What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-03 · 116 added, 376 removed, 297 unchanged (62% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

September 30,

Current assets:

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Common stock, $ 0.01 par value, 100,000 shares authorized;

35,090 shares at September 30, 2020 and 35,263 shares at

35,320 shares at March 31, 2021 and 35,103 shares at

December 31, 2020 issued and outstanding

9 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Total net sales

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Selling and administrative expenses

Severance and restructuring expenses

Severance and restructuring expenses, net

Acquisition and integration related expenses

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Interest expense, net

Other (income) expense, net

Other expense (income), net

Earnings before income taxes

7 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive income (loss), net of tax:

8 unchanged sentences

Stockholders'

Balances at June 30, 2019

Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes

Stock-based compensation expense

Equity component of convertible senior notes, net of deferred tax of $ 14,819 and issuance costs of $ 1,700

Issuance of warrants related to convertible senior notes

Purchase of note hedge related to convertible senior notes, net of deferred tax of $ 16,047

Repurchase of treasury stock

Retirement of treasury stock

Foreign currency translation adjustments, net of tax

Balances at September 30, 2019

Balances at June 30, 2020

Balances at December 31, 2020

Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes

1 unchanged sentence

Foreign currency translation adjustments, net of tax

Balances at September 30, 2020

Balances at March 31, 2021

Treasury Stock

4 unchanged sentences

Stock-based compensation expense

Equity component of convertible senior notes, net of deferred tax of $ 14,819 and issuance costs of $ 1,700

Issuance of warrants related to convertible senior notes

Purchase of note hedge related to convertible senior notes, net of deferred tax of $ 16,047

Repurchase of treasury stock

1 unchanged sentence

Foreign currency translation adjustments, net of tax

Balances at September 30, 2019

Balances at December 31, 2019

Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes

Stock-based compensation expense

Repurchase of treasury stock

Retirement of treasury stock

Foreign currency translation adjustments, net of tax

Balances at September 30, 2020

Balances at March 31, 2020

See accompanying notes to consolidated financial statements.

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(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

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Decrease in accounts receivable

Decrease (increase) in inventories

Decrease (increase) in other assets

Decrease in accounts payable

(Decrease) increase in accrued expenses and other liabilities

Increase in inventories

Decrease in other assets

(Decrease) increase in accounts payable

Decrease in accrued expenses and other liabilities

Net cash provided by operating activities

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Acquisitions, net of cash and cash equivalents acquired

Net cash used in investing activities

Net cash provided by investing activities

Cash flows from financing activities:

Borrowings on senior revolving credit facility

Repayments on senior revolving credit facility

Borrowings on ABL revolving credit facility, net of initial lender fees

Borrowings on ABL revolving credit facility

Repayments on ABL revolving credit facility

Borrowings on accounts receivable securitization financing facility

Repayments on accounts receivable securitization financing facility

Net borrowings (repayments) under inventory financing facilities

Proceeds from issuance of convertible senior notes

Proceeds from issuance of warrants

Purchase of note hedge related to convertible senior notes

Net repayments under inventory financing facilities

Repurchases of common stock

Other payments

Net cash (used in) provided by financing activities

Net cash used in financing activities

Foreign currency exchange effect on cash, cash equivalents and

restricted cash balances

Decrease in cash, cash equivalents and restricted cash

Increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and Rece ntly Issued Accounting Standards

We empower organizations of all sizes with Intelligent Technology Solutions TM and services to maximize the business value of Information Technology (“IT”) in North America;

Basis of Presentation and Recently Issued Accounting Standards

We empower organizations of all sizes with Insight Intelligent Technology Solutions TM and services to maximize the business value of Information Technology (“IT”) in North America;

Europe, the Middle East and Africa (“EMEA”);

and Asia-Pacific (“APAC”).

As a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, connected workforce, and supply chain optimization solutions, we help clients innovate and optimize their operations to run smarter.

As a Fortune 500-ranked global provider of digital innovation, cloud/data center transformation, and 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:

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Europe, Middle East and Africa

Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services.

Our offerings in the remainder of our EMEA and APAC segments consist of largely software and certain software-related services.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2020 and our results of operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019.

Our offerings in North America and certain countries in EMEA and APAC include hardware, software and services, including cloud solutions.

Our offerings in the remainder of our EMEA and APAC segments consist of largely software and certain software-related services and cloud solutions.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2021 and our results of operations for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020.

The consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated balance sheet at such date.

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These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the related notes thereto, in our Annual Report on Form 10-K for the year ended December 31, 2020.

Our results of operations include the results of PCM, Inc.

(“PCM”) from its acquisition date of August 30, 2019 and vNext from its acquisition date of February 28, 2020 .

The consolidated financial statements include the accounts of Insight Enterprises, Inc.

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2019-12, “Simplifying the Accounting for Income Taxes.” The new standard is intended to simplify various aspects of accounting for income taxes by removing specific exceptions and amending certain requirements.

The new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted.

We do not expect this new standard to have a material effect on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, “Financial Instruments – Credit Losses.” The new standard is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held at each reporting date.

In April 2019, the FASB issued ASU No.

2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The new standard update provides changes for how a company considers expected recoveries and contractual extensions or renewal options when estimating expected credit losses.

In November 2019, the FASB issued ASU No.

2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” The new standard update provides amendments to the reporting of expected recoveries.

We adopted these new standards as of January 1, 2020.

The adoption of these new standards did not have a material effect on our consolidated financial statements.

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 August 2020, the FASB issued ASU No.

2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’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;

however, we expect our consolidated statements of operations and consolidated balance sheets will be significantly impacted following adoption of this new standard as we will no longer report accreted interest on the Notes and the full par value of the Notes will be reflected as debt.

There have been no other material changes in or additions to the recently issued accounting standards as previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020 that affect or may affect our current financial statements.

Sales Recognition

In the following table, revenue is disaggregated by our reportable operating segments, which are primarily defined by their related geographies, as well as by major product offering, by major client group and by recognition on either a gross basis as a principal in the arrangement, or on a net basis as an agent, for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30, 2020

North America

Major Offerings

Major Client Groups

Large Enterprise / Corporate

Small and Medium-Sized Businesses

Public Sector

Revenue Recognition based on acting as

Principal or Agent in the Transaction

Gross revenue recognition (Principal)

Net revenue recognition (Agent)

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended September 30, 2019

North America

Major Offerings

Major Client Groups

Large Enterprise / Corporate

Small and Medium-Sized Businesses

Public Sector

Revenue Recognition based on acting as

Principal or Agent in the Transaction

Gross revenue recognition (Principal)

Net revenue recognition (Agent)

Nine Months Ended September 30, 2020

North America

Major Offerings

Major Client Groups

Large Enterprise / Corporate

Small and Medium-Sized Businesses

Public Sector

Revenue Recognition based on acting as

Principal or Agent in the Transaction

Gross revenue recognition (Principal)

Net revenue recognition (Agent)

Nine Months Ended September 30, 2019

North America

Major Offerings

Major Client Groups

Large Enterprise / Corporate

Small and Medium-Sized Businesses

Public Sector

Revenue Recognition based on acting as

Principal or Agent in the Transaction

Gross revenue recognition (Principal)

Net revenue recognition (Agent)

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table provides information about receivables and contract liabilities as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,

The following table provides information about receivables and contract liabilities as of March 31, 2021 and December 31, 2020 (in thousands):

Current receivables, which are included in “Accounts

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and other current liabilities” and “Other liabilities”

C hanges in the contract liabilities balances during the nine months ended September 30, 2020 are as follows (in thousands):

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

C hanges in the contract liabilities balances during the three months ended March 31, 2021 are as follows (in thousands):

Increase (Decrease)

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Cash received in advance and not recognized as revenue

Balances at September 30, 2020

The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020 that are expected to be recognized in the future (in thousands):

Balances at March 31, 2021

During the three months ended March 31, 2020, the Company recognized revenue of $ 19,000,000 related to its contract liabilities.

The following table includes estimated net sales related to performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2021 that are expected to be recognized in the future (in thousands):

Remainder of 2021

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With the exception of remaining performance obligations associated with our OneCall Support Services contracts which are included in the table above regardless of original duration, r emaining performance obligations that have original expected durations of one year or less are not included in the table above.

Amounts not included in the table above have an average original expected duration of nine months.

Additionally, for our time and material services contracts, whereby we have the right to consideration from a client in an amount that corresponds directly with the value to the client of our performance completed to date, we recognized revenue in the amount to which we have a right to invoice as of September 30, 2020 and do not disclose information about related remaining performance obligations in the table above.

Amounts not included in the table above have an average original expected duration of eight 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 March 31, 2021 and do not disclose information about related remaining performance obligations in the table above.

Our time and material contracts have an average expected duration of 23 months.

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We do not believe that backlog as of any particular date is predictive of future results, therefore we do not include performance obligations under open cancelable purchase orders, which do not qualify for revenue recognition, in the table above.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets Held for Sale

During 2019, we completed the purchase of real estate in Chandler, Arizona that we intend to use as our global corporate headquarters.

During the fourth quarter of 2019, properties in Tempe, Arizona, El Segundo and Santa Monica, California and Woodbridge, Illinois were classified as held for sale, for approximately $ 68,916,000 , which is included in other current assets in the accompanying consolidated balance sheet as of September 30, 2020, as we look to sell current properties in preparation for our move to Chandler.

During the first quarter of 2021, we completed the sale of our three properties in Tempe, Arizona and the sale 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.

During the first quarter of 2020, we completed the sale of our property in Irvine, California for approximately $ 14,218,000 .

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net Earnings Per Share (“EPS”)

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Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method.

Dilutive potential common shares include outstanding restricted stock units (“RSUs”).

Dilutive potential common shares include outstanding restricted stock units (“RSUs”) and certain shares underlying the Notes.

A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Weighted average shares used to

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dilutive RSUs, net of tax effect

Dilutive potential common shares due to

Weighted average shares used to compute

Net earnings per share:

For the three and nine months ended September 30, 2020, 3,000 and 163,000 , respectively, of our RSUs were not included in the diluted EPS calculations because their inclusion would have been anti-dilutive.

These share-based awards could be dilutive in the future.

There were 3,000 and 56,000 anti-dilutive RSUs for the three and nine months ended September 30, 2019, respectively.

For the three months ended March 31, 2021, no ne of our RSUs were excluded from the diluted EPS calculations.

Certain potential outstanding shares from the warrants relating to the Call Spread Transactions were excluded from the diluted EPS calculations because their inclusion would have been anti-dilutive.

For the three months ended March 31, 2020, 86,000 of our RSUs and certain potential outstanding shares from the Notes and warrants were excluded from the diluted EPS calculations because their inclusion would have been anti-dilutive.

INSIGHT ENTERPRISES, INC.

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Our long-term debt consists of the following (in thousands):

September 30,

ABL revolving credit facility

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Long-term debt

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.

Our senior secured revolving credit facility (the “ABL facility”), has an aggregate U.S.

dollar equivalent maximum borrowing amount of $ 1,200,000,000 , including a maximum borrowing capacity that could be used for borrowing in certain foreign currencies of $ 150,000,000 .

While the ABL facility has a stated maximum amount, the actual availability under the ABL facility is limited by specified percentages of eligible accounts receivable and certain eligible inventory, in each case as set forth in the credit agreement.

From time to time and at our option, we may request to increase the aggregate amount available for borrowing under the ABL facility by up to an aggregate of the U.S.

dollar equivalent of $ 500,000,000 , subject to customary conditions, including receipt of commitments from lenders.

On July 31, 2020, we entered into the First Amendment to Credit Agreement (the “Amendment”) to the ABL facility.

The Amendment, among other things, amends the credit agreement to provide additional flexibility for certain asset sale transactions by the Company and its subsidiaries.

The ABL facility is guaranteed by certain of our material subsidiaries and is secured by a lien on certain of our assets and certain of each other borrower’s and each guarantor’s assets.

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The ABL facility matures on August 30, 2024 .

As of September 30, 2020, eligible accounts receivable and inventory were sufficient to permit access to the full $ 1,200,000,000 facility amount, none of which was outstanding.

As of March 31, 2021, eligible accounts receivable and inventory were sufficient to permit access to the full $ 1,200,000,000 facility amount, of which $ 116,000,000 was outstanding.

The ABL facility contains customary affirmative and negative covenants and events of default.

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Convertible Senior Notes due 2025

On August 15, 2019, we issued $ 300,000,000 aggregate principal amount of convertible senior notes (the “notes”) that mature on February 15, 2025 .

On August 23, 2019, we issued an additional $ 50,000,000 aggregate principal amount of the notes pursuant to the exercise in full by the initial purchasers of the notes of their option to purchase additional notes.

In August 2019, we issued $ 350,000,000 aggregate principal amount of Notes that mature on February 15, 2025 .

The Notes bear interest at an annual rate of 0.75 % payable semiannually, in arrears, on February 15 th and August 15 th of each year.

The Notes are general unsecured obligations of Insight and are guaranteed on a senior unsecured basis by Insight Direct USA, Inc., a wholly owned subsidiary of Insight.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Holders of the Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding June 15, 2024, under the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

(2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price of our common stock per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

(3) if we call any or all of the notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date;

(2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price 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

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 N otes 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.

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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).

We have made a policy election to settle the par value of the Notes in cash with only the conversion spread being settled in shares of our common stock.

The conversion rate will initially be 14.6376 shares of common stock per $ 1,000 principal amount of the 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.

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If we undergo a fundamental change, the holders may require us to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

As of September 30, 2020, none of the criteria for a fundamental change or a conversion rate adjustment had been met.

As of March 31, 2021, none of the criteria for a fundamental change or a conversion rate adjustment had been met.

The maximum number of shares issuable upon conversion, including the effect of a fundamental change and subject to other conversion rate adjustments, would be 6,788,208 .

We may redeem for cash all or any portion of the notes, at our option, on or after August 20, 2022 if the last reported sale price of our common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100 % of the then outstanding principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

No sinking fund is provided for the notes.

The Notes are subject to certain customary events of default and acceleration clauses.

As of September 30, 2020, no such events have occurred.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2021, no such events have occurred.

The Notes consist of the following balances reported within the consolidated balance sheets (in thousands):

September 30,

debt discount and issuance costs, net of accumulated accretion

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The effective interest rate on the liability component of the Notes is 4.325 %.

I nterest expense resulting from the notes reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 is made up of contractual coupon interest, amortization of debt discount and amortization of debt issuance costs.

Interest expense resulting from the Notes reported within the consolidated statement of operations for the three months ended March 31, 2021 and 2020 is made up of contractual coupon interest, amortization of debt discount and amortization of debt issuance costs.

Convertible Note Hedge and Warrant Transaction

In connection with the issuance of the notes, we entered into certain convertible note hedge and warrant transactions (the “Call Spread Transactions”) with respect to the Company’s common stock.

In connection with the issuance of the Notes, we entered into the Call Spread Transactions with respect to the Company’s common stock.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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Inventory Financing Facilities

During 2020, we increased our maximum availability for vendor purchases under our unsecured inventory financing facility with MUFG Bank Ltd (“MUFG”) from $ 200,000,000 to $ 250,000,000 .

On July 6, 2020, we entered into a new unsecured inventory financing facility with a subsidiary of PNC Bank, N.A.

(“PNC”), which replaced our previous facility with Wells Fargo Capital Finance, LLC.

The aggregate availability for vendor purchases under the PNC facility is $ 250,000,000 .

As of September 30, 2020, our combined inventory financing facilities had a total maximum capacity of $ 500,000,000 , of which $ 367,997,000 was outstanding.

On March 31, 2021, we entered into an unsecured inventory financing facility in EMEA (the “EMEA facility”) with a maximum borrowing capacity of $ 40,000,000 .

This facility will stay in effect until it is terminated by any of the parties.

If balances are not paid within stated vendor terms, they will accrue interest at 0.25 %, subject to adjustments upward depending on LIBOR movements, plus late charges of 1.00 % per month.

Amounts outstanding under this facility will be classified as accounts payable – inventory financing facility in the accompanying balance sheets.

Additionally, we have a $ 250,000,000 unsecured inventory financing facility with each of MUFG Bank Ltd (“MUFG”) and PNC Bank, N.A.

As of March 31, 2021, our combined inventory financing facilities had a total maximum capacity of $ 540,000,000 , of which $ 309,075,000 was outstanding.

The inventory financing facilities will remain in effect until they are terminated by any of the parties.

If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00 % and LIBOR plus 4.50 % on the MUFG and PNC facilities, respectively.

If balances are not paid within stated vendor terms, they will accrue interest at prime plus 2.00 % , LIBOR plus 4.50 % and 0.25 % on the MUFG, PNC and EMEA facilities, respectively.

The PNC facility allows for an alternative rate to be identified if LIBOR is no longer available.

Amounts outstanding under these facilities are classified separately as accounts payable – inventory financing facilities in the accompanying

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

consolidated balance sheets and within cash flows from financing activities in the accompanying consolidated statements of cash flows .

Finance Lease and Other Financing Obligations

From time to time, we enter into finance leases and other financing agreements with financial intermediaries to facilitate the purchase of products from certain vendors .

The current and long-term portions of our finance leases and other financing obligations are included in the current and long-term portions of long-term debt in the table above and in our consolidated balance sheets as of September 30, 2020 and December 31, 2019.

See Note 6 for additional information.

We lease office space, distribution centers, land, vehicles and equipment.

Lease agreements with an initial term of 12 months or less are not recorded on the balance sheet;

we recognize lease expense for these leases on a straight-line basis over the lease term.

Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more.

The exercise of lease renewal options is at our sole discretion.

Some agreements also include options to purchase the leased property.

The estimated life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of our lease agreements include rental payments adjusted periodically for inflation.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of September 30, 2020 and December 31, 2019 (in thousands):

Classification

September 30,

December 31, 2019

Operating lease assets

Finance lease assets

Property and equipment (a)

Total lease assets

Operating lease liabilities

Accrued expenses and other current liabilities

Finance lease liabilities

Current portion of long-term debt

Operating lease liabilities

Other liabilities

Finance lease liabilities

Long-term debt

Total lease liabilities

Recorded net of accumulated amortization of $ 1,833,000 and $ 861,000 as of September 30, 2020 and December 31, 2019, respectively.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the three and nine months ended September 30, 2020 (in thousands):

Classification

Three Months Ended

September 30, 2020

Nine Months Ended

September 30, 2020

Operating lease cost (a) (b)

Selling and administrative expenses

Finance lease cost

Amortization of leased

Selling and administrative expenses

Interest on lease liabilities

Interest expense, net

Total lease cost

Includes immaterial amounts recorded to cost of goods sold.

Excludes short-term and variable lease costs, which are immaterial.

Future minimum lease payments under non-cancelable leases as of September 30, 2020 are as follows (in thousands):

Operating leases

Finance leases

Remainder of 2020

Total lease payments

Present value of lease liabilities

Operating lease payments include $ 13.4 million related to options to extend lease terms that are reasonably certain of being exercised .

The following table provides information about the remaining lease terms and discount rates applied as of September 30, 2020:

September 30,

Weighted average remaining lease term (years)

Operating leases

Finance leases

Weighted average discount rate (%)

Operating leases

Finance leases

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table provides other information related to leases for the three and nine months ended September 30, 2020 (in thousands):

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Cash paid for amounts included in the measurement of lease

Operating cash flows from operating leases

Leased assets obtained in exchange for new operating lease liabilities

Stock-Based Compensation

We recorded the following pre-tax amounts in selling and administrative expenses for stock-based compensation, by operating segment, in the accompanying consolidated financial statements (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

North America

Total Consolidated

As of September 30, 2020, total compensation cost related to nonvested RSUs not yet recognized is $ 25,871,000 , which is expected to be recognized over the next 1.33 years on a weighted-average basis.

The following table summarizes our RSU activity during the nine months ended September 30, 2020:

Nonvested at January 1, 2020

Vested, including shares withheld to cover taxes

Nonvested at September 30, 2020 (a)

Includes 83,661 RSUs subject to remaining performance conditions.

The number of RSUs subject to performance conditions are based on the Company achieving 100% of its 2020 targeted financial results.

We currently estimate that these RSUs will be awarded at 90 % this annual period based on achievement towards the 2020 performance targets.

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 fair value of the nonvested RSUs and the RSUs expected to vest represents the total pre-tax fair value, based on our closing stock price of $ 56.58 as of September 30, 2020, which would have been received by holders of RSUs had all such holders sold their underlying shares on that date.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Our effective tax rate was 23.8 % for the three and nine months ended September 30, 2020.

For the three months ended September 30, 2020, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by the recognition of tax benefits related to research and development activities and the beneficial impact of certain income tax regulations issued during the quarter.

For the nine months ended September 30, 2020, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by the remeasurement of acquired net operating losses under the CARES Act, and the recognition of tax benefits related to research and development activities.

Our effective tax rate for the three and nine months ended September 30, 2019 was 27.2 % and 25.4 %, respectively.

For the three months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, higher taxes on earnings in foreign jurisdictions, and the effect of non-deductible acquisition-related expenses partially offset by the recognition of tax benefits related to research and development activities .

For the nine months ended September 30, 2019, our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions partially offset by tax benefits on the settlement of employee share-based awards and the recognition of tax benefits related to research and development activities.

As of September 30, 2020, and December 31, 2019, we had approximately $ 10,659,000 and $ 9,736,000 , respectively, of unrecognized tax benefits.

Amounts outstanding under these facilities are classified separately as accounts payable – inventory financing facilities in the accompanying consolidated balance sheets and within cash flows from financing activities in the accompanying consolidated statements of cash flows.

Our effective tax rate for the three months ended March 31, 2021 was 23.8 %.

Our effective tax rate was higher than the United States federal statutory rate of 21.0 % due primarily to state income taxes, net of federal benefit, and higher taxes on earnings in foreign jurisdictions, partially offset by excess tax benefits on the settlement of employee share-based compensation and tax benefits related to research and development activities.

Our effective tax rate for the three months ended March 31, 2020 was 20.3 %.

Our effective tax rate was lower than the United States federal statutory rate of 21.0 % due primarily to the remeasurement of acquired net operating losses to be carried back to higher tax rate years under the CARES Act, excess tax benefits on the settlement of share-based compensation and tax benefits related to research and development activities.

These benefits were partially offset by state income taxes, net of federal benefit and higher taxes on earnings in foreign jurisdictions.

As of March 31, 2021, and December 31, 2020, we had approximately $ 10,890,000 and $ 10,546,000 , respectively, of unrecognized tax benefits.

Of these amounts, approximately $ 817,000 and $ 749,000 , respectively, related to accrued interest.

In the future, if recognized, the liability associated with uncertain tax positions would affect our effective tax rate.

We do not believe there will be any changes over the next 12 months that would have a material effect on our effective tax rate.

Several of our subsidiaries are currently under audit for tax years 2013 through 2018 .

Although the timing of the resolutions and/or closures of audits is highly uncertain, it is reasonably possible that the examination phase of these audits may be concluded within the next 12 months, which could increase or decrease the balance of our gross unrecognized tax benefits.

However, based on the status of the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible outcomes cannot be made at this time, but the estimated effect on our income tax expense and net earnings is not expected to be significant.

Share Repurchase Program

On February 26, 2020, our Board of Directors authorized the repurchase of up to $ 50,000,000 of our common stock.

Our share repurchases may be made on the open market, subject to Rule 10b-18 or in privately negotiated transactions, through block trades, through 10b5-1 plans or otherwise, at management’s discretion.

The amount of shares purchased and the timing of the purchases will be based on market conditions, working capital requirements, general business conditions and other factors.

We intend to retire the repurchased shares.

During the nine months ended September 30, 2020, we repurchased 444,813 shares of our common stock on the open market at a total cost of approximately $ 24,999,996 (an average price of $ 56.20 per share).

All shares repurchased were retired.

During the comparative nine months ended September 30, 2019, we repurchased 541,117 shares of our common stock on the open market at a total cost of approximately $ 27,899,000 (an average price of $ 51.56 per share).

All shares repurchased were retired .

We do not believe there will be any changes to our unrecognized tax benefits over the next 12 months that would have a material effect on our effective tax rate.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We are currently under audit in various jurisdictions for tax years 2013 through 2018 .

Commitments and Contingencies

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however, if the surety company is ever required to pay out under the bonds, we have contractually agreed to reimburse the surety company.

Management believes that payments, if any, related to these performance bonds are not probable at September 30, 2020.

Management believes that payments, if any, related to these performance bonds are not probable at March 31, 2021.

Accordingly, we have not accrued any liabilities related to such performance bonds in our consolidated financial statements.

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Such indemnification obligations may not be subject to maximum loss clauses.

Management believes that payments, if any, related to these indemnifications are not probable at September 30, 2020.

Management believes that payments, if any, related to these indemnifications are not probable at March 31, 2021.

Accordingly, we have not accrued any liabilities related to such indemnifications in our consolidated financial statements.

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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.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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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.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Information

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North America;

and APAC with PCM being included in our North America and EMEA segments for the three and nine months ended September 30, 2020.

Our offerings in North America and certain countries in EMEA and APAC include IT hardware, software and services.

Our offerings in the remainder of our EMEA and APAC segments are largely software and certain software-related services.

The following table summarizes net sales by offering for North America, EMEA and APAC for the three and nine months ended September 30, 2020 and 2019 (in thousands):

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

In the following table, revenue is disaggregated by our reportable operating segments, which are primarily defined by their related geographies, as well as by major product offering, by major client group and by recognition on either a gross basis as a principal in the arrangement, or on a net basis as an agent, for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31, 2021

North America

Three Months Ended

September 30,

Three Months Ended

September 30,

Three Months Ended

September 30,

Major Offerings

Major Client Groups

Large Enterprise / Corporate

Public Sector

Revenue Recognition based on acting as

Principal or Agent in the Transaction

Gross revenue recognition (Principal)

Net revenue recognition (Agent)

Three Months Ended March 31, 2020

North America

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Major Offerings

Major Client Groups

Large Enterprise / Corporate

Public Sector

Revenue Recognition based on acting as

Principal or Agent in the Transaction

Gross revenue recognition (Principal)

Net revenue recognition (Agent)

All significant intercompany transactions are eliminated upon consolidation, and there are no differences between the accounting policies used to measure profit and loss for our segments or on a consolidated basis.

Net sales are defined as net sales to external clients.

None of our clients exceeded ten percent of consolidated net sales for the three and nine months ended September 30, 2020 or 2019.

None of our clients exceeded ten percent of consolidated net sales for the three months ended March 31, 2021 or 2020.

A portion of our operating segments’ selling and administrative expenses arise from shared services and infrastructure that we have historically provided to them in order to realize economies of scale and to use resources efficiently.

These expenses, collectively identified as corporate charges, include senior management expenses, internal audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses.

Charges are allocated to our operating segments, and the allocations have been determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by the operating segments.

Charges are allocated to our operating segments, and the allocations have been determined on a basis that we consider to be a

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

reasonable reflection of the utilization of services provided to or benefits received by the operating segments.

The following tables present our results of operations by reportable operating segment for the periods indicated (in thousands):

Three Months Ended September 30,

North America

Total net sales

Costs of goods sold:

Total costs of goods sold

Operating expenses:

Selling and administrative expenses

Severance and restructuring expenses

Acquisition and integration related expenses

Earnings from operations

Three Months Ended September 30, 2019

Three Months Ended March 31,

North America

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Severance and restructuring expenses

Acquisition and integration related expenses

Earnings from operations

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2020

North America

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Earnings from operations

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Nine Months Ended September 30, 2019

North America

Total net sales

Costs of goods sold:

Total costs of goods sold

Operating expenses:

Selling and administrative expenses

Severance and restructuring expenses

Acquisition-related expenses

Earnings from operations

The following is a summary of our total assets by reportable operating segment (in thousands):

September 30,

North America

Corporate assets and intercompany eliminations, net

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We recorded the following pre-tax amounts, by reportable operating segment, for depreciation and amortization in the accompanying consolidated financial statements (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Depreciation and amortization of property and

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INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On August 30, 2019, we completed our acquisition of PCM, acquiring 100 percent of the issued and outstanding shares of PCM for a cash purchase price of $ 745,562,000 , which included cash and cash equivalents acquired of $ 84,637,000 and the payment of PCM’s outstanding debt.

PCM is a provider of multi-vendor technology offerings, including hardware, software and services to small, mid-sized and corporate/enterprise commercial clients, state, local and federal governments and educational institutions across the United States, Canada and the United Kingdom.

Based in El Segundo, California, PCM had 40 office locations globally and more than 4,000 teammates.

We believe that this acquisition allows us to help existing PCM clients in positioning their businesses for future growth, transforming and securing their data platforms, creating modern and mobile experiences for their workforce and optimizing the procurement of technology.

The addition of PCM complements our supply chain optimization solution offering, adding scale and clients in the mid-market and corporate space primarily in North America.

The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Purchase price net of cash and cash equivalents acquired

Fair value of net assets acquired:

Current assets

Identifiable intangible assets - see description below

Property and equipment

Current liabilities

Long-term liabilities, including deferred taxes

Total fair value of net assets acquired

Excess purchase price over fair value of net assets acquired ("goodwill")

Under the acquisition method of accounting, the total purchase price as shown in the table above was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.

The excess of the purchase price over fair value of net assets acquired was recorded as goodwill.

In the fourth quarter of 2019, an adjustment of $ 56,700,000 was recorded to goodwill primarily due to a change in the customer relationships valuation based on updated information received for key inputs as well as an associated change in deferred taxes.

The fair values of current assets and liabilities are based upon their historical costs on the date of acquisition due to their short-term nature.

The estimated fair values of the majority of property and equipment, excluding acquired real estate, are also based upon historical costs net of depreciation, as they approximated fair value.

Certain long-term assets, including PCM’s IT systems, were written down to their estimated fair value.

The estimated fair value of net assets acquired was approximately $ 407,031,000 , including $ 191,370,000 of identified intangible assets, consisting primarily of customer relationships of $ 178,900,000 .

The fair value of the customer relationships were determined using the multiple-period excess earnings method.

The identifiable intangible assets resulting from the acquisition are amortized using the straight-line method over the following estimated useful lives:

customer relationships – 10 - 12 years ;

trade names – 1 year;

non-compete agreements – 2 - 3 years .

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Goodwill of $ 253,894,000 , which was recorded in our North America and EMEA operating segments, represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from PCM.

The goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year.

The addition of the PCM technical employees to our team and the opportunity to grow our business are the primary factors making up the goodwill recognized as part of the transaction.

No ne of the goodwill is tax deductible.

The purchase price allocation was finalized during the third quarter of 2020.

We have consolidated the results of operations for PCM since its acquisition on August 30, 2019.

The following table reports pro forma information as if the acquisition of PCM had been completed at the beginning of the earliest period presented (in thousands, except per share amounts):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Diluted earnings per share

Changes in Goodwill and Intangible Assets

Other than the goodwill and intangible assets recorded in conjunction with the acquisitions of vNext and PCM, the only other change in consolidated goodwill and intangible assets as of September 30, 2020 compared to the balance as of December 31, 2019 resulted from foreign currency translation adjustments associated with the balances in our North America, EMEA and APAC operating segments.

INSIGHT ENTERPRISES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

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What changed 10-Q

Item 1. Financial Statements