets and liabilities are offset by gains and losses on forward contracts in non-operating (income) expense, net in our consolidated statements of operations . The counterparties associated with our foreign exchange forward contracts are large creditworthy commercial banks. The derivatives transacted with these institutions are short in duration and, therefore, we do not consider counterparty concentration and non-performance to be material risks. The Company does not have a significant concentration of credit risk with any single counterparty. ( 1 3 ) Fair Value Measurements Fair value measurements are determined based on the following three categories: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. As of December 31, 2020, we have no non-financial assets or liabilities that are measured and recorded at fair value on a recurring basis, and our other financial assets or liabilities generally consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt. The estimated fair values of our cash and cash equivalents approximate their carrying values and are determined based on quoted prices in active markets for identical assets. The estimated fair values of our long-term debt balances approximate their carrying values based on their variable interest rate terms that are based on current market interest rates for similar debt instruments. The fair values of the other financial assets and liabilities are based on the values that would be received or paid in an orderly transaction between market participants and approximate their carrying values due to their nature and short duration. 80 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ( 1 4 ) Benefit Plans We adopted a defined contribution benefit plan (the “Defined Contribution Plan”) for our U.S. teammates which complies with section 401(k) of the Internal Revenue Code. The Company provides a discretionary match to all participants who make 401(k) contributions pursuant to the Defined Contribution Plan. On May 15, 2020, our matching contributions were temporarily suspended due to the global health crises. Company matching contributions are expected to return in 2021. The discretionary match provided to participants is equivalent to 50 % of a participant’s pre-tax contributions up to a maximum of 6 % of eligible compensation per pay period. Additionally, we offer several defined contribution benefit plans to our teammates outside of the United States. These plans and their related terms vary by country. Total consolidated contribution expense under these plans was $ 11,974,000 , $ 19,126,000 and $ 15,216,000 for 2020, 2019 and 2018, respectively. ( 1 5 ) Share Repurchase Programs In each of February 2020 and February 2018, our Board of Directors authorized the repurchase of up to $ 50,000,000 of our common stock. As of December 31, 2020, $ 25 million remained available under the February 2020 share repurchase plan and none remained available under the February 2018 share repurchase plan. 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. No share repurchase program was authorized in 2019 . The following table summarizes the shares of our common stock that we repurchased on the open market under these repurchase programs during the years ended December 31, 2020, 2019 and 2018, respectively, in thousands, except per share amounts: Year Total Number of Shares Purchased Average Price Paid per Share Approximate Dollar Value of Shares Purchased 2020 445 $ 56.20 $ 25,000 2019 541 51.56 27,899 2018 641 34.42 22,069 Total 1,627 $ 74,968 All shares repurchased were retired. ( 1 6 ) 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 December 31, 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 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 81 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) are not limited to, the indemnification of our clients for certain claims arising out of our performance under our sales contracts , the indemnification of our landlords for certain claims arising from our use of leased facilities and the indemnification of the lenders that provide our credit facilities for certain claims arising from their extension of credit to us. Such indemnification obligations may not be subject to maximum loss clauses. Management believes that payments, if any, related to these indemnifications are not probable at December 31, 2020. Accordingly, we have not accrued any liabilities related to such indemnifications in the accompanying consolidated financial statements. We have entered into separate indemnification agreements with certain of our executive officers and with each of our directors. These agreements require us, among other requirements, to indemnify such officers and directors against expenses (including attorneys’ fees), judgments and settlements incurred by such individual in connection with any action arising out of such individual’s status or service as our executive officer or director (subject to exceptions such as where the individual failed to act in good faith or in a manner the individual reasonably believed to be in, or not opposed to, the best interests of the Company) and to advance expenses incurred by such individual with respect to which such individual may be entitled to indemnification by us. There are no pending legal proceedings that involve the indemnification of any of the Company’s directors or officers. Contingencies Related to Third-Party Review From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various governmental, client and partner audits. We continually assess whether or not such claims have merit and warrant accrual. Where appropriate, we accrue estimates of anticipated liabilities in our consolidated financial statements. Such estimates are subject to change and may affect our results of operations and our cash flows. Legal Proceedings From time to time, we are party to various legal proceedings incidental to the business, including preference payment claims asserted in client bankruptcy proceedings, indemnification claims, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, employment claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the work required pursuant to any legal proceedings or the resolution of any legal proceedings during such period. Legal expenses related to 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. 82 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ( 1 7 ) Supplemental Financial Information Additions and deductions related to the allowance for doubtful accounts receivable for 2020, 2019 and 2018 were as follows (in thousands): Balance at Beginning of Year Additions Deductions Balance at End of Year Allowance for doubtful accounts receivable: Year ended December 31, 2020 $ 10,762 $ 10,163 $ ( 5,819 ) $ 15,106 Year ended December 31, 2019 $ 10,462 $ 5,079 $ ( 4,779 ) $ 10,762 Year ended December 31, 2018 $ 10,158 $ 4,776 $ ( 4,472 ) $ 10,462 ( 1 8 ) Cash Flows Cash payments for interest on indebtedness and cash payments for taxes on income were as follows (in thousands): Years Ended December 31, 2020 2019 2018 Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 16,605 $ 6,246 $ 10,155 Cash paid during the year for income taxes, net of refunds $ 62,545 $ 42,484 $ 31,218 ( 1 9 ) Segment and Geographic Information We operate in three reportable geographic operating segments: North America; EMEA; and APAC. Our offerings in North America and certain countries in EMEA and APAC include IT hardware, software and services. Our offerings in the remainder of our EMEA and APAC segments are largely software and certain software-related services. The following tables summarize net sales by offering for North America, EMEA and APAC by sales mix amounts (in thousands): North America Years Ended December 31, Sales Mix 2020 2019 2018 Hardware $ 4,418,295 $ 3,957,507 $ 3,610,356 Software 1,260,757 1,269,983 1,112,715 Services 935,980 796,815 639,910 $ 6,615,032 $ 6,024,305 $ 5,362,981 EMEA Years Ended December 31, Sales Mix 2020 2019 2018 Hardware $ 617,825 $ 622,949 $ 653,499 Software 760,562 753,729 736,509 Services 176,838 149,966 140,233 $ 1,555,225 $ 1,526,644 $ 1,530,241 83 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) APAC Years Ended December 31, Sales Mix 2020 2019 2018 Hardware $ 31,953 $ 34,965 $ 29,496 Software 82,763 92,988 107,363 Services 55,606 52,288 50,055 $ 170,322 $ 180,241 $ 186,914 The method for determining what information regarding operating segments, products and services, geographic areas of operation and major clients to report is based upon the “management approach,” or the way that management organizes the operating segments within a company, for which separate financial information is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources. Our CODM is our Chief Executive Officer. All significant intercompany transactions are eliminated upon consolidation, and there are no differences between the accounting policies used to measure profit and loss for our segments or on a consolidated basis. Net sales are defined as net sales to external clients. None of our clients exceeded ten percent of consolidated net sales in 2020, 2019 or 2018. A portion of our operating segments’ selling and administrative expenses arise from shared services and infrastructure that we have historically provided to them in order to realize economies of scale and to use resources efficiently. These expenses, collectively identified as corporate charges, include senior management expenses, internal audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses. Charges are allocated to our operating segments, and the allocations have been determined on a basis that we considered to be a reasonable reflection of the utilization of services provided to or benefits received by the operating segments. The tables below present information about our reportable operating segments (in thousands): Year Ended December 31, 2020 North America EMEA APAC Consolidated Net Sales: Products $ 5,679,052 $ 1,378,387 $ 114,716 $ 7,172,155 Services 935,980 176,838 55,606 1,168,424 Total net sales 6,615,032 1,555,225 170,322 8,340,579 Costs of goods sold: Products 5,130,851 1,261,236 104,914 6,497,001 Services 462,793 57,943 22,900 543,636 Total costs of goods sold 5,593,644 1,319,179 127,814 7,040,637 Gross profit 1,021,388 236,046 42,508 1,299,942 Operating expenses: Selling and administrative expenses 790,913 192,485 30,367 1,013,765 Severance and restructuring expenses 9,273 2,989 132 12,394 Acquisition-related expenses 2,004 204 — 2,208 Earnings from operations $ 219,198 $ 40,368 $ 12,009 $ 271,575 84 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended December 31, 2019 North America EMEA APAC Consolidated Net Sales: Products $ 5,227,490 $ 1,376,678 $ 127,953 $ 6,732,121 Services 796,815 149,966 52,288 999,069 Total net sales 6,024,305 1,526,644 180,241 7,731,190 Costs of goods sold: Products 4,748,608 1,258,974 117,778 6,125,360 Services 404,583 40,587 22,562 467,732 Total costs of goods sold 5,153,191 1,299,561 140,340 6,593,092 Gross profit 871,114 227,083 39,901 1,138,098 Operating expenses: Selling and administrative expenses 664,374 186,957 29,406 880,737 Severance and restructuring expenses 4,946 334 145 5,425 Acquisition-related expenses 11,342 — — 11,342 Earnings from operations $ 190,452 $ 39,792 $ 10,350 $ 240,594 Year Ended December 31, 2018 North America EMEA APAC Consolidated Net Sales: Products $ 4,723,071 $ 1,390,008 $ 136,859 $ 6,249,938 Services 639,910 140,233 50,055 830,198 Total net sales 5,362,981 1,530,241 186,914 7,080,136 Costs of goods sold: Products 4,313,070 1,273,422 124,908 5,711,400 Services 317,216 35,352 22,450 375,018 Total costs of goods sold 4,630,286 1,308,774 147,358 6,086,418 Gross profit 732,695 221,467 39,556 993,718 Operating expenses: Selling and administrative expenses 545,091 182,470 28,968 756,529 Severance and restructuring expenses 1,617 1,677 130 3,424 Acquisition-related expenses 282 — — 282 Earnings from operations $ 185,705 $ 37,320 $ 10,458 $ 233,483 The following table is a summary of our total assets by reportable operating segment (in thousands): December 31, 2020 December 31, 2019 North America $ 4,837,155 $ 3,814,408 EMEA 735,771 699,856 APAC 155,761 123,349 Corporate assets and intercompany eliminations, net ( 1,417,955 ) ( 459,434 ) Total assets $ 4,310,732 $ 4,178,179 85 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following is a summary of our geographic net sales and long-lived assets, consisting of property and equipment, net (in thousands): United States United Kingdom Other Foreign Total 2020 Net sales $ 6,237,901 $ 805,401 $ 1,297,277 $ 8,340,579 Total long-lived assets $ 110,161 $ 11,042 $ 24,813 $ 146,016 2019 Net sales $ 5,696,422 $ 776,051 $ 1,258,717 $ 7,731,190 Total long-lived assets $ 103,678 $ 13,448 $ 13,781 $ 130,907 2018 Net sales $ 5,100,456 $ 843,145 $ 1,136,535 $ 7,080,136 Net sales by geographic area are presented by attributing net sales to external customers based on the domicile of the selling location. We recorded the following pre-tax amounts, by operating segment, for depreciation and amortization in the accompanying consolidated financial statements (in thousands): Years Ended December 31, 2020 2019 2018 Depreciation and amortization of property and equipment: North America $ 22,396 $ 17,827 $ 17,164 EMEA 5,073 4,166 4,058 APAC 556 545 499 28,025 22,538 21,721 Amortization of intangible assets: North America 34,990 22,382 14,791 EMEA 2,088 828 285 APAC 457 461 661 37,535 23,671 15,737 Total $ 65,560 $ 46,209 $ 37,458 ( 20 ) 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 has 40 office locations in North America and the United Kingdom and more than 4,000 teammates. We believe that this acquisition allows us to help existing PCM clients in positioning their businesses for future growth, transforming and securing their data platforms, creating modern and mobile experiences for their workforce and optimizing the procurement of technology. The addition of PCM complements our supply chain optimization solution offering, adding scale and clients in the mid-market and corporate space primarily in North America. 86 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands): Purchase price net of cash and cash equivalents acquired $ 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 estimated fair values of current assets and liabilities are based upon their historical costs on the date of acquisition due to their short-term nature. The estimated fair values of the majority of property and equipment excluding acquired real estate are also based upon historical costs as they approximate fair value. Certain long-term assets, including PCM’s IT systems, have been written down to the estimated fair value. The estimated fair value of net assets acquired was approximately $ 407,031,000 , including $ 191,370,000 of identifiable 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 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 - 12 Years Trade name 1 Year Non-compete agreements 2 - 3 Years 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. 87 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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): Year Ended December 31, 2019 2018 Net sales As reported $ 7,731,190 $ 7,080,136 Pro forma $ 9,207,512 $ 9,241,183 Net earnings As reported $ 159,407 $ 163,677 Pro forma $ 171,102 $ 167,499 Diluted earnings per share As reported $ 4.43 $ 4.55 Pro forma $ 4.76 $ 4.65 Cardinal Effective August 1, 2018, we acquired 100 percent of the issued and outstanding shares of Cardinal, a digital solutions provider based in Cincinnati, Ohio, with offices across the Midwest and Southeast United States, for a cash purchase price, net of cash acquired, of approximately $ 78,400,000 , including final working capital and tax gross up adjustments of $ 3,400,000 . Cardinal provides technology solutions to digitally transform organizations through their expertise in mobile applications development, Internet of Things and cloud enabled business intelligence. We believe that this acquisition strengthens our services capabilities and will bring value to our clients within our digital innovation services solution offering. The fair value of net assets acquired was approximately $ 42,360,000 , including $ 27,540,000 of identifiable intangible assets, consisting primarily of customer relationships that will be amortized using the straight line method over the estimated economic life of ten years . The fair value of the customer relationships was determined using the multiple-period excess earnings method. The preliminary purchase price was allocated using the acquisition method of accounting using the information available at the time. During the fourth quarter of 2018, we finalized the fair value assumptions for identifiable intangible assets with no changes being made to amounts previously recorded. Goodwill acquired approximated $ 36,040,000 which was recorded in our North America operating segment. The goodwill is tax deductible. The working capital adjustment was finalized in the fourth quarter of 2018 and paid in January 2019. Additionally, we finalized the purchase price allocation when the tax gross up adjustment was agreed upon in April 2019. This resulted in a reduction of the previously recorded purchase price in the second quarter of 2019. We consolidated the results of operations for Cardinal within our North America operating segment beginning on August 1, 2018, the effective date of the acquisition. Our historical results would not have been materially affected by the acquisition of Cardinal and, accordingly, we have not presented pro forma information as if the acquisition had been completed at the beginning of each period presented in our statement of operations. 88 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ( 2 1 ) Selected Quarterly Financial Information (unaudited) The following tables set forth selected unaudited consolidated quarterly financial information for 2020 and 2019 (in thousands, except per share data): Quarters Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Net sales $ 2,291,315 $ 1,936,478 $ 1,968,735 $ 2,144,051 Costs of goods sold 1,948,661 1,628,915 1,644,346 1,818,715 Gross profit 342,654 307,563 324,389 325,336 Operating expenses: Selling and administrative expenses 257,167 245,155 242,580 268,863 Severance and restructuring expenses 2,432 808 7,010 2,144 Acquisition-related expenses 13 118 611 1,466 Earnings from operations 83,042 61,482 74,188 52,863 Non-operating (income) expense: Interest expense, net 10,434 9,115 10,219 11,826 Other (income) expense, net 693 1,301 1,098 ( 1,563 ) Earnings before income taxes 71,915 51,066 62,871 42,600 Income tax expense 18,527 12,160 16,486 8,639 Net earnings $ 53,388 $ 38,906 $ 46,385 $ 33,961 Net earnings per share: Basic $ 1.52 $ 1.11 $ 1.32 $ 0.96 Diluted $ 1.50 $ 1.10 $ 1.32 $ 0.95 Shares used in per share calculations: Basic 35,098 35,077 35,060 35,233 Diluted 35,523 35,348 35,260 35,646 Quarters Ended December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Net sales $ 2,297,156 $ 1,912,547 $ 1,836,021 $ 1,685,466 Costs of goods sold 1,959,174 1,636,352 1,560,572 1,436,994 Gross profit 337,982 276,195 275,449 248,472 Operating expenses: Selling and administrative expenses 266,970 223,215 199,489 191,063 Severance and restructuring expenses 1,713 2,662 680 370 Acquisition-related expenses 2,283 5,896 3,163 — Earnings from operations 67,016 44,422 72,117 57,039 Non-operating (income) expense: Interest expense, net 11,897 7,694 4,335 4,552 Other (income) expense, net ( 458 ) ( 538 ) 346 1,050 Earnings before income taxes 55,577 37,266 67,436 51,437 Income tax expense 12,627 10,134 17,438 12,110 Net earnings $ 42,950 $ 27,132 $ 49,998 $ 39,327 Net earnings per share: Basic $ 1.22 $ 0.76 $ 1.40 $ 1.10 Diluted $ 1.20 $ 0.76 $ 1.38 $ 1.09 Shares used in per share calculations: Basic 35,259 35,512 35,772 35,609 Diluted 35,755 35,868 36,111 36,103 89 INSIGHT ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (22) Subsequent Events In January 2021, we completed the sales of our three properties in Tempe, Arizona and of our property in Woodbridge, Illinois for total net proceeds of approximately $ 27,211,000 . We intend to use the proceeds from the sales to ready our property in Chandler, Arizona to be used as our global corporate headquarters. 90 INSIGHT ENTERPRISES, INC. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable.