UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2010
or
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File Number: 0-25092
INSIGHT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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86-0766246
(IRS Employer
Identification No.) |
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6820 South Harl Avenue, Tempe, Arizona 85283
(Address of principal executive offices, Zip Code)
Registrants telephone number, including area code: (480) 902-1001
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common stock, par value $0.01
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NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
n/a
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
of the registrant, based upon the closing price of the registrants common stock as reported on The
Nasdaq Global Select Market on June 30, 2010, the last business day of the registrants most
recently completed second fiscal quarter, was $603,073,805.
The number of shares outstanding of the registrants common stock on February 18, 2011 was
46,358,895.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement relating to its 2011 Annual Meeting of
Stockholders have been incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this
Annual Report on Form 10-K.
INSIGHT ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2010
TABLE OF CONTENTS
INSIGHT ENTERPRISES, INC.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including statements in Managements
Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of
this report, are forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements may include: projections of matters that
affect net sales, gross profit, operating expenses, earnings from continuing operations,
non-operating income and expenses, net earnings or cash flows, cash needs and the sufficiency of
our capital resources and the payment of accrued expenses and liabilities; the effect resulting
from changes being implemented by our largest software partner to elements of our channel incentive
programs; our business strategy and our strategic initiatives, including the launch of new product
and services offerings in international markets; effects of acquisitions or dispositions;
projections of capital expenditures; plans for future operations and acquisitions; the availability
of financing and our needs or plans relating thereto; the effect of new accounting principles or
changes in accounting policies; the effect of guaranty and indemnification obligations; projections
about the outcome of ongoing tax audits; statements related to accounting estimates, including
estimated stock-based compensation award forfeitures, the timing of the payment of restructuring
obligations and the realization of deferred tax assets and the resolution of uncertain tax
positions; our positions and strategies with respect to ongoing and threatened litigation; our
ability to grow sales to new and existing clients and increase our market share and the resulting
effect on our results of operations and profitability; our plans to grow our sales team; the timing
of the effect of our initiatives to expand our international product and services offerings; our
plans to consolidate and upgrade our IT systems, including the timing and costs relating thereto;
the sufficiency of our facilities; our intentions relating to future stock repurchases; the
possibility that we may take future restructuring actions; our intentions to reinvest foreign
earnings; our plans to use cash flow from operations to pay down debt and make capital
expenditures; our exposure resulting from off-balance sheet arrangements; statements of belief; and
statements of assumptions underlying any of the foregoing. Forward-looking statements are
identified by such words as believe, anticipate, expect, estimate, intend, plan,
project, will, may and variations of such words and similar expressions and are inherently
subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated by, or underlying
the forward-looking statements. There can be no assurances that results described in
forward-looking statements will be achieved, and actual results could differ materially from those
suggested by the forward-looking statements. Some of the important factors that could cause our
actual results to differ materially from those projected in any forward-looking statements include,
but are not limited to, the following:
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our reliance on partners for product availability and competitive products to sell as
well as our competition with our partners; |
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our reliance on partners for marketing funds and purchasing incentives; |
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disruptions in our information technology systems and voice and data networks, including
risks and costs associated with the integration and upgrade of our IT systems; |
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general economic conditions, including concerns regarding our ability to collect our
accounts receivable and client credit constraints; |
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actions of our competitors, including manufacturers and publishers of products we sell; |
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changes in the IT industry and/or rapid changes in product standards; |
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failure to comply with the terms and conditions of our commercial and public sector
contracts; |
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stockholder litigation and regulatory proceedings related to the restatement of our
consolidated financial statements; |
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the availability of future financing and our ability to access and/or refinance our
credit facilities; |
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the security of our electronic and other confidential information; |
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the variability of our net sales and gross profit; |
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the risks associated with our international operations; |
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exposure to changes in, interpretations of, or enforcement trends related to tax rules
and regulations; |
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our dependence on key personnel; and |
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intellectual property infringement claims and challenges to our registered trademarks
and trade names. |
Additionally, there may be other risks that are otherwise described from time to time in the
reports that we file with the Securities and Exchange Commission. Any forward-looking statements
in this report should be considered in light of various important factors, including the risks and
uncertainties listed above, as well as others. We assume no obligation to update, and do not
intend to update, any forward-looking statements. We do not endorse any projections regarding
future performance that may be made by third parties.
1
INSIGHT ENTERPRISES, INC.
PART I
General
Insight Enterprises, Inc. (Insight or the Company) is a global provider of information
technology (IT) hardware, software and service solutions to businesses and public sector clients.
The Company is organized in the following three operating segments, which are primarily defined by
their related geographies:
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Operating Segment* |
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Geography |
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Consolidated Net Sales |
North America |
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United States and Canada |
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70% |
EMEA |
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Europe, Middle East and Africa |
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27% |
APAC |
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Asia-Pacific |
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3% |
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Additional detailed segment and geographic information can be found in
Managements Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7 and in Note 18 to the Consolidated Financial
Statements in Part II, Item 8 of this report. |
We help companies design, enable, manage and secure their IT environments with our process
knowledge, technical expertise and product fulfillment and logistics capabilities. Our management
tools, capabilities and expertise make designing, deploying and managing IT solutions easier while
helping our clients control their IT costs. Insight has locations in 21 countries, and we serve
clients in 191 countries with software provisioning and related services, transacting business in
18 languages and 14 currencies. Currently, our offerings in North America and the United Kingdom
include IT hardware, software and services. Our offerings in the remainder of our EMEA segment and
in APAC are almost entirely software and select software-related services. On a consolidated
basis, hardware, software and services represented 53%, 42% and 5%, respectively, of our net sales
in 2010, compared to 50%, 44% and 6%, respectively, in 2009.
We were incorporated in Delaware in 1991 as the successor to an Arizona corporation that
commenced operations in 1988. Our corporate headquarters are located in Tempe, Arizona. We began
operations in the U.S., expanded into Canada in 1997 and into the United Kingdom in 1998. In 2006,
through our acquisition of Software Spectrum, Inc. (Software Spectrum), we expanded deeper into
global markets in EMEA and APAC, where Software Spectrum already had an established footprint and
strategic relationships. In 2008, through our acquisitions of Calence, LLC (Calence) in North
America and MINX Limited (MINX) in the United Kingdom, we enhanced our global technical expertise
around higher-end networking and communications technologies, as well as managed services and
security. As part of our focus on core elements of our growth strategy, in 2007 we sold PC
Wholesale, a seller of IT products to other resellers in the U.S., and in 2006 we sold Direct
Alliance Corporation (Direct Alliance), a business process outsourcing provider in the U.S.
Business Strategy
Our strategic vision is to be the trusted advisor to our clients, helping them enhance their
business performance through innovative technology solutions. With the continual emergence of new
technologies and technology solution options in the IT industry, we believe businesses continue to
seek technology providers to supply value-added advice to help them identify and deploy IT
solutions. We believe that Insight has a unique position in the market and can gain profitable
market share and provide enhanced value to our clients. We have a multi-partner approach (we refer
to our suppliers as partners and our employees as teammates) and excel at providing broad
product selection at competitive prices through an efficient supply chain. We have deeper services
and solutions capabilities than many of our competitors, we are the only value-added reseller with
a multi-national footprint, and our client base covers a broader cross-section of clients than many
of our competitors.
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INSIGHT ENTERPRISES, INC.
To further refine our strategic focus and strengthen our execution and operational
effectiveness, Insight is focused on four strategic initiatives:
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Strengthen the foundation of our business; |
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Continue to expand our higher-margin services offerings; |
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Expand our hardware offerings in select global markets; and |
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Integrate our IT systems. |
Strengthen the foundation of our business. Insights core business is providing IT hardware,
software and services to large, medium and small businesses and public sector institutions. We
believe that what differentiates Insight from our competitors is:
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Our Scale and Reach we had $4.8 billion in net sales in 2010 and have sales and
distribution capabilities in 21 countries. |
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Our People we have 5,115 teammates worldwide, including over 1,000 skilled,
certified services professionals. |
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Our Business Foundation we have a broad offering of hardware and software
products, with access to over $3 billion in virtual inventory, efficient supply chain
execution and customizable e-commerce capabilities. |
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Our Breadth and Depth of Services we have developed services capabilities focused
on managed services and professional and consulting services, which are particularly
strong in the United States and the United Kingdom. |
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Our Partnerships and Clients we have a multi-partner approach with over 5,000
partnerships with manufacturers and publishers and over 70,000 commercial and public
sector clients globally. |
In order to strengthen the foundation of our business, we are refocusing our North America
business on our traditional core. Through our new North America sales engagement model, we have
created a single, geographically aligned sales and delivery organization which is focused on
organic, profitable growth and market share gain. Key components of the new model include:
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Alignment of Sales Teams and Clients we defined and mapped our current U.S.
resources and clients into three regions: East, Central, West, and because of its
unique characteristics, a separate Public Sector unit. |
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Alignment with Partners we redefined our client groups to help ensure our sales
strategies are in sync with our partners. |
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Training we designed and implemented training programs for our sales managers,
directors and pre-sales support to ensure that all sales teammates have access to
expertise across our product offerings. |
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Operational Excellence we adopted metrics and a new management system to track
our performance and implemented a weekly management commitment process to ensure we
have real time visibility into our business and to ensure resources are aligned to
drive results. |
We are also focusing on selling into a specific set of targeted clients that are part of our
total addressable market, or as we call it, our TAM. In North America, we are putting particular
focus on commercial and corporate clients, and in EMEA and APAC, we continue to focus on increasing
our share of the middle market and public sector client groups. We are addressing these
opportunities to grow market share by continuing to invest in our sales teams in EMEA and APAC and
by growing the sales teams in North America and investing in enhanced training initiatives.
In addition to our focus on new clients, we seek to increase our share of our current clients
annual IT budgets. We are investing in focused training programs in North America to ensure our
sales teammates are able to sell across our broad portfolio of offerings and we are implementing
the management system necessary to track our progress. As we launch our new IT system in EMEA, we
intend to deploy similar programs as necessary to ensure we are able to bring our new hardware
capabilities to our existing clients in additional markets. Our operating model allows us to
tailor offerings based on the size and complexity of our client. Accordingly, we believe that
there are opportunities for Insight to expand our relationships with our existing clients and
increase the types of products and services that each of our existing clients buys from us.
We are also implementing operational excellence and execution initiatives, such as
establishing clear roles and accountabilities for all teammates and aligning compensation models
and business processes to ensure our productivity improves across our business. We believe that by
gaining a clear understanding of baseline productivity performance in
our business, we will be better positioned to rationalize investments and achieve better scale
on our cost structure as our business grows.
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INSIGHT ENTERPRISES, INC.
Further, to continue to enhance our core business, we intend to seize growth opportunities in
new technologies. As manufacturers, publishers and service providers develop new technologies and
as new ways of buying and supplying technology take hold, we are committed to taking advantage of
and leveraging these opportunities. In North America, we are building an as-a-service
aggregation portal (or cloud portal) linked to Insight.com to take advantage of opportunities such
as Software as a Service (SaaS). As an aggregator, we are designing our portal to enable the
procurement, delivery, billing, administration and support of on-demand services provided through
the cloud. We are planning to bring this solution to the market during 2011.
Additionally, we are strengthening our partnerships to ensure we deliver value to our partners
and increase partner access to target clients. By aligning more closely with our partners, we
expect to gain market share and improve our profitability by optimizing partner incentive programs.
We are focused on understanding our partners objectives and developing plans and programs to grow
our mutual businesses. We measure partner satisfaction regularly and hold quarterly business
reviews with our largest partners to review business results from the prior quarter, discuss plans
for the future and obtain feedback. Additionally, we host annual partner conferences in North
America, EMEA and APAC to articulate our plans for the upcoming year.
Continue to expand our higher-margin services offerings. While Insights business was built
on hardware and software product sales that are the foundation of many of our client relationships
today, we believe our strong services capabilities differentiate Insight in the marketplace and
enhance our profitability. We offer certain standard and customized solutions to our clients
through our managed and professional and consulting services capabilities. While these
capabilities are most developed in our United States business, we are growing our capabilities in
the United Kingdom and plan to selectively launch the offering of such services in other countries
in our EMEA segment and in Canada.
Managed services, which enable a client to drive improved efficiency and generate cost savings
by outsourcing non-core IT capabilities, are among our most advanced capabilities. This allows
internal IT departments to focus on more value-add activities. Insights managed services
capabilities currently available in the United States include:
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World-class Network Operations Center (NOC), with
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24/7 operations and |
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Best-in-class management tools |
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SaaS |
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Complete integration services |
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Software asset management |
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Managed warranty solutions |
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Help desk support |
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Complete end-of-life asset management, including asset disposal, redeployment and remarketing |
Our professional and consulting services help clients manage and deploy IT assets within their
environments to minimize the total cost of ownership. Insights professional and consulting
services capabilities include:
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Strategy, assessment and implementation services around |
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Infrastructure/Security |
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Data Center |
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Software |
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Collaboration |
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Broad technology deployment |
Our
team is composed of over 1,000 professionals with approximately 3,000 certifications and delivers
services using a proprietary methodology and dedicated project management office.
Expand our hardware offerings in select global markets. Currently, our offerings in North
America and the United Kingdom include IT hardware, software and services. Our offerings in the
remainder of our EMEA segment and in APAC are almost entirely software and select software-related
services. We intend to continue to offer global software
licensing and related asset management services, as we believe these global capabilities
meaningfully differentiate us from our competitors. In addition, we are planning to selectively
expand our core hardware capabilities into other existing countries in our European footprint. We
expect to introduce hardware sales in selected countries in Europe upon the development of IT
systems capabilities in our EMEA operating segment. The roll out is planned to occur in phases,
and we expect a positive contribution to our financial results beginning in 2012. In addition, we
are expanding our service partner network in the United Kingdom and Canada (where we currently
offer the full suite of Insight capabilities) to further augment capabilities to deliver select
managed and professional and consulting services.
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INSIGHT ENTERPRISES, INC.
In other countries where we will not expand beyond software, we intend to continue to enhance
our software offerings by introducing SaaS solutions, expanding our software services capabilities,
and extending our client reach with medium-sized businesses and public sector clients. In
addition, we will maintain our global software capabilities differentiation in supporting our
multinational clients.
For a discussion of risks associated with international operations, see Risk Factors There
are risks associated with our international operations that are different than the risks associated
with our operations in the United States, and our exposure to the risks of a global market could
hinder our ability to maintain and expand international operations, in Part I, Item 1A of this
report.
Integrate our IT systems. One of our North America segments key initiatives is to improve
its IT infrastructure in order to fully leverage our core capabilities. As part of this
initiative, we intend to consolidate systems and remove operational barriers created by the
multiple IT environments inherited in past business acquisitions. We believe this systems
integration will drive operational efficiency and simplify engagement among our teammates and with
our clients and our partners.
Integrating our current systems will:
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Provide a consistent interface for our clients, partners and teammates; |
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Facilitate the alignment of business processes and resources to support the engagement
model; |
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Simplify account management by consolidating to one Customer Relationship Management
(CRM) tool; |
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Improve productivity by streamlining process, applications and infrastructure; |
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Improve data integrity and simplify access to information to enhance the speed, accuracy
and completeness of responses to our clients and partners; |
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Improve our ability to bring the full set of product and solution offerings to our
clients; and |
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Provide a common IT platform from which to grow in future years. |
Our plan is to fully integrate our IT systems in North America onto an integrated platform
over the next two years. Significant internal and external resources have been devoted to the
successful completion of this project.
We are also in the process of converting our EMEA operations to a new IT system platform that
will allow us to expand our sales of hardware and services, in addition to software, to clients in
that region to promote future sales and profit growth.
Hardware, Software and Services Offerings
Hardware Offerings. We currently offer our clients in North America and the United Kingdom a
comprehensive selection of IT hardware products. We offer products from hundreds of manufacturers,
including such industry leaders as Hewlett-Packard (HP), Cisco, Lenovo, IBM, Panasonic and
American Power Conversion Corporation. Our scale and purchasing power, combined with our
efficient, high-volume and cost effective direct sales and marketing model, allow us to offer
competitive prices. We believe that offering multiple partner choices enables us to better serve
our clients by providing a variety of product solutions to best address their specific business
needs. These needs may be based on particular client preferences or other criteria, such as
real-time best pricing and availability, or compatibility with existing technology. In addition to
our distribution facilities, we have direct-ship programs with many of our partners, including
manufacturers and distributors, allowing us to expand our product offerings without increasing
inventory, handling costs or inventory risk exposure. As a result, we are able to provide a
product offering with billions of dollars of products in virtual inventory. Convenience and
product options among multiple brands are key competitive advantages against manufacturers direct
selling programs, which are generally limited to their own brands and may not offer clients a
complete or best in class solution across all product categories.
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INSIGHT ENTERPRISES, INC.
Software Offerings. Our clients acquire software applications from us in the form of
licensing agreements with software publishers, boxed products, or through a growing delivery model,
SaaS. Under a SaaS arrangement, clients subscribe to software that is hosted either by the
software publisher or a dedicated third-party hosting company on the internet. The majority of our
clients obtain their software applications through licensing agreements, which we believe is a
result of their ease of administration and cost-effectiveness. Licensing agreements, or
right-to-copy agreements, allow a client to either purchase a license for each of its users in a
single transaction or periodically report its software usage, paying a license fee based on the
number of users.
As software publishers choose different models for implementing licensing agreements,
businesses must evaluate the alternatives to ensure that they select the appropriate agreements and
comply with the publishers licensing terms when purchasing and managing their software licenses.
We work closely, either locally or globally, with our clients to understand their licensing
requirements and to educate them regarding the options available under publisher licensing
agreements. Many of our clients who have elected to purchase software licenses through licensing
agreements have also entered into software maintenance agreements, which allow clients to receive
new versions, upgrades or updates of software products released during the maintenance period, in
exchange for a specified annual fee. We assist our clients and partner publishers in tracking and
renewing these agreements. In connection with certain enterprise-wide licensing agreements,
publishers may choose to bill and collect from clients directly. In these cases, we earn a
referral fee directly from the publisher.
Services Offerings. We currently offer a suite of managed services and professional and
consulting services in the U.S. and the United Kingdom via our own field service personnel,
augmented by service partners to fill gaps in our geographic coverage or capabilities. We also
utilize partners to deliver these services in Canada. We believe that developing these
capabilities internally or through targeted acquisitions over time in other geographies will be a
key differentiator for us.
The breadth and quality of our technical and service capabilities are key points of
differentiation for us. We have, and intend to continue to develop, an array of technical
expertise and service capabilities to help identify, acquire, implement and manage technology
solutions to allow our clients to address their business needs. We dont believe that our
competition is able to offer the same breadth and depth of technology service solutions that we
offer across our target client groups in North America and the United Kingdom.
To strengthen our solutions offerings, we have focused on the following specific
solutions/value-added practice areas:
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Infrastructure/Security |
These technology practice groups are responsible for understanding client needs and, together
with our technology partners, customizing total solutions that address those needs. These groups
are made up of industry- and product-certified engineers, consultants and specialists who are
current on best practices and the latest developments in their respective practice areas.
We are a Cisco Gold Certified partner in the United States and the United Kingdom and have
Master Certifications in unified communications and security in the United States. Our data center
practice in the United States is an HP Authorized Enterprise Provider and holds HP Storage Elite,
HP Blade Elite and HP Services Elite partner status. We also have been awarded premier partner
status by a number of other partners, such as IBM, EMC and VMware.
Managed Services. We know that our clients have to utilize limited resources while providing
reliable support to end users and maximizing the life cycle and value of their IT investments. Our
managed services technology practice offers the advanced technical resources to support key
components of our clients networks. We offer ISO-certified integration services and asset
disposal services. We help simplify ownership, from assessment and acquisition through deployment
and end-of-life and technology refresh. Operating 24 hours a day, 7 days a week and 365 days a
year through our network operations center, we serve as an extension of our clients teams, with
dedicated resources to keep their networks operating.
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INSIGHT ENTERPRISES, INC.
Further, we can help our clients preserve capital and expand limited resources by delivering
business-critical applications and programs from the cloud. With low upfront costs and no need for
in-house maintenance, SaaS is an effective alternative to potentially more expensive on-premise
solutions. We partner with providers to deliver solutions around collaboration and messaging,
managed security and data management, including Microsoft, Symantec, CA Technologies, IBM, McAfee
and DataPipe.
Infrastructure/Security. Todays networks are becoming increasingly complex. Support for
critical enterprise applications and converged communication systems have increased demand for
network availability and performance. Insights core networking competency is the architecture and
deployment of infrastructure. We offer services to plan, design, implement and support the
operation of complex and secure wired and wireless networks. Solution offerings also include
network strategy, network assessment and application delivery infrastructure services.
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Network strategy services assist clients in ensuring that their network is
positioned to support their business and provides a roadmap to guide investments in
people, operations and technology. |
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Network assessment services help clients ensure their network is ready to support
their business, is designed based on industry best practices and is operating at peak
performance. |
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Application delivery infrastructure services allow clients to deploy next generation
solutions, such as application acceleration, WAN optimization and load balancing, to
optimize the performance of critical applications on their networks and better utilize
their technology infrastructure. |
To properly implement a security strategy, a client must first define its risk. From
regulatory compliance and business operations to asset protection, threat mitigation and
vulnerability identification, a security program is essential to maintaining productivity and
profitability. Every organization requires a comprehensive security program and procedures to
ensure data integrity, confidentiality and availability. Our security solutions include a range of
offerings including: strategy solutions to quantify the skills, methodologies and experience
needed for a comprehensive security program; assessment solutions to help clients identify gaps and
risks as well as make the right decisions to manage them; security design, implementation and
operation services; security compliance solutions to help clients make certain their internal
processes are able to repel attempts to breach security; and risk and vulnerability assessments in
which security testing is utilized to highlight unmanaged security risks.
Data Center. The growth of data in organizations has created demand for solutions that
simplify server, storage and data center management. We help our clients consider total costs,
critical data availability and environmental impact through server consolidation and
virtualization, backup, disaster recovery and continuity solutions for complex storage
environments.
Using technology and products from various partners, we provide high-end servers, data disk
arrays, hard drives, tape libraries, blades, and virtualization software to help clients build and
maintain responsive IT infrastructures that allow them to quickly adapt to changes in business
priorities. We also provide IT professional services for designing, implementing and managing
adaptive server and storage environments for our clients ensuring a resilient and cost-effective
data center while reducing the clients maintenance and management costs. We offer the technical
expertise and manufacturer relationships to deliver innovative and scalable solutions.
Software. We help our clients transform their software into an asset for their business. Our
software professional services include solutions to help clients improve business productivity,
optimize their core infrastructure and manage their software licenses.
We help our clients increase the productivity and overall effectiveness of their people with
solutions for messaging, collaboration and unified communications. The sharing of ideas is vital
to success, and it is imperative that organizations facilitate collaboration among workers. We are
part of the Microsoft Partner Network and hold high level accreditations in a range of technical
disciplines, including delivery of and support for Microsoft toolsets including Exchange, Office
and SharePoint.
We also help our clients simplify the deployment of Microsoft core infrastructure technologies
from the desktop to the data center. Current business environments require reflexive yet
cost-effective adaptation to change. As a result, the capacity to centrally manage and alter a
companys software environment from the core is vital. We help clients improve the agility,
security and manageability of their environment with solutions for identity and access management,
desktop and server deployment and operation, and more. We also provide expertise around delivery
of and support for Microsoft Forefront and Windows.
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INSIGHT ENTERPRISES, INC.
Additionally, we help our clients standardize their software environment while reducing costs
and limiting risk through optimal license use and compliance management. We offer clients a
portfolio of Software Asset Management (SAM) services, including SAM consultation, assessment of
ISO standard attainment, license reconciliations, and our proprietary Insight:LicenseAdvisor® SAM
solution platform. We help clients determine their license rights and utilization rates, reconcile
the difference, and then proactively track, analyze, and manage their software asset portfolio from
procurement to retirement.
Collaboration. Advanced networking technologies that merge voice, data and video applications
are increasingly becoming a critical component of an enterprises strategic IT infrastructure and
the backbone of an organizations unified communications strategy. With advanced collaboration
technology implementations, we offer our clients an integrated combination of email, chat, audio,
video and web conferencing capabilities. These solutions offer a more cost effective answer than
traditional audio, video and web conferencing with increased productivity, increased functionality
and added security over internet-based solutions as well as the ability for clients to leverage
existing investments in IT infrastructure. This practice area also includes unified
communications, unified contact center solutions and video solutions.
In addition to these specific solutions/value-added practice areas, we continue to offer
clients a suite of services designed to streamline the deployment cycle of IT assets, as well as
minimize the complexity and cost of managing those assets throughout their life cycle. We:
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provide advice on hardware, software licensing and financing programs; |
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streamline procurement; |
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plan and manage the rollout; |
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assist with developing standards and implementing best practices; |
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pre-configure systems, load custom software images and tag assets; |
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provide logistics planning and drop-ship to locations; |
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provide on-site implementation; |
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offer help desk support for users; and |
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provide IT maintenance services and disposal of equipment at end-of-life (including
redeployment and remarketing). |
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Currently, these services are available primarily in North America and the United Kingdom. |
Our Information Technology Systems
We have committed significant resources to the IT systems we use to manage our business and
believe that our success is dependent upon our ability to provide prompt and efficient service to
our clients based on the accuracy, quality and utilization of the information generated by our IT
systems. Because these systems affect our ability to manage our sales, client service,
distribution, inventories and accounting systems and our voice and data networks, we have built
redundancy into certain systems, maintain system outage policies and procedures and have
comprehensive data backup. Our U.S. and foreign locations are not on a single IT system platform,
but we are focused on driving improvements in sales productivity through upgraded IT systems to
support higher levels of client satisfaction and new client acquisition, as well as garnering
efficiencies in our business as more processes become automated. For additional discussion of our
plans to make enhancements and upgrades to our IT systems, see Business Strategy Integrate our
IT systems previously in Part I of this report and for a discussion of risks associated with our
IT systems, see Risk Factors Disruptions in our IT systems and voice and data networks,
including the integration and upgrade of our IT systems, could affect our ability to service our
clients and cause us to incur additional expenses, in Part I, Item 1A of this report.
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INSIGHT ENTERPRISES, INC.
Competition
The IT hardware, software and services industry is very fragmented and highly competitive. We
compete with a large number and wide variety of marketers and resellers of IT hardware, software
and services, including:
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direct marketers and resellers, such as CDW (North America), Systemax (Europe),
SoftChoice, PC Ware, PC Connections, Worldwide Technology and SHI; |
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national and regional resellers, including value-added resellers, specialty
retailers, aggregators, distributors, and to a lesser extent, national computer
retailers, computer superstores, Internet-only computer providers,
consumer electronics and office supply superstores and mass merchandisers; |
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product manufacturers, such as Dell, HP, IBM and Lenovo, and software publishers,
such as IBM, Microsoft and Symantec; |
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systems integrators, such as Compucom Systems, Inc.; |
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national and global service providers, such as IBM Global Services and HP/EDS; and |
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e-tailers, such as New Egg, Buy.com and e-Buyer (United Kingdom). |
The competitive landscape in the industry is changing as various competitors expand their
product and service offerings. In addition, emerging models such as cloud computing are creating
new competitors and opportunities.
For a discussion of risks associated with the actions of our competitors, see Risk Factors
The IT hardware, software and services industry is intensely competitive, and actions of our
competitors, including manufacturers and publishers of products we sell, can negatively affect our
business, in Part I, Item 1A of this report.
Partners
During 2010, we purchased products and software from approximately 5,400 partners.
Approximately 63% (based on dollar volume) of these purchases were directly from manufacturers or
software publishers, with the balance purchased through distributors. Purchases from Microsoft and
Ingram Micro (a distributor) accounted for approximately 27% and 10%, respectively, of our
aggregate purchases in 2010. No other partner accounted for more than 10% of purchases in 2010.
Our top five partners as a group for 2010 were Microsoft, Ingram Micro, HP, Cisco and Tech Data (a
distributor). Approximately 61% of our total purchases during 2010 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.
We obtain incentives from certain product manufacturers, software publishers and distribution
partners based typically upon the volume of sales or purchases of their products and services. In
other cases, such incentives may be in the form of participation in our partner programs, which may
require specific services or activities with our clients, discounts, marketing funds, price
protection or rebates. Manufacturers and publishers may also provide mailing lists, contacts or
leads to us. We believe that these incentives (or partner funding) allow us to increase our
marketing reach and strengthen our relationships with leading manufacturers and publishers. This
funding is important to us, and any elimination or substantial reduction would increase our costs
of goods sold or marketing expenses, resulting in a corresponding decrease in our earnings from
operations.
During 2010, sales of Microsoft, HP and Cisco products accounted for approximately 26%, 16%
and 12%, respectively, of our consolidated net sales. No other manufacturers products accounted
for more than 10% of our consolidated net sales in 2010. Sales of product from our top five
manufacturers/publishers as a group (Microsoft, HP, Cisco, Lenovo and Adobe) accounted for
approximately 64% of Insights consolidated net sales during 2010.
As we move into new service areas, we may become even more reliant on certain partner
relationships. For a discussion of risks associated with our reliance on partners, see Risk
Factors We rely on our partners for product availability and competitive products to sell, and
we also compete with many of our partners, and Risk Factors We rely on our partners for
marketing funds and purchasing incentives, in Part I, Item 1A of this report.
Teammates
As of December 31, 2010, we employed 5,115 teammates, of whom 2,893 were engaged in
management, support services and administration activities, 2,055 were engaged in sales related
activities, and 167 were engaged in distribution activities. Our teammates are not represented by
a labor union, and we have never experienced a labor related work stoppage.
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INSIGHT ENTERPRISES, INC.
For a discussion of risks associated with our dependence on key personnel, including sales
personnel, see Risk Factors We depend on certain key personnel, in Part I, Item 1A of this
report.
Seasonality
We experience some seasonal trends in our sales of IT hardware, software and services. For
example:
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software sales are seasonally higher in our second and fourth quarters, particularly
the second quarter; |
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business clients, particularly larger enterprise businesses in the U.S., tend to
spend more in our fourth quarter as they utilize their remaining capital budget
authorizations and less in the first quarter; |
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sales to the federal government in the U.S. are often stronger in our third quarter;
and |
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sales to public sector clients in the United Kingdom are often stronger in our first
quarter. |
These trends create overall seasonality in our consolidated results such that sales and
profitability are expected to be higher in the second and fourth quarters of the year. For a
discussion of risks associated with seasonality see Risk Factors Our net sales and gross profit
have historically varied, making our future operating results less predictable, in Part I, Item 1A
of this report.
Backlog
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.
Intellectual Property
We do not maintain a traditional research and development group, but we do develop and seek to
protect a range of intellectual property, including trademarks, service marks, copyrights, domain
name rights, trade dress, trade secrets and similar intellectual property relying, for such
protection, on applicable statutes and common law rights, trade-secret protection and
confidentiality and license agreements, as applicable, with teammates, clients, partners and others
to protect our intellectual property rights. Our principal trademark is a registered mark, and we
also license certain of our proprietary intellectual property rights to third parties. We have
registered a number of domain names, applied for registration of other marks in the U.S. and in
select international jurisdictions, and, from time to time, filed patent applications. We believe
our trademarks and service marks, in particular, have significant value, and we continue to invest
in the promotion of our trademarks and service marks and in our protection of them.
Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act
of 1934, as amended (the Exchange Act), and the reports of beneficial ownership filed pursuant to
Section 16(a) of the Exchange Act are available free of charge on our web site at www.insight.com,
as soon as reasonably practicable after we electronically file them with, or furnish them to, the
Securities and Exchange Commission. The information contained on our web site is not included as a
part of, or incorporated by reference into, this Annual Report on Form 10-K.
We rely on our partners for product availability and competitive products to sell, and
we also compete with many of our partners. We acquire products for resale both directly from
manufacturers and publishers and indirectly through distributors, and the loss of a partner
relationship could cause a disruption in the availability of products to us. In addition to being
our partners, manufacturers and publishers are also our competitors, as many sell directly to
business clients and, particularly, larger corporate clients. There is no assurance that, as
manufacturers and publishers continue to sell both through the distribution channel and directly to
end users, they will not limit or curtail the availability of their product to resellers like us.
In addition, the manner in which publishers distribute software is changing, and many publishers
now offer their programs as hosted or SaaS solutions. These changes in distribution may intensify
competition and increase the volume of software sold through these competitive programs or
distributed directly electronically to end-users. Any significant increase in direct sales or
directly-sold SaaS solutions by publishers could have a material adverse effect on our business,
results of operations and financial condition.
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INSIGHT ENTERPRISES, INC.
We rely on our partners for marketing funds and purchasing incentives. Certain manufacturers,
publishers and distributors provide us with substantial incentives in the form of rebates,
marketing funds, purchasing incentives, early payment discounts, referral fees and price
protections. Partner funding is used to offset, among other things, inventory
costs, costs of goods sold, marketing costs and other operating expenses. Certain of these
funds are based on our volume of sales or purchases, growth rate of net sales or purchases and
marketing programs. If we do not grow our net sales over prior periods or if we are not in
compliance with the terms of these programs, there could be a material negative effect on the
amount of incentives offered or paid to us by manufacturers and publishers. We anticipate that in
the future, the incentives that many partners make available to us may either be reduced or that
the requirements for earning the available amounts will change. If we are unable to react timely
to any fundamental changes in the programs of publishers or manufacturers, including the
elimination of, or significant reductions in, funding for some of the activities for which we have
been compensated in the past, particularly related to incentive programs with our largest partners,
HP and Microsoft, the changes would have a material adverse effect on our business, results of
operations and financial condition. No assurance can be given that we will continue to receive
such incentives or that we will be able to collect outstanding amounts relating to these incentives
in a timely manner, or at all.
Disruptions in our IT systems and voice and data networks, including the integration and
upgrade of our IT systems, could affect our ability to service our clients and cause us to incur
additional expenses. We believe that our success to date has been, and future results of
operations will be, dependent in large part upon our ability to provide prompt and efficient
service to our clients. Our ability to provide that level of service is largely dependent on the
ease of use, accuracy, quality and utilization of our IT systems, which affects our ability to
manage our sales, client service, distribution, inventories and accounting systems, and the
reliability of our voice and data networks and managed services offerings. Our plan is to fully
integrate our IT systems in North America onto an integrated platform over the next two years.
Significant internal and external resources have been devoted to the successful completion of this
project. In 2011, we expect to incur between $5 and 10 million of incremental selling and
administrative expenses associated with the North America systems integration project. We expect
total incremental selling and administrative expenses to support the project through to completion to
approximate $15 million, with a similar amount of incremental capital expenditures over the next
two years. We are also in the process of converting our EMEA operations to a new IT system
platform. There can be no assurances that these integration and conversion projects will not cause
disruptions in our business, and any such disruption could have a material adverse effect on our
results of operations and financial condition. Any delay in the projects or disruption of service
during those projects would have an adverse effect on current results and future sales growth.
Further, any delay in the timing could reduce and/or delay our expense savings, and any such
disruption could have a material adverse effect on our results of operations and financial
condition. Additionally, if, as a result of the completion of the projects, existing technology is
determined to have a shorter useful life or the value of the existing system is impaired, we could
incur additional depreciation expense and/or impairment charges. Although we have built redundancy
into most of our IT systems, have documented system outage policies and procedures and have
comprehensive data backup, we do not have a formal disaster recovery plan. Substantial
interruption in our IT systems or in our voice and data networks, however caused, would have a
material adverse effect on our business, results of operations and financial condition.
General economic conditions, including concerns regarding our ability to collect our accounts
receivable and client credit constraints, or unfavorable economic conditions in a particular
region, business or industry sector, may lead our clients to delay or forgo investments in IT
hardware, software and services, either of which could adversely affect our business, financial
condition, operating results and cash flow. Weak economic conditions generally or any broad-based
reduction in IT spending adversely affects our business, operating results and financial condition.
A prolonged continued slowdown in the global economy, or in a particular region, or business or
industry sector, or tightening of credit markets, could cause our clients to have difficulty
accessing capital and credit sources; delay contractual payments; or delay or forgo decisions to
(i) upgrade or add to their existing IT environments, (ii) license new software or (iii) purchase
services (particularly with respect to discretionary spending for hardware, software and services).
Such events could adversely affect our business, financial condition, operating results and cash
flow.
The failure of our clients to pay the accounts receivable they owe to us or the loss of
significant clients could have a significant negative impact on our business, results of
operations, financial condition or liquidity. A significant portion of our working capital
consists of accounts receivable from clients. If clients responsible for a significant amount of
accounts receivable were to become insolvent or otherwise unable to pay for products and services,
or were to become unwilling to make payments in a timely manner, our business, results of
operations, financial condition or liquidity could be adversely affected. Economic or industry
downturns could result in longer payment cycles, increased collection costs and defaults in excess
of managements expectations. A significant deterioration in our ability to collect on accounts
receivable could also impact the cost or availability of financing under our accounts receivable
securitization program discussed below.
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INSIGHT ENTERPRISES, INC.
The IT hardware, software and services industry is intensely competitive, and actions of our
competitors, including manufacturers and publishers of products we sell, can negatively affect our
business. Competition in the industry is based on price, product availability, speed of delivery,
credit availability, quality and breadth of product lines, and, increasingly, on the ability to
tailor specific solutions to client needs. In addition to manufacturers and publishers of products
we sell, we compete with a large number and wide variety of marketers and resellers of IT hardware,
software and services. Additionally, we believe our industry will see further consolidation as
product resellers and direct marketers combine operations or acquire or merge with other resellers,
service providers and direct marketers to increase efficiency, service capabilities and market
share. Moreover, current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their product and service
offerings. Accordingly, it is possible that new competitors or alliances among competitors may
emerge and acquire significant market share. Generally, pricing is very aggressive in the
industry, and we expect pricing pressures to continue. There can be no assurance that we will be
able to negotiate prices as favorable as those negotiated by our competitors or that we will be
able to offset the effects of price reductions with an increase in the number of clients, higher
net sales, cost reductions, greater sales of services, which are typically at higher gross margins,
or otherwise. Price reductions by our competitors that we either cannot or choose not to match
could result in an erosion of our market share and/or reduced sales or, to the extent we match such
reductions, could result in reduced operating margins, any of which could have a material adverse
effect on our business, results of operations and financial condition.
Certain of our competitors in each of our operating segments have longer operating histories
and greater financial, technical, marketing and other resources than we do. In addition, some of
these competitors may be able to respond more quickly to new or changing opportunities,
technologies and client requirements. Many current and potential competitors also have greater
name recognition and engage in more extensive promotional activities, offer more attractive terms
to clients and adopt more aggressive pricing policies than we do. Additionally, some of our
competitors have higher margins and/or lower operating cost structures, allowing them to price more
aggressively. There can be no assurance that we will be able to compete effectively with current
or future competitors or that the competitive pressures we face will not have a material adverse
effect on our business, results of operations and financial condition.
Another growing industry trend is the SaaS business model. In many cases, the SaaS model
allows enterprises to obtain the benefits of commercially licensed, internally operated software
without the associated complexity or high initial set-up, operational and licensing costs.
Advances in the SaaS business model and other new models could increase our competition or
eliminate the need for a resale channel. There can be no assurance that we will be able to adapt
to, or compete effectively with, current or future distribution channels or competitors or that the
competitive pressures we face will not have a material adverse effect on our business, results of
operations and financial condition.
Changes in the IT industry and/or rapid changes in product standards may result in substantial
inventory obsolescence and may reduce demand for the IT hardware, software and services we sell.
Our results of operations are influenced by a variety of factors, including the condition of the IT
industry, shifts in demand for, or availability of, IT hardware, software, peripherals and
services, and industry introductions of new products, upgrades or methods of distribution. The IT
industry is characterized by rapid technological change and the frequent introduction of new
products, product enhancements and new distribution methods or channels, each of which can decrease
demand for current products or render them obsolete. Net sales can be dependent on demand for
specific product categories, and any change in demand for or supply of such products could have a
material adverse effect on our net sales and/or cause us to record write-downs of obsolete
inventory, if we fail to react in a timely manner to such changes. In addition, in order to
satisfy client demand, protect ourselves against product shortages, obtain greater purchasing
discounts and react to changes in original equipment manufacturers terms and conditions, we may
decide to carry inventory products that may have limited or no return privileges. There can be no
assurance that we will be able to avoid losses related to inventory obsolescence on these products.
The failure to comply with the terms and conditions of our commercial and public sector
contracts could result in, among other things, fines or other liabilities. Sales to commercial
clients are based on stated contract terms or terms contained in purchase orders on a transaction
by transaction basis. Sales to public sector clients are derived from sales to federal, state and
local governmental departments and agencies, as well as to educational institutions, through open
market sales and various contracts and programs. Noncompliance with contract terms, particularly
in the highly regulated public sector business, or with government procurement regulations could
result in damage awards against us or termination of contracts, and, in the public sector, could
also result in civil, criminal, and administrative liability. With respect to our public sector
business, the governments remedies may include suspension or debarment. In addition, almost all
of our contracts have default provisions, and substantially all of our contracts in the public
sector are terminable at any time for convenience of the contracting agency. The effect of any of
these possible actions or the
adoption of new or modified procurement regulations or practices could materially adversely
affect our business, financial position and results of operations.
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INSIGHT ENTERPRISES, INC.
We are subject to stockholder litigation and regulatory proceedings related to the restatement
of our consolidated financial statements. In 2008, we identified errors in the Companys
accounting related to trade credits in prior periods and determined that corrections to our
consolidated financial statements were required to reverse material prior period reductions of
costs of goods sold and selling and administrative expenses because of the incorrect releases of
certain aged trade credits.
Our internal review and related activities have required the Company to incur substantial
expenses for legal, accounting, tax and other professional services, and ongoing litigation could
require further, significant expenditures and could harm our business, reputation, financial
condition, results of operations and cash flows. Further, if the Company is subject to adverse
findings in litigation, regulatory proceedings or government enforcement actions, the Company could
be required to pay damages or penalties or have other remedies imposed, which could harm its
business, reputation, financial condition, results of operations and cash flows.
For a discussion of legal proceedings, see Note 16 to the Consolidated Financial Statements in
Part II, Item 8 of this report.
We have outstanding debt and may need to refinance that debt and/or incur additional debt in
the future, and general economic conditions and continued volatility in the credit markets could
limit our ability to obtain such financing or could increase the cost of financing. Our credit
facilities include a five-year $300.0 million senior revolving credit facility, a $150.0 million
accounts receivable securitization financing facility (the ABS facility), and a $150.0 million
inventory financing facility. As of December 31, 2010, we had $92.6 million of outstanding
indebtedness, of which $90.0 million was borrowed under our senior revolving credit facility and
$2.6 million was outstanding under a capital lease obligation. As of the end of fiscal 2010, the
following amounts were available under our credit facilities, subject to the limitations discussed
below:
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$210.0 million under our senior revolving credit facility; |
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$150.0 million under our accounts receivable securitization financing facility; and |
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$14.9 million under our inventory financing facility. |
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under
our senior revolving credit facility and our ABS facility is limited by certain financial
covenants, particularly a maximum leverage ratio. The maximum leverage ratio is calculated as
aggregate debt outstanding divided by the sum of the Companys trailing twelve month net earnings
plus (i) interest expense, less non-cash imputed interest on our inventory financing facility, (ii)
income tax expense, (iii) depreciation and amortization and (iv) non-cash stock-based compensation
(referred to herein as adjusted earnings). The maximum leverage ratio permitted under the
agreements was 2.50 times the Companys trailing twelve-month adjusted earnings as of December 31,
2010. A significant drop in adjusted earnings would limit the amount of indebtedness that could be
outstanding at the end of any fiscal quarter, to a level that would be below the Companys
consolidated maximum debt capacity. As a result of this limitation, of the $450.0 million of
aggregate maximum debt capacity available under our senior revolving credit facility and our ABS
facility, the Companys debt balance that could have been outstanding as of December 31, 2010 was
limited to $414.1 million based on 2.50 times the Companys trailing twelve-month adjusted
earnings.
Our borrowing capacity under our ABS facility is limited by the value and quality of the
accounts receivable under the facility. While the ABS facility has a stated maximum amount of
$150.0 million, the actual availability under the facility is limited by the quantity and quality
of the underlying accounts receivable. As of December 31, 2010, the full $150.0 million was
available.
Our senior revolving credit facility, ABS facility and inventory financing facility all mature
on April 1, 2013. We may not be able to refinance our debt without a significant increase in cost,
or at all, and there can be no assurance that additional lines of credit or financing instruments
will be available to us. A lack, or high cost, of credit could limit our ability to: obtain
additional financing for working capital, capital expenditures, debt service requirements,
acquisitions or other purposes in the future, as needed; plan for, or react to, changes in
technology and in our business and competition; and react in the event of a further economic
downturn.
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INSIGHT ENTERPRISES, INC.
We can provide no assurance that we will continue to be able to meet our capital requirements,
particularly if current market or economic conditions continue or deteriorate further. The future
effects on our business, liquidity and financial results of these conditions could be material and
adverse to us, both in ways described above and in other ways that we do not currently foresee.
Failure to adequately maintain the security of our electronic and other confidential
information could materially adversely affect our financial condition and results of operations.
We are dependent upon automated information technology processes. Privacy, security, and
compliance concerns have continued to increase as technology has evolved to facilitate commerce. As
part of our normal business activities, we collect and store certain confidential information,
including personal information with respect to clients and teammates. We may share some of this
information with vendors who assist us with certain aspects of our business. Moreover, the success
of our operations depends upon the secure transmission of confidential and personal data over
public networks, including the use of cashless payments. Any failure on the part of us or our
vendors to maintain the security of our confidential data and our teammates and clients personal
information, including via the penetration of our network security and the misappropriation of
confidential and personal information, could result in business disruption, damage to our
reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and
private litigation with potentially large costs, and also result in deterioration in our teammates
and clients confidence in us and other competitive disadvantages, and thus could have a material
adverse impact on our business, financial condition and results of operations.
Our net sales and gross profit have historically varied, making our future operating results
less predictable. Our operating results are highly dependent upon our level of gross profit as a
percentage of net sales, which fluctuates due to numerous factors, including changes in prices from
partners, changes in the amount and timing of partner funding, volumes of purchases, changes in
client mix, the relative mix of products sold during the period, general competitive conditions,
and strategic product and services pricing and purchasing actions. In addition, our expense levels
are based, in part, on anticipated net sales and the anticipated amount and timing of partner
funding. Therefore, we may not be able to reduce spending quickly enough to compensate for any
unexpected net sales shortfall, and any such inability could have a material adverse effect on our
business, results of operations and financial condition.
In addition, a reduction in the amount of credit granted to us by our partners could increase
our need for and cost of working capital and have a material adverse effect on our business,
results of operations and financial condition.
There are risks associated with our international operations that are different than the risks
associated with our operations in the United States, and our exposure to the risks of a global
market could hinder our ability to maintain and expand international operations. We have operation
centers in Australia, Canada, Germany, France, the U.S., and the United Kingdom, as well as sales
offices in Austria, Australia, Belgium, Canada, China, Denmark, France, Germany, Hong Kong, Italy,
the Netherlands, Russia, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the U.S.,
and sales presence in Finland, New Zealand, Norway and Portugal. In the regions in which we do not
currently have a physical presence, such as Africa, Japan and India, we serve our clients through
strategic relationships. In implementing our international strategy, we may face barriers to entry
and competition from local companies and other companies that already have established global
businesses, as well as the risks generally associated with conducting business internationally.
The success and profitability of international operations are subject to numerous risks and
uncertainties, many of which are outside of our control, such as:
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political or economic instability; |
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changes in governmental regulation or taxation; |
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currency exchange fluctuations; |
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changes in import/export laws, regulations and customs and duties; |
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difficulties and costs of staffing and managing operations in certain foreign countries; |
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work stoppages or other changes in labor conditions; |
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taxes and other restrictions on repatriating foreign profits back to the U.S.; |
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extended payment terms; and |
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seasonal reductions in business activity in some parts of the world. |
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INSIGHT ENTERPRISES, INC.
In addition, until a payment history is established with clients in a new region, the
likelihood of collecting receivables generated by such operations, on a timely basis or at all,
could be less than in established markets. As a result, there is a greater risk that reserves
established with respect to the collection of such receivables may be
inadequate. Furthermore, changes in policies and/or laws of the U.S. or foreign governments
resulting in, among other changes, higher taxation, tariffs or similar protectionist laws, currency
conversion limitations or the nationalization of private enterprises could reduce the anticipated
benefits of international operations. Any actions by countries in which we conduct business to
reverse policies that encourage foreign trade could have a material adverse effect on our results
of operations and financial condition.
We have currency exposure arising from both sales and purchases denominated in foreign
currencies, including intercompany transactions outside the U.S. Changes in exchange rates between
foreign currencies and the U.S. dollar, or between foreign currencies, may adversely affect our
operating margins. For example, if these foreign currencies appreciate against the U.S. dollar, it
will become more expensive in U.S. dollars to pay expenses with foreign currencies. In addition,
currency devaluation against the U.S. dollar can result in a loss to us if we hold deposits
denominated in the devalued currency. We currently conduct limited hedging activities, and, to the
extent not hedged, we are vulnerable to the effects of currency exchange-rate fluctuations. In
addition, some currencies are subject to limitations on conversion into other currencies, which can
limit the ability to otherwise react to rapid foreign currency devaluations. We cannot predict
with precision the effect of future exchange-rate fluctuations on business and operating results,
and significant rate fluctuations could have a material adverse effect on results of operations and
financial condition.
International operations also expose us to currency fluctuations as we translate the financial
statements of our foreign operations to U.S. dollars.
Changes in, interpretations of, or enforcement trends related to, tax rules and regulations
may adversely affect our effective income tax rates or operating margins and we may be required to
pay additional tax assessments. We conduct business globally and file income tax returns in
various U.S. and foreign tax jurisdictions. Our effective tax rate could be adversely affected by
various factors, many of which are outside of our control, including:
|
|
|
changes in pre-tax income in various jurisdictions in which we operate that have
differing statutory tax rates; |
|
|
|
higher corporate tax rates in the U.S. and elsewhere; |
|
|
|
changes in tax laws, regulations, and/or interpretations of such tax laws in multiple
jurisdictions; |
|
|
|
tax effects related to purchase accounting for acquisitions; and |
|
|
|
resolutions of issues arising from tax examinations and any related interest or
penalties. |
The determination of our worldwide provision for income taxes and other tax liabilities
requires estimation, judgment and calculations in situations where the ultimate tax determination
may not be certain. Our determination of tax liabilities is always subject to review or
examination by tax authorities in various jurisdictions. Any adverse outcome of such review or
examination could have a negative impact on our operating results and financial condition. The
results from various tax examinations and audits may differ from the liabilities recorded in our
financial statements and may adversely affect our financial results and cash flows.
We depend on certain key personnel. Our future success will be largely dependent on the
efforts of key management teammates. The loss of one or more of these leaders could have a
material adverse effect on our business, results of operations and financial condition. We cannot
offer assurance that we will be able to continue to attract or retain highly qualified executive
personnel or that any such executive personnel will be able to increase stockholder value. We also
believe that our future success will be largely dependent on our continued ability to attract and
retain highly qualified management, sales, service and technical teammates, but we cannot offer
assurance that we will be able to attract and retain such personnel. Further, we make a
significant investment in the training of our sales account executives and services engineers. Our
inability to retain such personnel or to train them either rapidly enough to meet our expanding
needs or in an effective manner for quickly changing market conditions could cause a decrease in
the overall quality and efficiency of our sales teammates, which could have a material adverse
effect on our business, results of operations and financial condition.
15
INSIGHT ENTERPRISES, INC.
We may not be able to protect our intellectual property adequately, and we may be subject to
intellectual property infringement claims. To protect our intellectual property, we rely on
copyright and trademark laws, unpatented proprietary know-how, and trade secrets and patents, as
well as confidentiality, invention assignment, non-solicitation and non-competition agreements.
There can be no assurance that these measures will afford us sufficient protection of our
intellectual property, and it is possible that third parties may copy or otherwise obtain and use
our proprietary information without authorization or otherwise infringe on our intellectual
property rights. The disclosure of our trade secrets could impair our competitive position and
could have a material adverse effect on our business relationships, results of operations,
financial condition and future growth prospects. In addition, our registered trademarks and trade
names are subject to challenge by other rights owners. This may affect our ability to
continue using those marks and names. Likewise, many businesses are actively investing in,
developing and seeking protection for intellectual property in the areas of search, indexing,
e-commerce and other Web-related technologies, as well as a variety of on-line business models and
methods, all of which are in addition to traditional research and development efforts for IT
products and application software. As a result, disputes regarding the ownership of these
technologies are likely to arise in the future, and, from time to time, parties do assert various
infringement claims against us, either because of our practices or because we resell allegedly
infringing software, in the form of cease-and-desist letters, licensing inquiries, lawsuits and
other communications and demands. If there is a determination that we have infringed the
proprietary rights of others, we could incur substantial monetary liability, be forced to stop
selling infringing products or providing infringing services, be required to enter into costly
royalty or licensing agreements, if available, or be prevented from using the rights, which could
force us to change our business practices or hardware, software or services offerings in the
future. Additionally, as we increase the geographic scope of our operations and the types of
services provided under the Insight brand, there is a greater likelihood that we will encounter
challenges to our trade names, trademarks and service marks. We may not be able to use our
principal mark without modification in all geographies for all of our offerings, and these
challenges may come from either governmental agencies or other market participants. These types of
claims could have a material adverse effect on our business, results of operations and financial
condition.
Some anti-takeover provisions contained in our certificate of incorporation, bylaws and
stockholders rights agreement, as well as provisions of Delaware law and executive employment
contracts, could impair a takeover attempt. We have provisions in our certificate of incorporation
and bylaws which could have the effect (separately, or in combination) of rendering more difficult
or discouraging an acquisition deemed undesirable by our Board of Directors. These include
provisions:
|
|
|
authorizing blank check preferred stock, which could be issued with voting, liquidation,
dividend and other rights superior to our common stock; |
|
|
|
limiting the liability of, and providing indemnification to, directors and officers; |
|
|
|
limiting the ability of our stockholders to call special meetings; |
|
|
|
requiring advance notice of stockholder proposals for business to be conducted at
meetings of our stockholders and for nominations of candidates for election to our Board of
Directors; |
|
|
|
controlling the procedures for conduct of Board and stockholder meetings and election
and removal of directors; and |
|
|
|
specifying that stockholders may take action only at a duly called annual or special
meeting of stockholders. |
These provisions, alone or together, could deter or delay hostile takeovers, proxy contests
and changes in control or management. As a Delaware corporation, we are also subject to provisions
of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some
stockholders from engaging in certain business combinations without approval of the holders of
substantially all of our outstanding common stock.
Our bylaws provide that the Company will seek stockholder approval prior to its adoption of
any stockholder rights plan, unless the Board, in the exercise of its fiduciary duties, determines
that, under the circumstances existing at the time, it is in the best interest of our stockholders
to adopt or extend a stockholder rights plan without delay. The amendment further provides that a
stockholder rights plan adopted or extended by the Board without prior stockholder approval must
provide that it will expire unless ratified by the stockholders of the Company within one year of
adoption. Despite these bylaw provisions, we could adopt a stockholder rights plan for a limited
period of time, and such a plan could have the effect of delaying or deterring a change of control
that could limit the opportunity for stockholders to receive a premium for their shares.
Additionally, we have employment agreements with 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. If such persons were
terminated without cause or under certain circumstances after a change of control, and the
severance payments under the current employment agreements were to become payable, the severance
payments would generally range from three months of a teammates annual salary up to two times the
teammates annual salary and bonus.
16
INSIGHT ENTERPRISES, INC.
Any provision of our certificate of incorporation, bylaws, employment agreements or Delaware
law that has the effect of delaying or deterring a change in control could limit the opportunity
for our stockholders to receive a premium for their shares of our common stock and also could
affect the price that some investors are willing to pay for our common stock.
Sales of additional common stock and securities convertible into our common stock may dilute
the voting power of current holders. We may issue equity securities in the future whose terms and
rights are superior to those of our common stock. Our certificate of incorporation authorizes the
issuance of up to 3,000,000 shares of preferred stock. These are blank check preferred shares,
meaning that our Board of Directors is authorized, from time to time, to issue the shares and
designate their voting, conversion and other rights, including rights superior, or preferential, to
rights of already outstanding shares, all without stockholder consent. No preferred shares are
outstanding, and we currently do not intend to issue any shares of preferred stock. Any shares of
preferred stock that may be issued in the future could be given voting and conversion rights that
could dilute the voting power and equity of existing holders of shares of common stock and have
preferences over shares of common stock with respect to dividends and liquidation rights.
|
|
|
Item 1B. |
|
Unresolved Staff Comments |
None.
Our principal executive offices are located at 6820 South Harl Avenue, Tempe, Arizona
85283. We believe that our facilities will be suitable and adequate for our present purposes, and
we anticipate that we will be able to extend our existing leases on terms satisfactory to us or, if
necessary, to locate substitute facilities on acceptable terms. At December 31, 2010, we owned or
leased a total of approximately 1.3 million square feet of office and warehouse space, and, while
approximately 70% of the square footage is in the United States, we own or lease office and
warehouse facilities in 12 countries in EMEA and we lease office facilities in four countries in
APAC.
Information about significant sales, distribution, services and administration facilities in
use as of December 31, 2010 is summarized in the following table:
|
|
|
|
|
|
|
Operating Segment |
|
Location |
|
Primary Activities |
|
Own or Lease |
Headquarters
|
|
Tempe, Arizona, USA
|
|
Executive Offices, Sales and Administration
|
|
Own |
|
|
|
|
|
|
|
North America
|
|
Tempe, Arizona, USA
|
|
Sales and Administration
|
|
Own |
|
|
Tempe, Arizona, USA
|
|
Administration
|
|
Own |
|
|
Tempe, Arizona, USA
|
|
Network Operations Center
|
|
Lease |
|
|
Bloomingdale, Illinois, USA
|
|
Sales and Administration
|
|
Own |
|
|
Hanover Park, Illinois, USA
|
|
Services, Distribution and Administration
|
|
Lease |
|
|
Plano, Texas, USA
|
|
Sales and Administration
|
|
Lease |
|
|
Liberty Lake, Washington, USA
|
|
Sales and Administration
|
|
Lease |
|
|
Tampa, Florida, USA
|
|
Sales and Administration
|
|
Lease |
|
|
Winnipeg, Manitoba, Canada
|
|
Sales and Administration
|
|
Lease |
|
|
Montreal, Quebec, Canada
|
|
Sales and Administration
|
|
Own |
|
|
Mississauga, Ontario, Canada
|
|
Sales and Administration
|
|
Lease |
|
|
Montreal, Quebec, Canada
|
|
Distribution
|
|
Lease |
|
|
|
|
|
|
|
EMEA
|
|
Sheffield, United Kingdom
|
|
Sales and Administration
|
|
Own |
|
|
Sheffield, United Kingdom
|
|
Distribution
|
|
Lease |
|
|
Uxbridge, United Kingdom
|
|
Sales and Administration
|
|
Lease |
|
|
Munich, Germany
|
|
Sales and Administration
|
|
Lease |
|
|
Paris, France
|
|
Sales and Administration
|
|
Lease |
|
|
|
|
|
|
|
APAC
|
|
Sydney, New South Wales, Australia
|
|
Sales and Administration
|
|
Lease |
17
INSIGHT ENTERPRISES, INC.
In addition to those listed above, we have leased sales offices in various cities across
North America, EMEA and APAC. For additional information on operating leases, see Note 8 to the
Consolidated Financial Statements in Part II, Item 8 of this report. These properties are not
included in the table above. A portion
of the administration facilities that we own in Tempe, Arizona included in the table above is
currently leased to Direct Alliance Corporation, a discontinued operation that was sold to a third
party in 2006.
|
|
|
Item 3. |
|
Legal Proceedings |
For a discussion of legal proceedings, see Note 16 to the Consolidated Financial
Statements in Part II, Item 8 of this report. For an additional discussion of certain risks
associated with legal proceedings, see Risk Factors We are subject to stockholder litigation
and regulatory proceedings related to the restatement of our consolidated financial statements, in
Part I, Item 1A of this report.
|
|
|
Item 4. |
|
(Removed and Reserved) |
PART II
|
|
|
Item 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities |
Market Information
Our common stock trades under the symbol NSIT on The Nasdaq Global Select Market. The
following table shows, for the calendar quarters indicated, the high and low sales price per share
for our common stock as reported on the Nasdaq Global Select Market.
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
High Price |
|
|
Low Price |
|
Year 2010 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
16.66 |
|
|
$ |
12.61 |
|
Third Quarter |
|
|
16.01 |
|
|
|
12.37 |
|
Second Quarter |
|
|
16.27 |
|
|
|
13.16 |
|
First Quarter |
|
|
14.84 |
|
|
|
11.47 |
|
Year 2009 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
14.00 |
|
|
$ |
10.14 |
|
Third Quarter |
|
|
12.43 |
|
|
|
8.44 |
|
Second Quarter |
|
|
9.80 |
|
|
|
3.41 |
|
First Quarter |
|
|
7.20 |
|
|
|
2.06 |
|
As
of February 18, 2011, we had 46,358,895 shares of common stock outstanding held by
approximately 90 stockholders of record. This figure does not include an estimate of the number
of beneficial holders whose shares are held of record by brokerage firms and clearing agencies.
We have never paid a cash dividend on our common stock. We currently intend to reinvest all
of our earnings into our business and do not intend to pay any cash dividends in the foreseeable
future. Our senior revolving credit facility contains restrictions on the payment of cash
dividends.
18
INSIGHT ENTERPRISES, INC.
Issuer Purchases of Equity Securities
Although we did not repurchase shares of our common stock during the year ended December
31, 2010, we have repurchased shares of our common stock in the past and may consider doing so
again in the foreseeable future. Additional information about our share repurchase programs can be
found in Note 15 to the Consolidated Financial Statements in Part II, Item 8 of this report and is
incorporated by reference herein.
Stock Price Performance Graph
Set forth below is a graph comparing the percentage change in the cumulative total
stockholder return on our common stock with the cumulative total return of the Nasdaq Stock Market
U.S. Companies (Market Index) and the Nasdaq Retail Trade Stocks (Peer Index) for the period
starting January 1, 2006 and ending December 31, 2010. The graph assumes that $100 was invested on
January 1, 2006 in our common stock and in each of the two Nasdaq indices, and that, as to such
indices, dividends were reinvested. We have not, since our inception, paid any cash dividends on
our common stock. Historical stock price performance shown on the graph is not necessarily
indicative of future price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 1, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
2006 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Insight
Enterprises, Inc.
Common Stock (NSIT) |
|
|
100.00 |
|
|
|
95.35 |
|
|
|
92.17 |
|
|
|
34.87 |
|
|
|
57.71 |
|
|
|
66.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nasdaq Stock Market
U.S. Companies
(Market Index) |
|
|
100.00 |
|
|
|
109.84 |
|
|
|
119.14 |
|
|
|
57.41 |
|
|
|
82.53 |
|
|
|
97.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nasdaq Retail Trade
Stocks
(Peer Index) |
|
|
100.00 |
|
|
|
109.21 |
|
|
|
99.37 |
|
|
|
69.33 |
|
|
|
96.31 |
|
|
|
120.63 |
|
19
INSIGHT ENTERPRISES, INC.
|
|
|
Item 6. |
|
Selected Financial Data |
The following selected consolidated financial data should be read in conjunction with our
Consolidated Financial Statements and the Notes thereto in Part II, Item 8 and Managements
Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of
this report. The selected consolidated financial data presented below under the captions
Consolidated Statements of Operations Data and Consolidated Balance Sheet Data as of and for
each of the years in the five-year period ended December 31, 2010 is derived from our audited
consolidated financial statements. The consolidated financial statements as of December 31, 2010
and 2009, and for each of the years in the three-year period ended December 31, 2010, which have
been audited by KPMG LLP, our independent registered public accounting firm, are included in Part
II, Item 8 of this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands, except per share data) |
|
Consolidated Statements of Operations
Data (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
4,809,930 |
|
|
$ |
4,136,905 |
|
|
$ |
4,825,489 |
|
|
$ |
4,805,474 |
|
|
$ |
3,599,937 |
|
Costs of goods sold |
|
|
4,163,833 |
|
|
|
3,568,291 |
|
|
|
4,161,906 |
|
|
|
4,146,848 |
|
|
|
3,133,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
646,097 |
|
|
|
568,614 |
|
|
|
663,583 |
|
|
|
658,626 |
|
|
|
466,186 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
519,065 |
|
|
|
502,102 |
|
|
|
561,987 |
|
|
|
542,322 |
|
|
|
376,722 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
397,247 |
|
|
|
|
|
|
|
|
|
Severance and restructuring expenses |
|
|
2,956 |
|
|
|
13,608 |
|
|
|
8,595 |
|
|
|
2,595 |
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
124,076 |
|
|
|
52,904 |
|
|
|
(304,246 |
) |
|
|
113,709 |
|
|
|
88,735 |
|
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(714 |
) |
|
|
(424 |
) |
|
|
(2,387 |
) |
|
|
(2,078 |
) |
|
|
(4,355 |
) |
Interest expense |
|
|
7,677 |
|
|
|
10,790 |
|
|
|
13,479 |
|
|
|
12,852 |
|
|
|
5,985 |
|
Net foreign currency exchange loss (gain) |
|
|
522 |
|
|
|
(328 |
) |
|
|
9,629 |
|
|
|
(3,887 |
) |
|
|
(1,135 |
) |
Other expense, net |
|
|
1,417 |
|
|
|
1,123 |
|
|
|
1,107 |
|
|
|
1,531 |
|
|
|
901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) from continuing operations before income taxes |
|
|
115,174 |
|
|
|
41,743 |
|
|
|
(326,074 |
) |
|
|
105,291 |
|
|
|
87,339 |
|
Income tax expense (benefit) |
|
|
39,689 |
|
|
|
10,970 |
|
|
|
(86,347 |
) |
|
|
40,686 |
|
|
|
30,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) from continuing operations |
|
|
75,485 |
|
|
|
30,773 |
|
|
|
(239,727 |
) |
|
|
64,605 |
|
|
|
56,457 |
|
Earnings from discontinued
operations, net of taxes
(2) |
|
|
|
|
|
|
2,801 |
|
|
|
|
|
|
|
4,151 |
|
|
|
13,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
75,485 |
|
|
$ |
33,574 |
|
|
$ |
(239,727 |
) |
|
$ |
68,756 |
|
|
$ |
69,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
1.63 |
|
|
$ |
0.67 |
|
|
$ |
(5.15 |
) |
|
$ |
1.32 |
|
|
$ |
1.17 |
|
Net earnings from discontinued operations (2) |
|
|
|
|
|
|
0.06 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
1.63 |
|
|
$ |
0.73 |
|
|
$ |
(5.15 |
) |
|
$ |
1.40 |
|
|
$ |
1.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
1.61 |
|
|
$ |
0.67 |
|
|
$ |
(5.15 |
) |
|
$ |
1.29 |
|
|
$ |
1.15 |
|
Net earnings from discontinued operations (2) |
|
|
|
|
|
|
0.06 |
|
|
|
|
|
|
|
0.08 |
|
|
|
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
1.61 |
|
|
$ |
0.73 |
|
|
$ |
(5.15 |
) |
|
$ |
1.37 |
|
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
46,218 |
|
|
|
45,838 |
|
|
|
46,573 |
|
|
|
49,055 |
|
|
|
48,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
46,812 |
|
|
|
46,271 |
|
|
|
46,573 |
|
|
|
50,120 |
|
|
|
49,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
INSIGHT ENTERPRISES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(in thousands) |
|
Consolidated Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
352,182 |
|
|
$ |
297,485 |
|
|
$ |
318,867 |
|
|
$ |
418,474 |
|
|
$ |
383,483 |
|
Total assets |
|
|
1,803,283 |
|
|
|
1,603,321 |
|
|
|
1,607,503 |
|
|
|
1,890,730 |
|
|
|
1,800,758 |
|
Short-term debt |
|
|
997 |
|
|
|
875 |
|
|
|
|
|
|
|
15,000 |
|
|
|
30,000 |
|
Long-term debt |
|
|
91,619 |
|
|
|
149,349 |
|
|
|
228,000 |
|
|
|
187,250 |
|
|
|
224,250 |
|
Stockholders equity |
|
|
544,971 |
|
|
|
467,574 |
|
|
|
421,968 |
|
|
|
741,738 |
|
|
|
663,629 |
|
Cash dividends declared per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our consolidated statements of operations data above includes results of the
acquisitions from their dates of acquisition: MINX from July 10, 2008; Calence from April 1,
2008; and Software Spectrum from September 7, 2006. |
|
(2) |
|
Earnings from Discontinued Operations. During the year ended December 31, 2009, we
recorded earnings from a discontinued operation of $4.5 million, $2.8 million net of tax, as a
result of the favorable settlement on July 7, 2009 of an arbitrated claim related to the sale
of Direct Alliance, a former subsidiary that was sold on June 30, 2006. During the year ended
December 31, 2007, we sold PC Wholesale, a division of our North America operating segment.
During the year ended December 31, 2006, we sold Direct Alliance, a business process
outsourcing provider in the U.S. Accordingly, we have accounted for these entities as
discontinued operations and have reported their results of operations as discontinued
operations in the Consolidated Statements of Operations. Included in earnings from
discontinued operations for the years ended December 31, 2007 and 2006 are the gain on the
sale of PC Wholesale of $5.6 million, $3.4 million net of taxes, and the gain on the sale of
Direct Alliance of $14.9 million, $9.0 million net of taxes, respectively. |
21
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of our operations
should be read in conjunction with the Consolidated Financial Statements and notes thereto included
in Part II, Item 8 of this report. Our actual results could differ materially from those contained
in forward-looking statements due to a number of factors, including those discussed in Risk
Factors in Part I, Item 1A and elsewhere in this report.
Overview
We are a leading provider of information technology (IT) hardware, software and
services to small, medium and large businesses and public sector clients in North America, Europe,
the Middle East, Africa and Asia-Pacific. Currently, our offerings in North America and the United
Kingdom include IT hardware, software and services. Our offerings in the remainder of our EMEA
segment and in APAC currently only include software and select software-related services.
Our strategic vision is to be the trusted advisor to our clients, helping them enhance their
business performance through innovative technology solutions. Our strategy is to grow profitable
market share through the continued transformation of Insight into a complete IT solutions company,
differentiating us in the marketplace and giving us a competitive advantage.
On a consolidated basis, for the year ended December 31, 2010, our net sales and resulting
gross profit increased by 16% and 14%, respectively, while gross margin declined 30 basis points to
13.4%. Net sales for the year ended December 31, 2010 compared to the year ended December 31, 2009
increased 18% in North America, 14% in EMEA and 10% in APAC. Net sales in 2010 returned to
pre-recessionary levels with a margin decline resulting from a change in mix of our business to a
higher contribution from lower margin hardware and software sales and a lower contribution from
higher margin sales of services. We reported net earnings from continuing operations of $75.5
million and diluted net earnings from continuing operations per share of $1.61 for the year ended
December 31, 2010. In 2009, we reported net earnings from continuing operations of $30.8 million
and diluted net earnings from continuing operations per share of $0.67 and net earnings from a
discontinued operation of $2.8 million, net of tax, or $0.06 per share, as a result of the
favorable settlement on July 7, 2009 of an arbitrated claim related to the sale of Direct Alliance,
a former subsidiary that was sold on June 30, 2006. In 2008, we reported a net loss from
continuing operations of $239.7 million and a diluted net loss from continuing operations per share
of $5.15 for the year, primarily as a result of a $397.2 million goodwill impairment charge.
The results of operations for the year ended December 31, 2010 include the following items:
|
|
|
severance and restructuring expenses of $3.0 million, $1.9 million net of tax;
and |
|
|
|
a tax benefit of $1.6 million related to the recapitalization of one of our
foreign subsidiaries. |
The results of operations for the year ended December 31, 2009 include the effect of the
following items:
|
|
|
severance and restructuring expenses of $13.6 million, $8.8 million net of tax; |
|
|
|
professional fees and costs associated with the trade credits restatement
remediation and related litigation of $8.3 million, $5.1 million net of tax, and
interest expense related to our anticipated unclaimed property settlement under
two state programs of $2.0 million, $1.2 million net of tax; |
|
|
|
a non-cash charge related to the termination of an equity incentive
compensation plan of $5.5 million, $3.5 million net of tax; |
|
|
|
a tax benefit of $3.3 million related to a recapitalization of one of our
foreign subsidiaries and the true-up of certain foreign tax assets; |
|
|
|
a $1.5 million tax benefit from the true-up of foreign tax credits after filing
the Companys 2008 U.S. federal tax return and the recognition of certain tax
benefits from the settlement of audits; and |
|
|
|
|
a tax charge related to the remeasurement of certain deferred tax assets of
$600,000. |
22
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The results of operations for the year ended December 31, 2008 include the effect of the
following items:
|
|
|
goodwill impairment charge of $397.2 million, $276.7 million net of tax; |
|
|
|
foreign currency losses of $9.6 million, $6.6 million net of tax; |
|
|
|
severance and restructuring expenses of $8.6 million, $5.7 million net of tax;
and |
|
|
|
foreign tax credit impairment of $8.7 million. |
Net of tax amounts referenced above were computed using the effective tax rate for the taxing
jurisdictions in the operating segment in which the related expense was recorded. The majority of
the 2008 goodwill impairment charges in EMEA and APAC were non-deductible and therefore had no tax
effect.
During 2010, we generated $98.2 million of cash flows from operations, which were net of cash
outlays of $25.8 million in 2010 to settle trade credit liabilities as part of our compliance with
state unclaimed property laws, and paid down our revolving credit facility by $57.0 million, ending
the year with $123.8 million of cash and cash equivalents and $90.0 million of debt outstanding
under our revolving credit facility.
On July 10, 2008, we acquired MINX Limited (MINX), a United Kingdom-based networking
services company, for a cash purchase price of approximately $1.5 million and the assumption of
approximately $3.9 million of existing debt. Founded in 2002, MINX is a network integrator with
Cisco Gold Partner accreditation in the United Kingdom. We believe this acquisition has
significantly enhanced our capabilities in the sale, implementation and management of network
infrastructure services and solutions in our EMEA operating segment and complements our April 1,
2008 acquisition of Calence in our North America operating segment.
On April 1, 2008, we completed the acquisition of Calence, LLC (Calence), an independent
technology solutions provider in the United States specializing in Cisco networking solutions,
advanced communications and managed services, for a cash purchase price of $125.0 million plus a
working capital adjustment of approximately $3.6 million. During the year ended December 31, 2010,
2009 and 2008, we recorded an additional $645,000, $15.8 million and $10.4 million, respectively,
of purchase price consideration and the related accrued interest thereon as a result of Calence
achieving certain performance targets during each year. Such amounts were recorded as additional
goodwill. See discussion relating to goodwill in Note 3 to the Consolidated Financial Statements
in Part II, Item 8 of this report. We also assumed Calences existing debt totaling approximately
$7.3 million, of which $7.1 million was repaid by us at closing in 2008.
As we have previously disclosed, the Companys largest software partner has informed resellers
that it intends to change certain elements of its channel incentive programs effective in late
2011, and those changes could adversely affect the Companys results of operations, primarily
beginning in 2012. We currently expect the financial effect to be immaterial to our financial
performance in 2011. Additional details of the new programs have recently been announced and as a
result, we now expect the full year 2012 effect to be a reduction of gross profit of between $5 and
$10 million.
Our discussion and analysis of financial condition and results of operations is intended to
assist in the understanding of our consolidated financial statements, the changes in certain key
items in those consolidated financial statements from year to year and the primary factors that
contributed to those changes, as well as how certain critical accounting estimates affect our
Consolidated Financial Statements.
Critical Accounting Estimates
General
Our consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP). For a summary of significant accounting policies, see
Note 1 to the Consolidated Financial
Statements in Part II, Item 8 of this report. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of
assets, liabilities, net sales and expenses. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results, however, may differ from estimates we
have made. Members of our senior management have discussed the critical accounting estimates and
related disclosures with the Audit Committee of our Board of Directors.
23
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
We consider the following to be our critical accounting estimates used in the preparation of
our Consolidated Financial Statements:
Sales Recognition
Sales are recognized when title and risk of loss are passed to the client, there is persuasive
evidence of an arrangement for sale, delivery has occurred and/or services have been rendered, the
sales price is fixed or determinable and collectibility is reasonably assured. Our usual sales
terms are F.O.B. shipping point or equivalent, at which time title and risk of loss have passed to
the client. However, because we either (i) have a general practice of covering client losses while
products are in transit despite title and risk of loss contractually transferring at the point of
shipment or (ii) have specifically stated F.O.B. destination contractual terms with the client,
delivery is not deemed to have occurred until the point in time when the product is received by the
client.
We make provisions for estimated product returns that we expect to occur under our return
policy based upon historical return rates. Our manufacturers warrant most of the products we
market, and it is our policy to request that clients return their defective products directly to
the manufacturer for warranty service. On selected products, and for selected client service
reasons, we may accept returns directly from the client and then either credit the client or ship a
replacement product. We generally offer a limited 15- to 30-day return policy for unopened
products and certain opened products, which are consistent with manufacturers terms; however, for
some products we may charge restocking fees. Products returned opened are processed and returned
to the manufacturer or partner for repair, replacement or credit to us. We resell most unopened
products returned to us. Products that cannot be returned to the manufacturer for warranty
processing but are in working condition are sold to inventory liquidators, to end users as
previously sold or used products, or through other channels to reduce our losses from returned
products.
We record freight billed to our clients as net sales and the related freight costs as costs of
goods sold. We report sales net of any sales-based taxes assessed by governmental authorities that
are imposed on and concurrent with sales transactions.
Revenue is recognized from software sales when clients acquire the right to use or copy
software under license, but in no case prior to the commencement of the term of the initial
software license agreement, provided that all other revenue recognition criteria have been met
(i.e., delivery, evidence of the arrangement exists, the fee is fixed or determinable and
collectibility of the fee is probable).
From time to time, the sale of hardware and software products may also include the provision
of services and the associated contracts contain multiple elements or non-standard terms and
conditions. Sales of services currently represent a small percentage of our net sales, and a
significant amount of services that are performed in conjunction with hardware and software sales
are completed in our facilities prior to shipment of the product. In these circumstances, net
sales for the hardware, software and services are recognized upon delivery. Net sales of services
that are performed at client locations are often service-only contracts and are recorded as sales
when the services are performed and completed. If the service is performed at a client location
in conjunction with a hardware, software or other services sale, we recognize net sales for
delivered items only when all of the following criteria are satisfied:
|
|
|
the delivered item(s) has value to the client on a stand-alone basis; |
|
|
|
there is objective and reliable evidence of the fair value of the undelivered item(s);
and |
|
|
|
if the arrangement includes a general right of return relative to the delivered item,
delivery or performance of the undelivered item(s) is considered probable and substantially
in our control. |
We sell certain third-party service contracts and software assurance or subscription products
for which we are not the primary obligor. These sales do not meet the criteria for gross sales
recognition and, thus, are recorded on a net sales
recognition basis. As we enter into contracts with third-party service providers or vendors,
we evaluate whether the subsequent sales of such services should be recorded as gross sales or net
sales. We determine whether we act as a principal in the transaction and assume the risks and
rewards of ownership or if we are simply acting as an agent or broker. Under gross sales
recognition, the entire selling price is recorded in sales and our cost to the third-party service
provider or vendor is recorded in costs of goods sold. Under net sales recognition, the cost to
the third-party service provider or vendor 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.
24
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Additionally, we sell certain professional services contracts on a fixed fee basis. Revenues
for fixed fee professional services contracts are recognized based on the ratio of costs incurred
to total estimated costs. Net sales for these service contracts are not a significant portion of
our consolidated net sales.
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 costs of goods sold as the inventory is sold. Changes
in estimates of anticipated achievement levels under individual partner programs may affect our
results of operations and our cash flows.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for
further discussion of our accounting policies related to partner funding.
Stock-Based Compensation
We recognize stock-based compensation net of an estimated forfeiture rate and only recognize
compensation expense for those shares expected to vest over the requisite service period of the
award. Starting in 2006, we elected to primarily issue service-based and performance-based
restricted stock units (RSUs). The number of RSUs ultimately awarded under performance-based
RSUs varies based on whether we achieve 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. For any stock options awarded, modifications to previous awards
or awards of RSUs that are tied to specified market conditions, we use option pricing models or
lattice (binomial) models to determine fair value of the awards.
The estimated fair value of stock options is determined on the date of the grant using the
Black-Scholes-Merton (Black-Scholes) option-pricing model. The Black-Scholes model requires us
to apply highly subjective assumptions, including expected stock price volatility, expected life of
the option and the risk-free interest rate. A change in one or more of the assumptions used in the
option-pricing model may result in a material change to the estimated fair value of the stock-based
compensation.
See Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report for
further discussion of stock-based compensation.
Allowance for Doubtful Accounts
Our allowance for doubtful accounts is determined using estimated losses on accounts
receivable based on evaluation of the aging of the receivables, historical write-offs and the
current economic environment. Should our clients or vendors circumstances change or actual
collections of client and vendor receivables differ from our estimates, adjustments to the
provision for losses on accounts receivable and the related allowances for doubtful accounts would
be recorded. See further information on our allowance for doubtful accounts in Note 17 to the
Consolidated Financial Statements in Part II, Item 8 of this report.
Valuation of Long-Lived Assets Including Purchased Intangible Assets and Goodwill
We review property, plant and equipment and purchased intangible assets for impairment
whenever events or changes in circumstances indicate the carrying value of an asset may not be
recoverable. If such events or changes in circumstances indicate a possible impairment, our asset
impairment review assesses the recoverability of the assets based on the estimated undiscounted
future cash flows expected to result from the use of the asset plus net proceeds expected from
disposition of the asset (if any) and compares that value to the carrying value. 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. If the carrying value exceeds the future
cash flows, an impairment loss is recognized for the difference between fair value and the carrying
amount. This approach uses our estimates of future market growth, forecasted net sales and costs,
expected periods the assets will be utilized and appropriate discount rates.
25
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
We perform an annual review of our goodwill in the fourth quarter of every year, or more
frequently if indicators of potential impairment exist, to determine if the carrying value of our
recorded goodwill is impaired. We continually assess whether any indicators of impairment exist,
which requires a significant amount of judgment. Events or circumstances that could trigger an
impairment review include a significant adverse change in legal factors or in the business climate,
unanticipated competition, significant changes in the manner of our use of the acquired assets or
the strategy for our overall business, significant negative industry or economic trends,
significant declines in our stock price for a sustained period or significant underperformance
relative to expected historical or projected future cash flows or results of operations. Any
adverse change in these factors, among others, could have a significant effect on the
recoverability of goodwill and could have a material effect on our consolidated financial
statements.
The goodwill impairment test is performed at the reporting unit level. A reporting unit is an
operating segment or one level below an operating segment (referred to as a component). A
component of an operating segment is a reporting unit if the component constitutes a business for
which discrete financial information is available and management of the segment regularly reviews
the operating results of that component. When two or more components of an operating segment have
similar economic characteristics, the components may be aggregated and deemed a single reporting
unit. An operating segment shall be deemed to be a reporting unit if all of its components are
similar, if none of its components is a reporting unit, or if the segment comprises only a single
component. Insight has three reporting units, which are equivalent to our operating segments.
The goodwill impairment test is a two step analysis. In testing for a potential impairment of
goodwill, we first compare the estimated fair value of each reporting unit in which the goodwill
resides to its book value, including goodwill. Management must apply judgment in determining the
estimated fair value of our reporting units. Multiple valuation techniques can be used to assess
the fair value of the reporting unit, including the market and income approaches. All of 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. These estimates and assumptions primarily include, but are not limited to, an
appropriate control premium in excess of the market capitalization of the Company, future market
growth, forecasted sales and costs and appropriate discount rates. Due to the inherent uncertainty
involved in making these estimates, actual results could differ from those estimates. Management
evaluates the merits of each significant assumption, both individually and in the aggregate, used
to determine the fair value of the reporting units. If the estimated fair value exceeds book
value, goodwill is considered not to be impaired and no additional steps are necessary. To ensure
the reasonableness of the estimated fair values of our reporting units, we perform a reconciliation
of our total market capitalization to the estimated fair value of all of our reporting units.
If the fair value of the reporting unit is less than its book value, then we are required to
perform the second step of the impairment analysis by comparing the carrying amount of the goodwill
with its implied fair value. In step two of the analysis, we utilize the fair value of the
reporting unit computed in the first step to perform a hypothetical purchase price allocation to
the fair value of the assets and liabilities of the reporting unit. The difference between the fair
value of the reporting unit calculated in step one and the fair value of the underlying assets and
liabilities of the reporting unit is the implied fair value of the reporting units goodwill.
Management must also apply judgment in determining the estimated fair value of these individual
assets and liabilities and may include independent valuations of certain internally generated and
unrecognized intangible assets, such as trademarks. Management also evaluates the merits of each
significant assumption, both individually and in the aggregate, used to determine the fair values
of these individual assets and liabilities. If the carrying amount of our goodwill exceeds the
implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to
the excess.
See further information on the carrying value of goodwill and the impairment charges recorded
in 2008 in Note 3 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Severance and Restructuring Activities
We have taken, and may continue to take, severance and restructuring actions which require us
to utilize significant estimates of costs relating to employee termination benefits and costs to
terminate leases or remaining lease commitments on unused facilities, net of estimated subleases.
Should the actual amounts differ from our estimates, adjustments to severance and restructuring
expenses in subsequent periods would be necessary. A detailed description of our severance,
restructuring and acquisition integration activities and remaining accruals for these activities at
December 31, 2010 can be found in Note 9 to the Consolidated Financial Statements in Part II, Item
8 of this report.
26
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Income Taxes
Our effective tax rate includes the effect of certain undistributed foreign earnings for which
no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely
outside the U.S. Earnings remittance amounts are planned based on the projected cash flow needs as
well as the working capital and long-term investment requirements of our foreign subsidiaries and
our domestic operations. Material changes in our estimates of cash, working capital and long-term
investment requirements could affect our effective tax rate.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not to be realized. We consider past operating results, future market growth,
forecasted earnings, historical and projected taxable income, the mix of earnings in the
jurisdictions in which we operate, prudent and feasible tax planning strategies and statutory tax
law changes in determining the need for a valuation allowance. If we were to determine that it is
more likely than not that we would not be able to realize all or part of our net deferred tax
assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the
period such determination is made. Likewise, if we later determine that it is more likely than not
that all or part of the net deferred tax assets would be realized, then all or part of the
previously provided valuation allowance would be reversed. Effective January 1, 2009, any change
in a valuation allowance and uncertain tax positions established in purchase accounting will be a
benefit to, or charge against, earnings. Additional information about the valuation allowance can
be found in Note 10 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Contingencies
From time to time, we are subject to potential claims and assessments from third parties. We
are also subject to various governmental, client and vendor audits. We continually assess whether
or not such claims have merit and warrant accrual if it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated. Where appropriate, we accrue
estimates of anticipated liabilities in the consolidated financial statements. Such estimates are
subject to change and may affect our results of operations and our cash flows. Additional
information about contingencies can be found in Note 16 to the Consolidated Financial Statements in
Part II, Item 8 of this report.
RESULTS OF OPERATIONS
The following table sets forth for the periods presented certain financial data as a
percentage of net sales for the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Costs of goods sold |
|
|
86.6 |
|
|
|
86.3 |
|
|
|
86.2 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
13.4 |
|
|
|
13.7 |
|
|
|
13.8 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
10.8 |
|
|
|
12.1 |
|
|
|
11.7 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
8.2 |
|
Severance and restructuring expenses |
|
|
<0.1 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
2.6 |
|
|
|
1.3 |
|
|
|
(6.3 |
) |
Non-operating expense, net |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before
income taxes |
|
|
2.4 |
|
|
|
1.0 |
|
|
|
(6.8 |
) |
Income tax expense (benefit) |
|
|
0.8 |
|
|
|
0.3 |
|
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
|
1.6 |
|
|
|
0.7 |
|
|
|
(5.0 |
) |
Earnings from a discontinued operation, net of taxes |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
|
1.6 |
% |
|
|
0.8 |
% |
|
|
(5.0 |
%) |
|
|
|
|
|
|
|
|
|
|
Throughout this Results of Operations section of Managements Discussion and Analysis of
Financial Condition and Results of Operations, we refer to changes in net sales, gross profit and
selling and administrative expenses in EMEA and APAC excluding the effects of foreign currency
movements. In computing these change amounts and percentages, we compare the current year amount
as translated into U.S. dollars under the applicable accounting standards to the prior year amount
in local currency translated into U.S. dollars utilizing the average translation rate for the
current year.
27
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
2010 Compared to 2009
Net Sales. Net sales for the year ended December 31, 2010 increased 16% to $4.8 billion
compared to the year ended December 31, 2009. Our net sales by operating segment for the years
ended December 31, 2010 and 2009 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
% Change |
|
North America |
|
$ |
3,340,162 |
|
|
$ |
2,840,786 |
|
|
|
18 |
% |
EMEA |
|
|
1,310,549 |
|
|
|
1,151,749 |
|
|
|
14 |
% |
APAC |
|
|
159,219 |
|
|
|
144,370 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
4,809,930 |
|
|
$ |
4,136,905 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
Net sales in North America increased $499.4 million or 18% for the year ended December 31,
2010 compared to the year ended December 31, 2009. Net sales of hardware and software increased
26% and 9%, respectively, year over year, while net sales in the services category declined 11%
year to year. The increase in hardware and software net sales is primarily due to higher volume
with the year over year improvement in the demand environment for IT products compared to the
depressed levels of IT spending experienced in North America in 2009. The decrease in sales of
services year to year resulted primarily from a large services engagement in 2009 that did not
recur in the current year.
Net sales in EMEA increased $158.8 million or 14%, in U.S. dollars, for the year ended
December 31, 2010 compared to the year ended December 31, 2009. Excluding the effects of foreign
currency movements, net sales were up 18% compared to the prior year. Net sales of hardware grew
10% year over year in U.S. dollars, 12% excluding the effects of foreign currency movements, due to
higher demand across all client groups. Software net sales increased 15% year over year in U.S.
dollars, 21% excluding the effects of foreign currency movements, due primarily to higher volume
and new client engagements and new product offerings from our publishers, reflecting the year over
year improvement in the global IT demand environment compared to the depressed levels of IT
spending experienced in EMEA in 2009. Net sales from services increased 36% year over year in U.S.
dollars, 40% excluding the effects of foreign currency movements, due primarily to new client
engagements.
Our APAC segment recognized net sales of $159.2 million in U.S. dollars for the year ended
December 31, 2010, an increase of $14.8 million or 10%, compared to the year ended December 31,
2009. Net sales were flat year to year excluding the effects of foreign currency movements.
Net sales by category for North America, EMEA and APAC were as follows for the years ended
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
APAC |
|
|
|
Years Ended December 31, |
|
|
Years Ended December 31, |
|
|
Years Ended December 31, |
|
Sales Mix |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Hardware |
|
|
64 |
% |
|
|
60 |
% |
|
|
33 |
% |
|
|
34 |
% |
|
|
<1 |
% |
|
|
1 |
% |
Software |
|
|
30 |
% |
|
|
32 |
% |
|
|
66 |
% |
|
|
65 |
% |
|
|
97 |
% |
|
|
98 |
% |
Services |
|
|
6 |
% |
|
|
8 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
3 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currently, our offerings in North America and the United Kingdom include IT hardware, software
and services. Our offerings in the remainder of our EMEA segment and in APAC are almost entirely
software and select software-related services.
28
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Gross Profit. Gross profit increased 14% to $646.1 million for the year ended December 31,
2010 compared to the year ended December 31, 2009, with a 30 basis point decrease in gross margin.
Our gross profit and gross profit as a percent of net sales by operating segment for the years
ended December 31, 2010 and 2009 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
|
2010 |
|
|
Sales |
|
|
2009 |
|
|
Sales |
|
North America |
|
$ |
442,068 |
|
|
|
13.2 |
% |
|
$ |
389,717 |
|
|
|
13.7 |
% |
EMEA |
|
|
176,018 |
|
|
|
13.4 |
% |
|
|
159,109 |
|
|
|
13.8 |
% |
APAC |
|
|
28,011 |
|
|
|
17.6 |
% |
|
|
19,788 |
|
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
646,097 |
|
|
|
13.4 |
% |
|
$ |
568,614 |
|
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Americas gross profit for the year ended December 31, 2010 increased 13% compared to
the year ended December 31, 2009, but as a percentage of net sales, gross margin declined by 50
basis points year to year, due primarily to a 78 basis point decrease in margin from the sale of
services associated with the large services engagement during 2009 that did not recur in the
current year and a decrease in margin related to agency fees for enterprise software agreements of
32 basis points. These decreases in margin were offset by a 56 basis point increase in product
margin, which includes vendor funding and freight, driven primarily by sales in our hardware
category. Contributing to this increase in product margin was the extinguishment of $7.4 million
of certain restatement-related trade credits during the year ended December 31, 2010 compared to
$3.5 million in 2009, through negotiated settlement or other legal release of the recorded
liabilities, which contributed 10 basis points to the increase in margin.
EMEAs gross profit increased 11% in U.S. dollars for the year ended December 31, 2010
compared to the year ended December 31, 2009. Excluding the effects of foreign currency movements,
gross profit was up 15% compared to the prior year. As a percentage of net sales, gross margin
declined 40 basis points due primarily to decreases in agency fees for enterprise software
agreement renewals of 44 basis points.
APACs gross profit increased 42% for the year ended December 31, 2010 compared to the year
ended December 31, 2009. Excluding the effects of foreign currency movements, gross profit
increased 28% compared to the prior year. As a percentage of net sales, gross margin increased by
390 basis points, due primarily to an increase of 213 basis points in product margin, which
includes vendor funding, an increase in the margin contribution from agency fees for enterprise
software agreements of 149 basis points and an increase in margin from sales of services of 26
basis points. These increases resulted primarily from changes in client and publisher mix.
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses increased $17.0
million or 3% in the year ended December 31, 2010 compared to the year ended December 31, 2009
primarily attributable to increases in variable compensation on increased sales. Selling and
administrative expenses decreased 130 basis points as a percentage of net sales for the year ended
December 31, 2010 compared to the year ended December 31, 2009 as we continued our expense
management initiatives. Selling and administrative expenses as a percent of net sales by operating
segment for the years ended December 31, 2010 and 2009 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
|
2010 |
|
|
Sales |
|
|
2009 |
|
|
Sales |
|
North America |
|
$ |
348,842 |
|
|
|
10.4 |
% |
|
$ |
346,306 |
|
|
|
12.2 |
% |
EMEA |
|
|
149,945 |
|
|
|
11.4 |
% |
|
|
140,380 |
|
|
|
12.2 |
% |
APAC |
|
|
20,278 |
|
|
|
12.7 |
% |
|
|
15,416 |
|
|
|
10.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
519,065 |
|
|
|
10.8 |
% |
|
$ |
502,102 |
|
|
|
12.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Americas selling and administrative expenses increased 1%, or $2.5 million for the year
ended December 31, 2010 compared to the year ended December 31, 2009, but as a percentage of net
sales, selling and administrative
expenses decreased 180 basis points to 10.4% of net sales for the year. Increases in variable
costs of $11.2 million on higher sales in the year ended December 31, 2010 and increased bonus and
non-cash stock-based compensation expense resulting from over-attainment against our operating plan
were mostly offset by (i) a $5.5 million decline in legal and professional fees year to year,
primarily related to professional fees and costs associated with the trade credits restatement as
well as a decrease in our annual audit fee and (ii) a $4.1 million decrease resulting from the
effect on the year to year comparison of the prior year non-cash stock-based compensation charges.
These charges related to the North America portion of the termination of an equity-based incentive
compensation plan relating to certain of our executive officers in February 2009 that did not recur
in 2010. Further, selling and administrative expenses in the year ended December 31, 2010 were
reduced by $2.9 million upon the collection of a single account receivable which we had
specifically reserved as doubtful during the fourth quarter of 2009.
29
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
EMEAs selling and administrative expenses increased 7%, or $9.6 million in U.S. dollars, for
the year ended December 31, 2010 compared to the year ended December 31, 2009. Excluding the
effects of foreign currency movements, selling and administrative expenses increased 11% compared
to the prior year. This year over year increase was primarily driven by higher variable
compensation and sales incentives on increased net sales. As a percentage of net sales, selling
and administrative expenses decreased 80 basis points due to relatively stable fixed personnel
costs year to year while sales have increased in 2010. Selling and administrative expenses for the
year ended December 31, 2009 included $1.4 million of non-cash stock-based compensation charges
related to the EMEA portion of the termination of an equity-based incentive compensation plan in
the first quarter of 2009 that did not recur in 2010 as discussed above.
APACs selling and administrative expenses increased 32% or $4.9 million in U.S. dollars, for
the year ended December 31, 2010 compared to the year ended December 31, 2009. Excluding the
effects of foreign currency movements, selling and administrative expenses increased 16% compared
to the prior year. The year over year increases in selling and administrative expenses are
primarily attributable to increases in fixed compensation with increases in head count year over
year and increases in variable compensation on higher sales in the year ended December 31, 2010.
Severance and Restructuring Expenses. During the year ended December 31, 2010, North America
and EMEA recorded severance expense of $2.0 million and $1.0 million, respectively. The North
America charge was part of the roll-out of our new sales engagement model and plans to add new
leadership in key areas, and the EMEA charge was associated with the severance for the elimination
of certain positions based on a re-alignment of roles and responsibilities. In EMEA, $1.5 million
in new severance costs was offset by $523,000 of adjustments to prior severance accruals due to
current period changes in estimates. During the year ended December 31, 2009, North America, EMEA
and APAC recorded severance expense of $10.3 million, $3.0 million and $302,000, respectively,
related to the departure of Insights former President and Chief Executive Officer and ongoing
restructuring efforts to reduce operating expenses. See Note 9 to the Consolidated Financial
Statements in Part II, Item 8 of this report for further discussion of severance and restructuring
activities.
Non-Operating (Income) Expense.
Interest Income. Interest income for the years ended December 31, 2010 and 2009 was generated
through short-term investments. The increase in interest income year over year is primarily due to
higher average cash and cash equivalent balances in 2010.
Interest Expense. Interest expense primarily relates to borrowings under our financing
facilities and capital lease obligation and imputed interest under our inventory financing
facility. In 2009, we also accrued $2.0 million for interest expense related to our anticipated
unclaimed property settlement under two state programs in 2010. In 2010, we reduced interest
expense by $553,000 for a change in estimate of accrued interest upon settlement with these two
states. Imputed interest under our inventory financing facility was $2.1 million and $1.8 million
for the years ended December 31, 2010 and 2009, respectively. After giving effect to these items,
the remaining decrease in interest expense for the year ended December 31, 2010 compared to the
year ended December 31, 2009 is due primarily to decreases in the weighted average borrowings
outstanding as we have used excess cash to pay down debt.
Net Foreign Currency Exchange Gains/Losses. These gains/losses result from foreign currency
transactions, including the period-end remeasurement of intercompany balances that are not
considered long-term in nature. The change from a net foreign currency exchange gain in the prior
year to a loss in the current year is due primarily to more volatility in the applicable exchange
rates, particularly in our APAC segment.
Other Expense, Net. Other expense, net, consists primarily of bank fees associated with our
cash management activities.
Income Tax Expense. Our effective tax rate from continuing operations for the year ended
December 31, 2010 was 34.5% compared to 26.3% for the year ended December 31, 2009. The effective
tax rates in both years were less than the federal statutory rate of 35.0% primarily due to the
recapitalization of a foreign subsidiary during the fourth quarter of each year. Further, our 2009
effective tax rate was also reduced by the true-up of certain foreign deferred tax assets. See
Note 10 to the Consolidated Financial Statements in Part II, Item 8 of this report for further
discussion of income tax expense.
30
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Earnings from Discontinued Operations. During the year ended December 31, 2009, we recorded
earnings from a discontinued operation of $4.5 million, $2.8 million net of tax, as a result of the
favorable settlement on July 7, 2009 of an arbitrated claim related to the 2006 sale of a former
subsidiary. The amount recognized was net of payments to holders of approximately 2.0 million
exercised stock options of the former subsidiary and a broker success fee with respect to the
settlement totaling $540,000. See Note 19 to the Consolidated Financial Statements in Part II,
Item 8 of this report for further discussion.
2009 Compared to 2008
Net Sales. Net sales for the year ended December 31, 2009 decreased 14% to $4.1 billion
compared to the year ended December 31, 2008. Our net sales by operating segment for the years
ended December 31, 2009 and 2008 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
North America |
|
$ |
2,840,786 |
|
|
$ |
3,362,544 |
|
|
|
(16 |
%) |
EMEA |
|
|
1,151,749 |
|
|
|
1,309,365 |
|
|
|
(12 |
%) |
APAC |
|
|
144,370 |
|
|
|
153,580 |
|
|
|
(6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
4,136,905 |
|
|
$ |
4,825,489 |
|
|
|
(14 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Net sales in North America decreased $521.8 million or 16% for the year ended December 31,
2009 compared to the year ended December 31, 2008, reflecting the effects of the challenging
economic climate during 2009. Hardware and software net sales in North America for the year ended
December 31, 2009 decreased 21% and 13%, respectively, while net sales from services increased 26%
year over year. The decline in software sales year over year primarily relates to program changes
with our largest software partner. The increase in services net sales is primarily due to several
large professional services engagements during the year ended December 31, 2009, particularly a
large professional services engagement that spanned the last three quarters of 2009. During 2009,
we continued to increase the mix of services as a percentage of our net sales, which increased from
6% of net sales to 8% of net sales year over year.
Net sales in EMEA decreased $157.6 million or 12% for the year ended December 31, 2009
compared to the year ended December 31, 2008. Excluding the effects of foreign currency movements,
net sales in EMEA decreased only $24.7 million or 2% year over year. In U.S. dollars, the negative
year over year comparison resulted from a 16% decline in hardware net sales and a 10% decline in
software net sales, partially offset by an increase in services, which grew 16% year over year.
These results reflect the challenging global IT demand environment as well as the previously
announced changes in programs with our largest software partner. The year over year improvement in
sales of services primarily resulted from the contribution of MINX, acquired in July 2008.
Our APAC segment recognized net sales of $144.4 million for the year ended December 31, 2009,
a decrease of $9.2 million or 6%, compared to the year ended December 31, 2008, primarily as a
result of the previously announced changes in programs with our largest software partner, offset by
increased public sector spending in Australia. Excluding the effects of foreign currency
movements, net sales in APAC decreased by $5.3 million or 4% year over year.
Net sales by category for North America, EMEA and APAC were as follows for the years ended
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
APAC |
|
|
|
Years Ended December 31, |
|
|
Years Ended December 31, |
|
|
Years Ended December 31, |
|
Sales Mix |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Hardware |
|
|
60 |
% |
|
|
63 |
% |
|
|
34 |
% |
|
|
35 |
% |
|
|
1 |
% |
|
|
|
|
Software |
|
|
32 |
% |
|
|
31 |
% |
|
|
65 |
% |
|
|
64 |
% |
|
|
98 |
% |
|
|
100 |
% |
Services |
|
|
8 |
% |
|
|
6 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Gross Profit. Gross profit decreased 14% to $568.6 million for the year ended December 31,
2009 compared to the year ended December 31, 2008, with a 10 basis point decrease in gross margin.
Our gross profit and gross profit as a percent of net sales by operating segment for the years
ended December 31, 2009 and 2008 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
|
2009 |
|
|
Sales |
|
|
2008 |
|
|
Sales |
|
North America |
|
$ |
389,717 |
|
|
|
13.7 |
% |
|
$ |
449,186 |
|
|
|
13.4 |
% |
EMEA |
|
|
159,109 |
|
|
|
13.8 |
% |
|
|
190,673 |
|
|
|
14.6 |
% |
APAC |
|
|
19,788 |
|
|
|
13.7 |
% |
|
|
23,724 |
|
|
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
568,614 |
|
|
|
13.7 |
% |
|
$ |
663,583 |
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Americas gross profit declined by $59.5 million or 13% for the year ended December 31,
2009 compared to the year ended December 31, 2008, but as a percentage of net sales, gross margin
increased 30 basis points year over year, primarily due to higher margins in the services category.
Gross profit on services net sales contributed 87 basis points to the increase in margin year over
year, reflecting the several large professional services engagements during the year ended December
31, 2009 discussed above, and gross profit generated by freight contributed 9 basis points to the
increase in margin year over year. In addition, the extinguishment of $3.5 million of certain
restatement-related trade credits during the year ended December 31, 2009, through negotiated
settlement or other legal release of the recorded liabilities, contributed 12 basis points to the
increase in margin. These increases were offset partially by decreases in agency fees for
enterprise software agreement renewals of 34 basis points and market pricing pressures which have
driven decreases in product margin, which includes partner funding, of 45 basis points.
EMEAs gross profit decreased for the year ended December 31, 2009 by $31.6 million or 17%
compared to the year ended December 31, 2008. Excluding the effects of foreign currency movements,
gross profit was down $11.8 million or 7% compared to the prior year. As a percentage of net
sales, gross profit decreased by 80 basis points from 2008 to 2009 due primarily to decreases in
product margin, which includes partner funding, of 46 basis points, a decrease in supplier
discounts of 17 basis points and a decrease in agency fees for enterprise software agreement
renewals of 11 basis points. These results reflect a change in client mix, which during 2009
included more public sector sales at lower margins, and the effects of partner program changes.
APACs gross profit decreased for the year ended December 31, 2009 by $3.9 million or 17%
compared to the year ended December 31, 2008. Excluding the effects of foreign currency movements,
gross profit was down $2.9 million or 13% compared to the prior year. As a percentage of net
sales, gross profit decreased 170 basis points from 2008 to 2009 due primarily to lower margin on
public sector sales and a decrease in agency fees for enterprise software agreement renewals.
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses decreased $59.9
million or 11% in the year ended December 31, 2009 compared to the year ended December 31, 2008 due
primarily to the benefits of aggressive expense management and cost reduction actions taken
throughout 2009. Selling and administrative expenses increased 50 basis points as a percentage of
net sales for the year ended December 31, 2009 compared to the year ended December 31, 2008.
Selling and administrative expenses as a percent of net sales by operating segment for the years
ended December 31, 2009 and 2008 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Net |
|
|
|
|
|
|
% of Net |
|
|
|
2009 |
|
|
Sales |
|
|
2008 |
|
|
Sales |
|
North America |
|
$ |
346,306 |
|
|
|
12.2 |
% |
|
$ |
391,629 |
|
|
|
11.6 |
% |
EMEA |
|
|
140,380 |
|
|
|
12.2 |
% |
|
|
152,617 |
|
|
|
11.7 |
% |
APAC |
|
|
15,416 |
|
|
|
10.7 |
% |
|
|
17,741 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
502,102 |
|
|
|
12.1 |
% |
|
$ |
561,987 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Americas selling and administrative expenses decreased $45.3 million or 12% for the
year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease in selling
and administrative expenses is primarily attributable to the realization of the effects of cost
reduction initiatives we implemented during 2009, and, to a lesser extent, the effect of lower
variable costs. Salaries, sales incentives and benefits accounted for approximately $40.9 million
of the decrease, with an additional $5.1 million decline in travel and entertainment and a $3.3
million decline in marketing expenses.
32
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Offsetting the effect of the cost reduction initiatives on North Americas selling and
administrative expenses are the following:
|
|
|
Approximately $12.4 million of selling and administrative expenses associated with
Calence, are reflected in the three months ended March 31, 2009 with no comparable expenses
in the three months ended March 31, 2008, as Calence was acquired on April 1, 2008; |
|
|
|
Professional fees and costs for the year ended December 31, 2009 of $8.3 million
associated with the trade credits restatement remediation and related litigation; |
|
|
|
Non-cash stock-based compensation expense of $4.1 million associated with the
termination of the long-term incentive award for our former Chief Executive Officer and the
former President of our North America operating segment discussed in Note 11 to our
Consolidated Financial Statements in Part II, Item 8 of this report; and |
|
|
|
An increase in bad debt expense of $3.0 million primarily associated with the specific
identification of a single significant account for which we determined during the fourth
quarter of 2009 that collection was doubtful. This amount was subsequently recovered in
2010. |
EMEAs selling and administrative expenses decreased $12.2 million or 8% for the year ended
December 31, 2009 compared to the year ended December 31, 2008. Excluding the effects of foreign
currency movements, selling and administrative expenses increased $4.1 million or 3% year over
year. The increase in selling and administrative expenses is primarily attributable to salaries
and wages and employee-related expenses, which increased due to increases in sales employee
headcount, sales incentive programs and recruitment costs. Selling and administrative expenses in
2009 include a non-cash stock-based compensation expense of $1.4 million associated with the
termination of the long-term incentive award for our former Chief Executive Officer and the
President of our EMEA operating segment discussed in Note 11 to our Consolidated Financial
Statements in Part II, Item 8 of this report.
APACs selling and administrative expenses decreased $2.3 million or 13% for the year ended
December 31, 2009 compared to the year ended December 31, 2008. Excluding the effects of foreign
currency movements, selling and administrative expenses decreased $1.2 million or 7% year over
year.
Goodwill Impairment. During the year ended December 31, 2008, we recorded goodwill
impairment charges of $397.2 million. See Note 3 to the Consolidated Financial Statements in Part
II, Item 8 of this report for further discussion of goodwill.
Severance and Restructuring Expenses. During the year ended December 31, 2009, North America,
EMEA and APAC recorded severance expense of $10.3 million, $3.0 million and $302,000, respectively,
related to the departure of Insights former President and Chief Executive Officer and ongoing
restructuring efforts to reduce operating expenses. An adjustment of $708,000 was recorded as a
reduction of severance and restructuring expenses recorded during the year ended December 31, 2009
and the related lease accrual in EMEA due to a change in estimate of the costs of exiting the
related leased facilities upon negotiation of the final settlement with the landlord. The leases
expired in October 2009. During the year ended December 31, 2008, North America, EMEA and APAC
recorded severance expense of $4.6 million, $3.9 million and $39,000, respectively, related to
restructuring efforts. See Note 9 to the Consolidated Financial Statements in Part II, Item 8 of
this report for further discussion of severance and restructuring activities.
Non-Operating (Income) Expense.
Interest Income. Interest income for the years ended December 31, 2009 and 2008 was generated
through short-term investments. The decrease in interest income year over year is primarily due to
decreases in interest rates.
Interest Expense. Interest expense primarily relates to borrowings under our financing
facilities and capital lease obligation and imputed interest under our inventory financing
facility. In 2009, we also accrued $2.0 million for interest expense related to our anticipated
unclaimed property settlement under two state programs in 2010. Imputed interest was $1.8 million
for the year ended December 31, 2009. The decrease in interest expense for the year ended December
31, 2009 compared to the year ended December 31, 2008 is due primarily to lower interest rates and
decreases in the weighted average borrowings outstanding as we were successful in our cash
management initiatives and used excess cash to pay down our debt balances.
33
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Foreign Currency Exchange Gains/Losses. These gains/losses result from foreign currency
transactions, including the period-end remeasurement of intercompany balances that are not
considered long-term in nature. The change from net foreign currency exchange losses in the prior
year to a modest gain in the current year is due primarily to less volatility in the applicable
exchange rates and the effects of our use of foreign exchange forward contracts in 2009 to hedge
certain non-functional currency assets and liabilities against changes in exchange rate movements.
Other Expense, Net. Other expense, net, consists primarily of bank fees associated with our
cash management activities.
Income Tax Expense. Our income tax expense from continuing operations for the year ended
December 31, 2009 was $11.0 million compared to an income tax benefit from continuing operations of
$86.3 million for the year ended December 31, 2008. The change from a benefit in 2008 to expense
in 2009 was primarily the result of the impairment charge related to deductible goodwill during
2008. In addition, our 2009 effective tax rate of 26.3% was less than the federal statutory rate
of 35.0% primarily due to the recapitalization of one of our foreign subsidiaries and the true-up
of certain foreign tax assets. See Note 10 to the Consolidated Financial Statements in Part II,
Item 8 of this report for further discussion of income tax expense.
Liquidity and Capital Resources
The following table sets forth for the periods presented certain consolidated cash flow
information for the years ended December 31, 2010, 2009 and 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net cash provided by operating activities |
|
$ |
98,181 |
|
|
$ |
122,674 |
|
|
$ |
141,746 |
|
Net cash used in investing activities |
|
|
(23,095 |
) |
|
|
(36,420 |
) |
|
|
(153,813 |
) |
Net cash (used in) provided by financing activities |
|
|
(17,894 |
) |
|
|
(70,269 |
) |
|
|
12,904 |
|
Foreign currency exchange effect on cash flow |
|
|
(1,495 |
) |
|
|
2,906 |
|
|
|
(8,380 |
) |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
55,697 |
|
|
|
18,891 |
|
|
|
(7,543 |
) |
Cash and cash equivalents at beginning of year |
|
|
68,066 |
|
|
|
49,175 |
|
|
|
56,718 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
123,763 |
|
|
$ |
68,066 |
|
|
$ |
49,175 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Flow
Our primary uses of cash during 2010 were to fund working capital requirements and capital
expenditures and to pay down debt. Operating activities provided $98.2 million in cash, a 20%
decrease from the year ended December 31, 2009. We made cash payments of $25.8 million during 2010
as part of our previously announced program of compliance with state unclaimed property laws. Our
operating cash flows and net borrowings under our inventory financing facility, which is included
in accounts payable, of $40.8 million enabled us to reduce our long-term debt under our revolving
credit facilities by $57.0 million, while increasing cash and cash equivalent balances by $55.7
million since December 31, 2009. Capital expenditures were $18.0 million for the year, a 22%
increase over 2009, due primarily to expenditures related to IT systems projects in EMEA and North
America. Additionally, 2010 was burdened by a $1.5 million negative effect of foreign currency
exchange rates on cash flow, while 2009 benefited from a $2.9 million positive effect of foreign
currency exchange rates on cash flow.
During the year ended December 31, 2009, we recorded earnings from a discontinued operation of
$4.5 million, $2.8 million net of tax, as a result of the favorable settlement on July 7, 2009 of
an arbitrated claim related to the 2006 sale of Direct Alliance, a former subsidiary that was sold
on June 30, 2006. Since this amount had been deferred as of the original sale date in 2006, the
settlement in 2009 resulted in no cash flows to Insight related to the recognition of the non-cash
gain.
Net cash provided by operating activities. Cash flows from operating activities for the year
ended December 31, 2010 reflect our net earnings, adjusted for non-cash items such as depreciation,
amortization, stock-based compensation expense, write-downs of inventories and deferred income
taxes. Also contributing to the cash flows from operating activities were increases in accounts
payable and deferred revenue. The increase in accounts payable reflects increased costs of goods
sold associated with the increase in net sales in 2010 compared to the prior year. These increases
in operating cash flows were partially offset by increases in accounts receivable, inventories and
other current assets and decreases in accrued expenses and other liabilities. The increase in
accounts receivable also reflects increased net sales in 2010 compared to the prior year. The
increase in inventories in 2010 is primarily attributable to client specific inventory purchased in
North America late in 2010 as a result of new client engagements and overall higher demand for
hardware. The decrease in accrued expenses and other liabilities in 2010 was primarily due to
payments made to settle certain state unclaimed property liabilities and to reduce income taxes
payable.
34
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Cash flows from operating activities for the year ended December 31, 2009 reflect our net
earnings, adjusted for depreciation, amortization, non-cash stock-based compensation expense,
write-downs of inventories, the provision for losses on accounts receivable, the non-cash gain from
the Direct Alliance arbitrated claim and deferred income taxes. Also contributing to the cash
flows from operating activities in 2009 were increases in deferred revenue and decreases in
accounts receivable. The decrease in accounts receivable in 2009 reflects the decrease in net
sales compared to the prior year as well as our focus on cash management. These increases in
operating cash flows in 2009 were partially offset by decreases in accounts payable in the normal
course of business.
Cash flows from operating activities for the year ended December 31, 2008 resulted primarily
from our net loss before the non-cash goodwill impairment charge, including the resulting increase
in deferred tax assets associated with the goodwill impairment charge, and before depreciation and
amortization. Also contributing to the cash flows from operating activities in 2008 were decreases
in accounts receivable and other current assets, partially offset by decreases in accounts payable
in the normal course of business.
Our consolidated cash flow operating metrics as of December 31, 2010, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Days sales outstanding in ending accounts receivable (DSOs) (a) |
|
|
78 |
|
|
|
78 |
|
|
|
79 |
|
Days inventory outstanding (excluding inventories not available for
sale) (b) |
|
|
9 |
|
|
|
8 |
|
|
|
10 |
|
Days purchases outstanding in ending accounts payable (DPOs) (c) |
|
|
(69 |
) |
|
|
(63 |
) |
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
Cash conversion cycle (days) (d) |
|
|
18 |
|
|
|
23 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Calculated as the balance of accounts receivable, net at the end of the period divided
by daily net sales. Daily net sales is calculated as net sales for the quarter divided by
92 days. |
|
(b) |
|
Calculated as average inventories divided by daily costs of goods sold. Average
inventories is calculated as the sum of the balances of inventories at the beginning of the
period plus inventories at the end of the period divided by two. Daily costs of goods sold
is calculated as costs of goods sold for the quarter divided by 92 days. |
|
(c) |
|
Calculated as the balances of accounts payable, which includes the inventory financing
facility, at the end of the period divided by daily costs of goods sold. Daily costs of
goods sold is calculated as costs of goods sold for the quarter divided by 92 days. |
|
(d) |
|
Calculated as DSOs plus days inventory outstanding, less DPOs. |
Our cash conversion cycle improved to 18 days in the fourth quarter ended December 31, 2010,
decreasing five days from 23 days in the fourth quarter ended December 31, 2009. These results
were primarily due to the expanded use of our inventory financing facility, which contributed to an
increase in DPOs during the fourth quarter of 2010 of six days, partially offset by an increase in
days inventory outstanding resulting from increased investment in inventory to support specific
client engagements.
Our cash conversion cycle was 23 days in the fourth quarter ended December 31, 2009,
decreasing four days from 27 days in the fourth quarter ended December 31, 2008. DSOs decreased
slightly for the quarter ended December 31, 2009 compared to the quarter ended December 31, 2008.
In North America, reductions in past due accounts receivable balances as a percent of total
accounts receivable were offset by the effects of a higher percentage of accounts receivable
subject to longer payment terms, resulting in fairly flat performance. These results were offset
by a reduction in DSOs in our EMEA and APAC segments due primarily to the timing of sales and
collections occurring earlier in the quarter compared to the prior year period. Days inventory
outstanding decreased from 2008 to 2009 as we realized the benefits of our focus in 2009 on
improving our purchasing efficiency. DPOs increased slightly during the fourth quarter of 2009
reflecting the expanded use of our inventory financing facility in the 2009 quarter compared to the
same quarter in 2008.
35
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
We expect that cash flow from operations will be used, at least partially, to fund working
capital as we typically pay our partners on average terms that are shorter than the average terms
granted to our clients in order to take advantage of supplier discounts. We intend to use cash
generated in 2011 in excess of working capital needs to pay down our outstanding debt balances and
support our capital expenditures for the year.
Net cash used in investing activities. Capital expenditures of $18.0 million, $14.7 million
and $26.6 million for the years ended December 31, 2010, 2009 and 2008, respectively, primarily
related to investments to upgrade our IT systems. Capital expenditures during 2009 primarily
related to expenditures to upgrade our IT systems in EMEA. We expect total capital expenditures in
2011 to be between $20.0 million and $25.0 million, primarily for the integration of our IT systems
in North America onto a single platform over the next two years, the IT systems upgrade in our EMEA
operations and other facility and technology related maintenance and upgrade projects.
During the years ended December 31, 2010 and 2009, we made payments totaling $5.1 million and
$21.7 million, respectively, to the former owners of Calence for additional purchase price
consideration and the related accrued interest thereon as a result of Calence achieving certain
performance targets during 2010, 2009 and 2008. During the year ended December 31, 2008, we made a
payment of $900,000 to resolve certain post-closing contingencies related to the sale of a
discontinued operation.
Net cash (used in) provided by financing activities. During the year ended December 31, 2010,
we made net repayments on our debt facilities that reduced our outstanding debt balances under our
revolving credit facility by $57.0 million and had net borrowings under our inventory financing
facility, which is included in accounts payable, of $40.8 million. During the year ended December
31, 2009, we made net repayments on our debt facilities that reduced our outstanding debt balances
under our revolving credit facility by $81.0 million. As of December 31, 2010, the only current
portion of our long-term debt relates to our capital lease obligation for certain IT equipment.
During the year ended December 31, 2009, we had net borrowings under our inventory financing
facility of $13.4 million. During the year ended December 31, 2008, we increased our outstanding
debt by $25.8 million and subsequent to the acquisition of Calence on April 1, 2008, had a net
increase in our obligations under our new inventory financing facility of $48.9 million. These
positive cash flows in 2008 were partially offset by the funding of $50.0 million of repurchases of
our common stock and the repayment of $11.0 million of debt assumed in the acquisitions of Calence
and MINX during 2008.
As of December 31, 2010, our long-term debt balance consisted of $90.0 million outstanding
under our $300.0 million senior revolving credit facility and a $2.6 million capital lease
obligation. Our objective is to pay our debt balances down while retaining adequate cash balances
to meet overall business objectives.
On July 1, 2010, we entered into an amendment to our accounts receivable securitization
financing facility (the ABS facility), which amends certain provisions of the ABS facility to
improve availability in the Borrowing Base, as defined in the ABS facility, but did not change the
$150,000,000 maximum borrowing capacity. Specifically, the amendment (i) excludes from the
Borrowing Base receivables of a specified obligor that had a negative impact on availability under
the facility, (ii) creates a basket to allow up to 10% of gross receivables with terms between 60
and 90 days to be eligible for borrowing, and (iii) increases to 35% from 25% the threshold above
which the total amount of a particular obligors receivables are treated as ineligible if the
percentage of such obligors receivables that are more than 60 days past due exceeds such
threshold. In addition, the amendment extends the maturity date of the ABS facility to April 1,
2013, and decreases the variable interest rate by approximately 80 basis points for funds provided
under the ABS facility, calculated as the specified Pooled Commercial Paper Rate, as defined in the
ABS facility, plus a fixed 1.45% margin (the CP Margin).
However, beginning on July 1, 2012
(the Reset Date), the CP Margin may increase (but in no event exceed 1.50%) based on percentage
changes in high yield spreads comparing average index
rates for the calendar month prior to the Reset Date against average index rates for the
corresponding calendar month in the previous year. Finally, the amendment provides that, under
certain circumstances, the Company may be required to obtain a public rating of the ABS facility
from one or more credit rating agencies of at least A or its equivalent. Failure by the Company
to obtain such rating would result in an Amortization Event under the ABS facility. While the ABS
facility has a stated maximum amount, the actual availability under the facility is limited by the
quantity and quality of the underlying accounts receivable. As of December 31, 2010, the full
$150,000,000 was available.
36
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under
our senior revolving credit facility and our ABS facility is limited by certain financial
covenants, particularly a maximum leverage ratio. The maximum leverage ratio is calculated as
aggregate debt outstanding divided by the sum of the Companys trailing twelve month net earnings
plus (i) interest expense, less non-cash imputed interest on our inventory financing facility, (ii)
income tax expense, (iii) depreciation and amortization and (iv) non-cash stock-based compensation
(referred to herein as adjusted earnings). The maximum leverage ratio permitted under the
agreements is 2.50 times effective October 1, 2010 through April 1, 2013. As a result of this
limitation, of the $450,000,000 of aggregate maximum debt capacity available under our senior
revolving credit facility and our ABS facility, the Companys debt balance that could have been
outstanding as of December 31, 2010 was limited to $414,138,000 based on 2.50 times the Companys
trailing twelve-month adjusted earnings. The maximum leverage, minimum fixed charge and asset
coverage ratio financial covenant requirements under the ABS facility were not modified as part of
the July 1, 2010 amendment to the ABS facility.
We anticipate that cash flows from operations, together with the funds available under our
financing facilities will be adequate to support our presently anticipated cash and working capital
requirements for operations over the next 12 months.
Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income
taxation upon repatriation to the U.S. For foreign entities not treated as branches for U.S. tax
purposes, we do not provide for U.S. income taxes on the undistributed earnings of these
subsidiaries as earnings are reinvested and, in the opinion of management, will continue to be
reinvested indefinitely outside of the U.S. As of December 31, 2010, we had approximately $109.9
million in cash and cash equivalents in certain of our foreign subsidiaries where we consider
undistributed earnings for these foreign subsidiaries to be permanently reinvested. We used our
excess cash balances in the U.S. to pay down debt as of December 31, 2010. As of December 31,
2010, the majority of our foreign cash resides in the Netherlands, the United Kingdom and
Australia. Certain of these cash balances could and will be remitted to the U.S. by paying down
intercompany payables generated in the ordinary course of business. This repayment would not
change our policy to indefinitely reinvest earnings of its foreign subsidiaries. The undistributed
earnings of foreign subsidiaries that are deemed to be indefinitely invested outside of the U.S.
were approximately $28.6 million at December 31, 2010, compared to $24.3 million at the end of
2009. We intend to use undistributed earnings for general business purposes in the foreign
jurisdictions as well as to fund our EMEA IT systems, various facility upgrades and the expansion
of our sales of hardware and services, in addition to software, to clients in EMEA countries.
On November 13, 2007, our Board of Directors authorized the repurchase of up to $50.0 million
of our common stock through September 30, 2008. During the year ended December 31, 2008 (and prior
to September 30, 2008), we purchased 3.5 million shares of our common stock on the open market at
an average price of $14.31 per share, which represented the full amount authorized under the
repurchase program. All shares repurchased were retired.
See Note 6 to the Consolidated Financial Statements in Part II, Item 8 of this report for a
description of our financing facilities, including terms and covenants, amounts outstanding,
amounts available and weighted average borrowings and interest rates during the year.
Off-Balance Sheet Arrangements
We have entered into off-balance sheet arrangements, which include guaranties and
indemnifications. The guaranties and indemnifications are discussed in Note 16 to the Consolidated
Financial Statements in Part II, Item 8 of this report. We believe that none of our off-balance
sheet arrangements have, or are reasonably likely to have, a material current or future effect on
our financial condition, sales or expenses, results of operations, liquidity, capital expenditures
or capital resources.
37
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Contractual Obligations
At December 31, 2010, our contractual obligations for continuing operations were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
1-3 |
|
|
3-5 |
|
|
More than 5 |
|
|
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
Long-term debt (a) |
|
$ |
90,000 |
|
|
$ |
|
|
|
$ |
90,000 |
|
|
$ |
|
|
|
$ |
|
|
Capital lease obligations |
|
|
2,684 |
|
|
|
1,039 |
|
|
|
1,645 |
|
|
|
|
|
|
|
|
|
Inventory financing facility (b) |
|
|
135,112 |
|
|
|
135,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations |
|
|
51,782 |
|
|
|
13,186 |
|
|
|
18,056 |
|
|
|
13,103 |
|
|
|
7,437 |
|
Severance and restructuring obligations (c) |
|
|
2,854 |
|
|
|
2,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contractual obligations (d) |
|
|
22,692 |
|
|
|
6,297 |
|
|
|
9,757 |
|
|
|
3,638 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
305,124 |
|
|
$ |
158,488 |
|
|
$ |
119,458 |
|
|
$ |
16,741 |
|
|
$ |
10,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects the $90.0 million outstanding at December 31, 2010 under our senior revolving
credit facility as due in April 2013, the date at which the facility matures. See further
discussion in Note 6 to the Consolidated Financial Statements in Part II, Item 8 of this
report. |
|
(b) |
|
See further discussion in Note 6 to the Consolidated Financial Statements in Part II,
Item 8 of this report. As of December 31, 2010, this amount was included in accounts
payable related to this facility and has been included in our contractual obligations table
above as being due within the 30- to 60-day stated vendor terms. |
|
(c) |
|
As a result of approved severance and restructuring plans, we expect future cash
expenditures related to employee termination benefits and facilities based costs. See
further discussion in Note 9 to the Consolidated Financial Statements in Part II, Item 8 of
this report. |
|
(d) |
|
The table above includes: |
|
I. |
|
Estimated interest payments of $1.9 million in each of the next two
years and $473,000 in the first three months of 2013, based on the current debt
balance of $90.0 million at December 31, 2010 under the senior revolving credit
facility, multiplied by the weighted average interest rate for the year ended
December 31, 2010 of 2.1% per annum. |
|
II. |
|
Amounts totaling $5.9 million over the next three years to the Valley
of the Sun Bowl Foundation for sponsorship of the Insight Bowl and $5.7 million
over the next five years for advertising and marketing events with the Arizona
Cardinals at the University of Phoenix stadium. See further discussion in Note 16
to the Consolidated Financial Statements in Part II, Item 8 of this report. |
|
III. |
|
We estimate that we will owe $6.8 million in future years in connection
with the obligations to perform asset-retirement activities that are conditional on
a future event. |
The table above excludes $6.0 million of unrecognized tax benefits as we are unable to
reasonably estimate the ultimate amount or timing of settlement. See further discussion in Note 10
to the Consolidated Financial Statements in Part II, Item 8 of this report.
Although we set purchase targets with our partners tied to the amount of supplier
reimbursements we receive, we have no material contractual purchase obligations.
Acquisitions
Our strategy may include the possible acquisition of or investments in other businesses to
expand or complement our operations. The magnitude, timing and nature of any future acquisitions
or investments will depend on a number of factors, including the availability of suitable
candidates, the negotiation of acceptable terms, our financial capabilities and general economic
and business conditions. Financing for future transactions would result in the utilization of
cash, incurrence of additional debt, issuance of stock or some combination of the three.
Inflation
We have historically not been adversely affected by inflation, as technological advances and
competition within the IT industry have generally caused the prices of the products we sell to
decline and product life cycles tend to be short. This requires our growth in unit sales to exceed
the decline in prices in order to increase our net sales. We believe that most price increases
could be passed on to our clients, as prices charged by us are not set by long-term contracts;
however, as a result of competitive pressure, there can be no assurance that the full effect
of any such price increases could be passed on to our clients.
38
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Recently Issued Accounting Standards
See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for
a description of recent accounting pronouncements, including our expected dates of adoption and the
estimated effects on our results of operations and financial condition.
39
INSIGHT ENTERPRISES, INC.
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
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 net earnings to changes in short-term interest rates since interest rates on the
underlying obligations are variable. We had $90.0 million outstanding under our senior revolving
credit facility and no amounts outstanding under our accounts receivable securitization financing
facility at December 31, 2010. The interest rates attributable to the borrowings under out senior
revolving credit facility and the accounts receivable securitization financing facility were 1.26%
and 1.76%, respectively, per annum at December 31, 2010. The change in annual net earnings from
continuing operations, pretax, resulting from a hypothetical 10% increase or decrease in the
highest applicable interest rate would approximate $158,000.
Foreign Currency Exchange Risk
We use the U.S. dollar as our reporting currency. The functional currencies of our
significant foreign subsidiaries are generally 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. Translation adjustments are recorded directly in other comprehensive
income 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, are reported as a separate component of non-operating (income)
expense, net in our consolidated statements of operations. We also maintain cash accounts
denominated in currencies other than the functional currency which expose us to foreign exchange
rate movements. Remeasurement of these cash balances results in gains/losses that are also
reported as a separate component of non-operating (income) expense.
We monitor our foreign currency exposure and have begun to enter, selectively, 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 forward contracts in non-operating (income) and expense, net. The Company does not have
a significant concentration of credit risk with any single counterparty.
The Company generally enters into forward contracts with maturities of three months or less.
The derivatives entered into during 2010 were not designated as hedges. The following derivative
contracts were entered into during the year ended December 31, 2010, and remained open and
outstanding at December 31, 2010. All U.S. dollar and foreign currency amounts (British Pounds and
Canadian Dollars) are presented in thousands.
|
|
|
|
|
|
|
Buy |
|
Buy |
Foreign Currency |
|
GBP |
|
CAD |
Foreign Amount |
|
6,424 |
|
10,000 |
Exchange Rate |
|
1.5566 |
|
1.0029 |
USD Equivalent |
|
$10,000 |
|
$9,971 |
Maturity Date |
|
January 7, 2011 |
|
January 6, 2011 |
The Company does not enter into derivative contracts for speculative or trading purposes. The
fair value of all forward contracts at December 31, 2010 was a
net liability of $63,000.
40
INSIGHT ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
41
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Insight Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Insight Enterprises, Inc. and
subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders equity and comprehensive income (loss), and cash flows for
each of the years in the three-year period ended December 31, 2010. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Insight Enterprises, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2010, 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), Insight Enterprises, Inc.s internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
February 23, 2011 expressed an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.
/s/ KPMG LLP
Phoenix, Arizona
February 23, 2011
42
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Insight Enterprises, Inc.:
We have audited Insight Enterprises, Inc.s internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Insight
Enterprises, Inc.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), Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 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.
A companys 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
companys 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 companys 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.
In our opinion, Insight Enterprises, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2010, based on criteria established in Internal
Control Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Insight Enterprises, Inc. and
subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of
operations, stockholders equity and comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2010, and our report dated February 23, 2011
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Phoenix, Arizona
February 23, 2011
43
INSIGHT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
123,763 |
|
|
$ |
68,066 |
|
Accounts receivable, net |
|
|
1,135,951 |
|
|
|
998,770 |
|
Inventories |
|
|
106,734 |
|
|
|
77,694 |
|
Inventories not available for sale |
|
|
50,677 |
|
|
|
47,722 |
|
Deferred income taxes |
|
|
23,283 |
|
|
|
35,750 |
|
Other current assets |
|
|
49,289 |
|
|
|
32,318 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,489,697 |
|
|
|
1,260,320 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
141,399 |
|
|
|
150,103 |
|
Goodwill |
|
|
16,474 |
|
|
|
15,829 |
|
Intangible assets, net |
|
|
69,081 |
|
|
|
82,483 |
|
Deferred income taxes |
|
|
73,796 |
|
|
|
78,489 |
|
Other assets |
|
|
12,836 |
|
|
|
16,097 |
|
|
|
|
|
|
|
|
|
|
$ |
1,803,283 |
|
|
$ |
1,603,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
881,688 |
|
|
$ |
695,549 |
|
Accrued expenses and other current liabilities |
|
|
187,457 |
|
|
|
212,276 |
|
Current portion of long-term debt |
|
|
997 |
|
|
|
875 |
|
Deferred revenue |
|
|
67,373 |
|
|
|
54,135 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,137,515 |
|
|
|
962,835 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
91,619 |
|
|
|
149,349 |
|
Deferred income taxes |
|
|
5,011 |
|
|
|
3,054 |
|
Other liabilities |
|
|
24,167 |
|
|
|
20,509 |
|
|
|
|
|
|
|
|
|
|
|
1,258,312 |
|
|
|
1,135,747 |
|
|
|
|
|
|
|
|
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; 46,325 and 45,956
shares issued and outstanding in 2010 and 2009, respectively |
|
|
463 |
|
|
|
460 |
|
Additional paid-in capital |
|
|
377,277 |
|
|
|
372,021 |
|
Retained earnings |
|
|
149,349 |
|
|
|
73,864 |
|
Accumulated other comprehensive income foreign currency translation
adjustments |
|
|
17,882 |
|
|
|
21,229 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
544,971 |
|
|
|
467,574 |
|
|
|
|
|
|
|
|
|
|
$ |
1,803,283 |
|
|
$ |
1,603,321 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
44
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
4,809,930 |
|
|
$ |
4,136,905 |
|
|
$ |
4,825,489 |
|
Costs of goods sold |
|
|
4,163,833 |
|
|
|
3,568,291 |
|
|
|
4,161,906 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
646,097 |
|
|
|
568,614 |
|
|
|
663,583 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
519,065 |
|
|
|
502,102 |
|
|
|
561,987 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
397,247 |
|
Severance and restructuring expenses |
|
|
2,956 |
|
|
|
13,608 |
|
|
|
8,595 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
124,076 |
|
|
|
52,904 |
|
|
|
(304,246 |
) |
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(714 |
) |
|
|
(424 |
) |
|
|
(2,387 |
) |
Interest expense |
|
|
7,677 |
|
|
|
10,790 |
|
|
|
13,479 |
|
Net foreign currency exchange loss (gain) |
|
|
522 |
|
|
|
(328 |
) |
|
|
9,629 |
|
Other expense, net |
|
|
1,417 |
|
|
|
1,123 |
|
|
|
1,107 |
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income taxes |
|
|
115,174 |
|
|
|
41,743 |
|
|
|
(326,074 |
) |
Income tax expense (benefit) |
|
|
39,689 |
|
|
|
10,970 |
|
|
|
(86,347 |
) |
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
|
75,485 |
|
|
|
30,773 |
|
|
|
(239,727 |
) |
Earnings from a discontinued operation, net of taxes of $1,659 |
|
|
|
|
|
|
2,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
75,485 |
|
|
$ |
33,574 |
|
|
$ |
(239,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
1.63 |
|
|
$ |
0.67 |
|
|
$ |
(5.15 |
) |
Net earnings from a discontinued operation |
|
|
|
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
1.63 |
|
|
$ |
0.73 |
|
|
$ |
(5.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
1.61 |
|
|
$ |
0.67 |
|
|
$ |
(5.15 |
) |
Net earnings from a discontinued operation |
|
|
|
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
1.61 |
|
|
$ |
0.73 |
|
|
$ |
(5.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
46,218 |
|
|
|
45,838 |
|
|
|
46,573 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
46,812 |
|
|
|
46,271 |
|
|
|
46,573 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
45
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
Total |
|
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders |
|
|
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Equity |
|
Balances at December 31, 2007 |
|
|
48,458 |
|
|
$ |
485 |
|
|
|
|
|
|
$ |
|
|
|
$ |
391,380 |
|
|
$ |
47,760 |
|
|
$ |
302,113 |
|
|
$ |
741,738 |
|
Issuance of common stock under
employee stock plans, net
of shares withheld for
payroll taxes |
|
|
631 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
2,905 |
|
|
|
|
|
|
|
|
|
|
|
2,911 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,985 |
|
|
|
|
|
|
|
|
|
|
|
7,985 |
|
Tax shortfall from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,737 |
) |
|
|
|
|
|
|
|
|
|
|
(2,737 |
) |
Repurchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
(3,494 |
) |
|
|
(50,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,000 |
) |
Retirement of treasury stock |
|
|
(3,494 |
) |
|
|
(35 |
) |
|
|
3,494 |
|
|
|
50,000 |
|
|
|
(27,869 |
) |
|
|
|
|
|
|
(22,096 |
) |
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,202 |
) |
|
|
|
|
|
|
(38,202 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239,727 |
) |
|
|
(239,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(277,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
|
45,595 |
|
|
|
456 |
|
|
|
|
|
|
|
|
|
|
|
371,664 |
|
|
|
9,558 |
|
|
|
40,290 |
|
|
|
421,968 |
|
Issuance of common stock under
employee stock plans, net
of shares withheld for
payroll taxes |
|
|
361 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(695 |
) |
|
|
|
|
|
|
|
|
|
|
(691 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,764 |
|
|
|
|
|
|
|
|
|
|
|
7,764 |
|
Tax shortfall from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,712 |
) |
|
|
|
|
|
|
|
|
|
|
(6,712 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,671 |
|
|
|
|
|
|
|
11,671 |
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,574 |
|
|
|
33,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009 |
|
|
45,956 |
|
|
|
460 |
|
|
|
|
|
|
|
|
|
|
|
372,021 |
|
|
|
21,229 |
|
|
|
73,864 |
|
|
|
467,574 |
|
Issuance of common stock under
employee stock plans, net
of shares withheld for
payroll taxes |
|
|
369 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
(1,384 |
) |
|
|
|
|
|
|
|
|
|
|
(1,381 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,957 |
|
|
|
|
|
|
|
|
|
|
|
6,957 |
|
Tax shortfall from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(317 |
) |
|
|
|
|
|
|
|
|
|
|
(317 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,347 |
) |
|
|
|
|
|
|
(3,347 |
) |
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,485 |
|
|
|
75,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010 |
|
|
46,325 |
|
|
$ |
463 |
|
|
|
|
|
|
$ |
|
|
|
$ |
377,277 |
|
|
$ |
17,882 |
|
|
$ |
149,349 |
|
|
$ |
544,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
46
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
75,485 |
|
|
$ |
30,773 |
|
|
$ |
(239,727 |
) |
Plus: net earnings from a discontinued operation |
|
|
|
|
|
|
2,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
|
75,485 |
|
|
|
33,574 |
|
|
|
(239,727 |
) |
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
397,247 |
|
Depreciation and amortization |
|
|
38,013 |
|
|
|
41,163 |
|
|
|
41,239 |
|
Provision for losses on accounts receivable |
|
|
1,626 |
|
|
|
7,377 |
|
|
|
3,452 |
|
Write-downs of inventories |
|
|
6,825 |
|
|
|
7,444 |
|
|
|
7,614 |
|
Non-cash stock-based compensation |
|
|
6,957 |
|
|
|
7,764 |
|
|
|
7,985 |
|
Non-cash gain from arbitrated claim, net of tax |
|
|
|
|
|
|
(2,801 |
) |
|
|
|
|
Excess tax benefit from employee gains on stock-based compensation |
|
|
(1,073 |
) |
|
|
|
|
|
|
(111 |
) |
Deferred income taxes |
|
|
18,057 |
|
|
|
8,214 |
|
|
|
(108,088 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable |
|
|
(153,905 |
) |
|
|
10,981 |
|
|
|
45,463 |
|
(Increase) decrease in inventories |
|
|
(39,232 |
) |
|
|
1,813 |
|
|
|
(11,901 |
) |
(Increase) decrease in other current assets |
|
|
(16,884 |
) |
|
|
1,461 |
|
|
|
9,632 |
|
Decrease in other assets |
|
|
3,794 |
|
|
|
2,743 |
|
|
|
9,085 |
|
Increase (decrease) in accounts payable |
|
|
157,556 |
|
|
|
(15,207 |
) |
|
|
(22,318 |
) |
Increase (decrease) in deferred revenue |
|
|
15,284 |
|
|
|
16,806 |
|
|
|
(7,506 |
) |
(Decrease) increase in accrued expenses and other liabilities |
|
|
(14,322 |
) |
|
|
1,342 |
|
|
|
9,680 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
98,181 |
|
|
|
122,674 |
|
|
|
141,746 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Calence, net of cash acquired |
|
|
(5,123 |
) |
|
|
(21,713 |
) |
|
|
(124,671 |
) |
Acquisition of MINX, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(1,595 |
) |
Purchases of property and equipment |
|
|
(17,972 |
) |
|
|
(14,707 |
) |
|
|
(26,647 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
(900 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(23,095 |
) |
|
|
(36,420 |
) |
|
|
(153,813 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on senior revolving credit facility |
|
|
1,150,136 |
|
|
|
1,043,373 |
|
|
|
989,606 |
|
Repayments on senior revolving credit facility |
|
|
(1,207,136 |
) |
|
|
(1,124,373 |
) |
|
|
(761,606 |
) |
Borrowings on accounts receivable securitization financing facility |
|
|
65,000 |
|
|
|
165,000 |
|
|
|
466,874 |
|
Repayments on accounts receivable securitization financing facility |
|
|
(65,000 |
) |
|
|
(165,000 |
) |
|
|
(612,874 |
) |
Repayments on term loan |
|
|
|
|
|
|
|
|
|
|
(56,250 |
) |
Payments on capital lease obligation |
|
|
(927 |
) |
|
|
(324 |
) |
|
|
|
|
Net borrowings under inventory financing facility |
|
|
40,830 |
|
|
|
13,378 |
|
|
|
48,889 |
|
Repayments on debt assumed in Calence and MINX acquisitions |
|
|
|
|
|
|
|
|
|
|
(10,978 |
) |
Payment of deferred financing fees |
|
|
(490 |
) |
|
|
(1,632 |
) |
|
|
(3,779 |
) |
Proceeds from sales of common stock under employee stock plans |
|
|
49 |
|
|
|
|
|
|
|
5,031 |
|
Excess tax benefit from employee gains on stock-based compensation |
|
|
1,073 |
|
|
|
|
|
|
|
111 |
|
Payment of payroll taxes on stock-based compensation through shares
withheld |
|
|
(1,429 |
) |
|
|
(691 |
) |
|
|
(2,120 |
) |
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
(50,000 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(17,894 |
) |
|
|
(70,269 |
) |
|
|
12,904 |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange effect on cash flows |
|
|
(1,495 |
) |
|
|
2,906 |
|
|
|
(8,380 |
) |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
55,697 |
|
|
|
18,891 |
|
|
|
(7,543 |
) |
Cash and cash equivalents at beginning of year |
|
|
68,066 |
|
|
|
49,175 |
|
|
|
56,718 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
123,763 |
|
|
$ |
68,066 |
|
|
$ |
49,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest |
|
$ |
4,516 |
|
|
$ |
5,207 |
|
|
$ |
12,328 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes |
|
$ |
11,584 |
|
|
$ |
4,101 |
|
|
$ |
34,420 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
47
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Operations and Summary of Significant Accounting Policies
Description of Business
We are a leading provider of information technology (IT) hardware, software and services to
small, medium and large businesses and public sector clients in North America, Europe, the Middle
East, Africa and Asia-Pacific. The Company is organized in the following three operating segments,
which are primarily defined by their related geographies:
|
|
|
Operating Segment |
|
Geography |
North America
|
|
United States and Canada |
EMEA
|
|
Europe, Middle East and Africa |
APAC
|
|
Asia-Pacific |
Currently, our offerings in North America and the United Kingdom include IT hardware, software
and services. Our offerings in the remainder of our EMEA segment and in APAC currently only
include software and select software-related services.
Acquisitions and Dispositions
On July 10, 2008, we acquired MINX Limited (MINX), a United Kingdom-based
networking services company for an initial cash purchase price of approximately $1,500,000 and the
assumption of approximately $3,900,000 of existing debt. Founded in 2002, MINX was a network
integrator with Cisco Gold Partner accreditation in the United Kingdom.
On April 1, 2008, we completed the acquisition of Calence, LLC (Calence), a United
States-based independent technology service provider specializing in Cisco networking solutions,
unified communications and managed services, for a cash purchase price of $125,000,000 plus working
capital adjustments of $3,649,000. During the years ended December 31, 2010, 2009 and 2008, we
recorded an additional $645,000, $15,829,000 and $10,362,000, respectively, of purchase price
consideration and the related accrued interest thereon as a result of Calence achieving certain
performance targets during the year. Such amounts were recorded as additional goodwill (see Note
3). We also assumed Calences existing debt totaling approximately $7,311,000, of which $7,100,000
was repaid by us at closing. The Calence acquisition was funded, in part, using borrowings under
our senior revolving credit facility.
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. 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.
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 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, 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.
48
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash Equivalents
We consider all highly liquid investments with maturities at the date of purchase of
three months or less to be cash equivalents.
Allowance for Doubtful Accounts
We establish an allowance for doubtful accounts using estimated losses on accounts receivable
based on 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 become aware of a
clients or vendors inability to meet its financial obligations, such as in the case of bankruptcy
filings, or deterioration in the clients or vendors 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 market. 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 our contractual provisions with our partners governing price protection,
stock rotation and return privileges relating to obsolescence.
Inventories not available for sale relate to product sales transactions in which we are
warehousing the product and will be deploying the product to clients designated locations
subsequent to period-end. Additionally, we may perform services on a portion of the product prior
to shipment to our clients and will be paid a fee for doing so. Although these product contracts
are non-cancelable with customary credit terms beginning the date the inventories are segregated in
our warehouse and invoiced to the client and the warranty periods begin on the date of invoice,
these transactions do not meet the sales recognition criteria under GAAP. Therefore, we do not
record sales and the inventories are classified as inventories not available for sale on our
consolidated balance sheet until the product is delivered. If clients remit payment before we
deliver product to them, we record the payments received as deferred revenue on our consolidated
balance sheet until such time as the product is delivered.
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 |
Costs incurred to develop internal-use software during the application development stage,
including capitalized interest, are recorded in property and equipment at cost. 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 useful 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.
49
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. We perform an annual review
in the fourth quarter of every year, or more frequently if indicators of potential impairment
exist, to determine if the carrying value of recorded goodwill is impaired. The impairment review
process compares the fair value of the reporting unit in which goodwill resides to its carrying
value. See additional discussion of the impairment review process and impairments recorded in 2008
at Note 3.
Intangible Assets
We amortize intangible assets acquired in the acquisitions of MINX, Calence and Software
Spectrum using the straight-line method over the following estimated economic lives of the
intangible assets from the date of acquisition:
|
|
|
|
|
Estimated Economic Life |
Customer relationships |
|
8 11 years |
Acquired technology related assets |
|
5 years |
Backlog |
|
10 months 5 years |
Non-compete agreements |
|
1 2 years |
We regularly perform reviews to determine if facts and circumstances exist which
indicate that the useful lives of our long-lived 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 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.
Book Overdrafts
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 as a component of cash flows from operating activities in our consolidated statements
of cash flows.
Trade Credits
Trade credit liabilities arise from aged unclaimed credit memos, duplicate payments, payments
for returned product or overpayments made to us by our clients, and, to a lesser extent, from goods
received by us from a supplier for which we were never invoiced. Trade credit liabilities are
included in accrued expenses and other current liabilities in our consolidated balance sheet. We
derecognize the liability if and only if it has been extinguished, upon either (1) our payment of
the liability to relieve our obligation or (2) our legal release from the related obligation.
During the years ended December 31, 2010 and 2009, $8,617,000 and $3,866,000, respectively, was
recorded as a reduction of costs of goods sold as result of the negotiated settlement or other
legal release of trade credits.
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. As of December 31, 2010, we have $700,000 on deposit with our
claims administrator which acts as security for our future payment obligations under our workers
compensation program.
50
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign Currencies
We use the U.S. dollar as our reporting currency. The functional currencies of our
significant foreign subsidiaries are generally 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 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 as a separate component of non-operating (income) expense in our consolidated
statements of operations.
Derivative Financial Instruments
We enter into forward foreign exchange contracts to mitigate the risk of non-functional
currency monetary assets and liabilities on our consolidated financial statements. These forward
contracts are not designated as hedge instruments. The fair value of all derivative assets and
liabilities are recorded gross in the other current assets and other current liabilities section of
the balance sheet. Gains/losses are recorded net in non-operating (income) expense.
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
Sales are recognized when title and risk of loss are passed to the client, there is persuasive
evidence of an arrangement for sale, delivery has occurred and/or services have been rendered, the
sales price is fixed or determinable and collectibility is reasonably assured. Usual sales terms
are F.O.B. shipping point or equivalent, at which time title and risk of loss have passed to the
client. However, because we either (i) have a general practice of covering client losses while
products are in transit despite title and risk of loss contractually transferring at the point of
shipment or (ii) have specifically stated F.O.B. destination contractual terms with the client,
delivery is not deemed to have occurred until the point in time when the product is received by the
client.
We make provisions for estimated product returns that we expect to occur under our return
policy based upon historical return rates. Our manufacturers warrant most of the products we
market, and it is our policy to request that clients return their defective products directly to
the manufacturer for warranty service. On selected products, and for selected client service
reasons, we may accept returns directly from the client and then either credit the client or ship a
replacement product. We generally offer a limited 15- to 30-day return policy for unopened
products and certain opened products, which are consistent with manufacturers terms; however, for
some products we may charge restocking fees. Products returned opened are processed and returned
to the manufacturer or partner for repair, replacement or credit to us. We resell most unopened
products returned to us. Products that cannot be returned to the manufacturer for warranty
processing, but are in working condition, are sold to inventory liquidators, to end users as
previously sold or used products, or through other channels to reduce our losses from returned
products.
We record freight billed to our clients as net sales and the related freight costs as costs of
goods sold. We report sales net of any sales-based taxes assessed by governmental authorities that
are imposed on and concurrent with sales transactions.
Revenue is recognized from software sales when clients acquire the right to use or copy
software under license, but in no case prior to the commencement of the term of the initial
software license agreement, provided that all other revenue recognition criteria have been met
(i.e., delivery, evidence of the arrangement exists, the fee is fixed or determinable and
collectibility of the fee is probable).
51
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
From time to time, the sale of hardware and software products may also include the provision
of services and the associated contracts contain multiple elements or non-standard terms and
conditions. Sales of services currently represent a
small percentage of our net sales. Net sales of services that are performed at client locations
are often service-only contracts and are recorded as sales when the services are performed and
completed. If the service is performed at a client location in conjunction with a hardware,
software or other services sale, we recognize net sales for delivered items only when all of the
following criteria are satisfied:
|
|
|
the delivered item(s) has value to the client on a stand-alone basis; |
|
|
|
there is objective and reliable evidence of the fair value of the undelivered item(s);
and |
|
|
|
if the arrangement includes a general right of return relative to the delivered item,
delivery or performance of the undelivered item(s) is considered probable and substantially
in our control. |
We sell certain third-party service contracts and software assurance or subscription products
for which we are not the primary obligor. These sales do not meet the criteria for gross sales
recognition, and thus are recorded on a net sales recognition basis. As we enter into contracts
with third-party service providers or vendors, we evaluate whether the subsequent sales of such
services should be recorded as gross sales or net sales. We determine whether we act as a
principal in the transaction and assume the risks and rewards of ownership or if we are simply
acting as an agent or broker. Under gross sales recognition, the entire selling price is recorded
in sales and our cost to the third-party service provider or vendor is recorded in costs of goods
sold. Under net sales recognition, the cost to the third-party service provider or vendor 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.
Additionally, we sell certain professional services contracts on a fixed fee basis. Revenues
for fixed fee professional services contracts are recognized based on the ratio of costs incurred
to total estimated costs. Net sales for these service contracts are not a significant portion of
our consolidated net sales.
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, 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 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
only 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 totaled $23,826,000, $19,755,000 and $21,523,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
52
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, 2010. We monitor our clients financial
condition and do not require collateral. No single client accounted for more than 3% of our
consolidated net sales in 2010.
Supplier Risk
Purchases from Microsoft and Ingram Micro (a distributor) accounted for approximately 27% and
10%, respectively, of our aggregate purchases in 2010. No other partner accounted for more than
10% of purchases in 2010. Our top five partners as a group for 2010 were Microsoft, Ingram Micro,
HP, Cisco and Tech Data (a distributor), and approximately 61% of our total purchases during 2010
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 $23,736,000,
$21,751,000 and $26,447,000 was recorded for the years ended December 31, 2010, 2009 and 2008,
respectively. These amounts were partially offset by partner funding earned pursuant to shared
marketing expense programs recorded as a reduction of selling and administrative expenses, as
discussed 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 the consolidated statements of operations as other payroll-related expenses
specific to the employee. Compensation expense related to service-based 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).
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.
53
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Earnings (Loss) From Continuing Operations Per Share (EPS)
Basic EPS is computed by dividing net earnings (loss) from continuing operations 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 stock options, restricted stock
awards and restricted stock units. For periods with a net loss from continuing operations, no
potential common shares are included in the diluted EPS computations because they would result in
an antidilutive effect on the per share amount. A reconciliation of the denominators of the basic
and diluted EPS calculations follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations |
|
$ |
75,485 |
|
|
$ |
30,773 |
|
|
$ |
(239,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute basic EPS |
|
|
46,218 |
|
|
|
45,838 |
|
|
|
46,573 |
|
Potential dilutive common shares due to dilutive stock
options and restricted stock awards and units |
|
|
594 |
|
|
|
433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute diluted EPS |
|
|
46,812 |
|
|
|
46,271 |
|
|
|
46,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from continuing operations per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.63 |
|
|
$ |
0.67 |
|
|
$ |
(5.15 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.61 |
|
|
$ |
0.67 |
|
|
$ |
(5.15 |
) |
|
|
|
|
|
|
|
|
|
|
The following weighted-average outstanding stock options during the years ended December 31,
2010, 2009 and 2008 were not included in the diluted EPS calculations because the exercise prices
of these options were greater than the average market price of our common stock during the
respective periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Weighted-average
outstanding stock
options having no
dilutive effect |
|
|
343 |
|
|
|
1,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No potential common shares were included in the diluted EPS computation for the year ended
December 31, 2008 because of the net loss from continuing operations for the year, which would
result in an antidilutive effect on the per share amount.
Recently Issued Accounting Standards
In September 2009, the FASB issued EITF Issue No. 08-1 Revenue Arrangements with Multiple
Deliverables. EITF No. 08-1 amends ASC 605 Revenue Recognition Multiple-Element
Arrangements, previously EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables,
to eliminate the requirement that all undelivered elements have objective and reliable evidence of
their fair value before an entity can recognize the portion of an overall arrangement fee that is
attributable to items that already have been delivered. In the absence of objective and reliable
evidence of the standalone selling price for one or more delivered or undelivered elements in a
multiple element arrangement, entities will be required to estimate the selling prices of those
elements. The overall arrangement fee will be allocated to each element (both delivered and
undelivered items) based on their relative selling prices, regardless of whether those selling
prices are based on objective and reliable evidence or the entitys estimated selling price.
Application of the residual method of allocating an overall arrangement fee between delivered and
undelivered elements will no longer be permitted upon adoption of EITF 08-1. Additionally, the new
guidance will require entities to disclose more information about their multiple element revenue
arrangements. Adoption of this amendment to ASC 605 is required for revenue arrangements entered
into or materially modified during the Companys fiscal year beginning January 1, 2011. The
adoption of this accounting guidance effective January 1, 2011 is not expected to have a material
effect on our consolidated results of operations and related disclosures because we currently do
not have any material instances in which we account for revenue from multiple element arrangements
when vendor-specific objective evidence does not exist.
In September 2009, the FASB issued EITF Issue No. 09-3 Certain Revenue Arrangements That
Include Software Elements. EITF 09-3 amends ASC 985 Software, previously AICPA Statement of
Position No. 97-2, Software Revenue Recognition and its related interpretive guidance, to exclude
from its scope tangible products that contain both software and non-software components that
function together to deliver a products essential functionality. Adoption of this amendment to
ASC 985 is also required for revenue arrangements entered into or materially modified during the
Companys fiscal year beginning January 1, 2011. The adoption of this accounting guidance
effective January 1, 2011 is not expected to have any effect on our consolidated results of
operations and related disclosures based on the nature of our revenue transactions.
54
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2) Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Software |
|
$ |
125,222 |
|
|
$ |
120,451 |
|
Buildings |
|
|
73,055 |
|
|
|
72,874 |
|
Equipment |
|
|
65,278 |
|
|
|
57,810 |
|
Furniture and fixtures |
|
|
34,344 |
|
|
|
33,122 |
|
Leasehold improvements |
|
|
19,595 |
|
|
|
19,082 |
|
Land |
|
|
7,714 |
|
|
|
7,668 |
|
|
|
|
|
|
|
|
|
|
|
325,208 |
|
|
|
311,007 |
|
Accumulated depreciation and amortization |
|
|
(183,809 |
) |
|
|
(160,904 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
141,399 |
|
|
$ |
150,103 |
|
|
|
|
|
|
|
|
During 2010, we periodically assessed whether any indicators of impairment existed related to
our property and equipment. No indicators of impairment were identified during 2010.
Depreciation and amortization expense related to property and equipment was $26,055,000,
$28,734,000 and $27,371,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
Depreciation and amortization expense in 2009 includes $1,252,000 of accelerated amortization
associated with certain software licenses due to our decision to not utilize them in the future.
Interest charges in the amount of $24,000, $9,000 and $121,000 were capitalized in connection with
internal-use software development projects in the years ended December 31, 2010, 2009 and 2008,
respectively.
(3) Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2010, 2009 and
2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Balance at December 31, 2007 |
|
$ |
220,331 |
|
|
$ |
67,377 |
|
|
$ |
16,865 |
|
|
$ |
304,573 |
|
Goodwill recorded in
connection with the
acquisition of Calence |
|
|
104,071 |
|
|
|
|
|
|
|
|
|
|
|
104,071 |
|
Goodwill recorded in
connection with the
acquisition of MINX |
|
|
|
|
|
|
9,108 |
|
|
|
|
|
|
|
9,108 |
|
Impairment charge |
|
|
(323,422 |
) |
|
|
(59,852 |
) |
|
|
(13,973 |
) |
|
|
(397,247 |
) |
Other adjustments |
|
|
(980 |
) |
|
|
(16,633 |
) |
|
|
(2,892 |
) |
|
|
(20,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill recorded as
additional purchase price
consideration relating to
Calence |
|
|
15,829 |
|
|
|
|
|
|
|
|
|
|
|
15,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
15,829 |
|
|
|
|
|
|
|
|
|
|
|
15,829 |
|
Goodwill recorded as
additional purchase price
consideration relating to
Calence |
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
16,474 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
16,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill is required to be tested for impairment at the reporting unit level on an annual
basis 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. Multiple valuation
techniques can be used to assess the fair value of the reporting unit. All of 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. The Company has three reporting units, which are the same as our operating
segments. At December 31, 2007, our goodwill balance of $304,573,000 was allocated among all three
of our operating segments, which represented the purchase price in excess of the net amount
assigned to assets acquired and liabilities assumed in connection with previous acquisitions,
adjusted for changes in foreign currency exchange rates. We tested goodwill for impairment
during the fourth quarter of 2007. At that time, we concluded that the fair value of each of our
reporting units was in excess of the carrying value.
55
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On April 1, 2008, we acquired Calence, which has been integrated into our North America
business. On July 10, 2008, we acquired MINX, which has been integrated into our EMEA business.
Under the purchase method of accounting, the purchase price for each 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
$93,709,000 and $9,108,000 for Calence and MINX, respectively, was recorded as goodwill in the
respective reporting unit. During the year ended December 31, 2008, we accrued an additional
$9,830,000 of purchase price consideration (the earnout) and $532,000 of accrued interest thereon
as a result of Calence achieving certain performance targets during 2008. Such amounts were
recorded as additional goodwill. The Calence acquisition and resulting additional goodwill of
$104,071,000, including the earnout and accrued interest amounts, was recorded as part of our North
America reporting unit.
In consideration of market conditions and the decline in our overall market capitalization
resulting from decreases in the market price of Insights publicly traded common stock during the
three months ended June 30, 2008, we evaluated whether an event (a triggering event) had occurred
during the second quarter that would require us to perform an interim period goodwill impairment
test. Subsequent to the first quarter of 2008, the Company experienced a relatively consistent
decline in market capitalization due to deteriorating market conditions and a significant decline
subsequent to our announcement of preliminary first quarter 2008 results on April 23, 2008. During
the first quarter of 2008, the market price of Insights publicly traded common stock ranged from a
high of $19.00 to a low of $15.49, ending the quarter at $17.50 on March 31, 2008. During the
second quarter of 2008, the market price of Insights publicly traded common stock ranged from a
high of $18.20 to a low of $11.00 on April 24, 2008, when the price dropped by 22.5% and did not
return to levels previous to that single day drop through the end of the quarter. Based on the
sustained significant decline in the market price of our common stock during the second quarter of
2008, we concluded that a triggering event had occurred subsequent to March 31, 2008, which would
more likely than not reduce the fair value of one or more of our reporting units below its
respective carrying value.
As a result, we performed the first step of the two-step goodwill impairment test in the
second quarter of 2008 and compared the fair values of our reporting units to their carrying
values. The fair values of our reporting units were determined using established valuation
techniques, specifically the market and income approaches. We determined that the fair value of
the North America reporting unit was less than the carrying value of the net assets of the
reporting unit, and thus, we performed step two of the impairment test for the North America
reporting unit. The results of the first step of the two-step goodwill impairment test indicated
that the fair value of each of our EMEA and APAC reporting units was in excess of the carrying
value, and thus we did not perform step two of the impairment test for EMEA or APAC.
In step two of the impairment test, we determined the implied fair value of the goodwill in
our North America reporting unit and compared it to the carrying value of the goodwill. We
allocated the fair value of the North America reporting unit to all of its assets and liabilities
as if the reporting unit had been acquired in a business combination and the fair value of the
North America reporting unit was the price paid to acquire the reporting unit. The excess of the
fair value of the reporting unit over the amounts assigned to its assets and liabilities is the
implied fair value of goodwill. Our step two analysis resulted in no implied fair value of
goodwill for the North America reporting unit, and therefore, we recognized a non-cash goodwill
impairment charge of $313,776,000, which represented the entire goodwill balance recorded in our
North America operating segment as of June 30, 2008, including the entire amount of the goodwill
recorded in connection with the Calence acquisition, including the earnout through June 30, 2008.
The charge is included in the loss from continuing operations for the year ended December 31, 2008.
Subsequent to the announcement of our results of operations for the second quarter of 2008 on
August 11, 2008, the Company experienced a relatively consistent increase in market capitalization.
During the third quarter of 2008, the market price of Insights publicly traded common stock
ranged from a low of $10.70 to a high of $17.11, ending the quarter at $13.41 on September 30,
2008. We concluded that during the third quarter of 2008, a triggering event had not occurred that
would more likely than not reduce the fair value of one or more of our reporting units below its
respective carrying value.
We performed our annual review of goodwill in the fourth quarter of 2008. The fair values of
our reporting units were determined using established valuation techniques, specifically the market
and income approaches. We determined that the fair value of each of our three reporting units was
less than the carrying value of the net assets of the respective reporting unit, and thus we
performed step two of the impairment test for each of our three reporting units. Our step two
analyses resulted in no implied fair value of goodwill for any of our three reporting units, and
therefore, we recognized a
non-cash goodwill impairment charge of $83,471,000, which represented the entire amount of the
goodwill recorded all three of our operating segments as of December 31, 2008, including goodwill
recorded in connection with the earnout associated with the Calence acquisition, part of our North
America operating segment, since June 30, 2008. The charge is included in the loss from continuing
operations for the year ended December 31, 2008.
56
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The other adjustments to goodwill in 2008 primarily consist of foreign currency translation
adjustments. During the year ended December 31, 2008, the adjustments in EMEA also include the
reversal of valuation allowances totaling $5,800,000 relating to our United Kingdom and France net
operating loss carryforward deferred tax assets (see Note 10).
During the year ended December 31, 2009, we recorded $15,829,000 of additional purchase price
consideration and the related accrued interest thereon as a result of Calence, acquired April 1,
2008, achieving certain performance targets during 2009. The additional goodwill was recorded as
part of our North America reporting unit. In April and November 2009, cash payments of $12,834,000
and $8,879,000, respectively, were made to the former owners of Calence related to additional
purchase price consideration and the related interest thereon earned in 2008 and 2009 prior to each
scheduled payment date. Such amounts are reflected as an investing activity within our
consolidated statements of cash flows.
During the year ended December 31, 2010, we recorded $645,000 of additional purchase price
consideration and the related accrued interest thereon as a result of Calence achieving certain
performance targets during the first quarter of 2010. The additional goodwill was recorded as part
of our North America reporting unit. The final payment of $5,123,000 for additional purchase price
consideration and the related accrued interest thereon was paid to the former owners of Calence on
April 1, 2010.
During 2010, 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 North America reporting unit (the only reporting unit with a goodwill balance at
any period end) below its carrying value. We performed our annual test of goodwill for impairment
during the fourth quarter of 2010. The results of the first step of the two-step goodwill
impairment test indicated that the fair value of our North America reporting unit was in excess of
the carrying value, and thus we did not perform step two of the impairment test.
(4) Intangible Assets
Intangible assets acquired in the acquisition of MINX, Calence and Software Spectrum consist
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Customer relationships |
|
$ |
110,743 |
|
|
$ |
112,295 |
|
Backlog |
|
|
7,393 |
|
|
|
7,405 |
|
Acquired technology related assets |
|
|
1,700 |
|
|
|
1,700 |
|
Non-compete agreements |
|
|
|
|
|
|
270 |
|
|
|
|
|
|
|
|
|
|
|
119,836 |
|
|
|
121,670 |
|
Accumulated amortization |
|
|
(50,755 |
) |
|
|
(39,187 |
) |
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
69,081 |
|
|
$ |
82,483 |
|
|
|
|
|
|
|
|
During 2010, we periodically assessed whether any indicators of impairment existed related to
our intangible assets. As a result of the Companys largest software partner informing resellers
that it intends to change certain elements of its channel incentive programs effective in late 2011
that could adversely affect the Companys results of operations, primarily beginning in 2012, we
assessed the recoverability of our Software Spectrum acquired customer relationships intangible
asset by comparing the projected undiscounted net cash flows associated with the related asset over
its remaining life against its carrying amount. We concluded that the estimated fair value of our
Software Spectrum acquired customer relationships intangible asset exceeded its carrying amount,
and no impairment was indicated.
57
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amortization expense recognized for the years ended December 31, 2010, 2009 and 2008 was
$11,958,000, $12,429,000 and $13,868,000, respectively. The non-compete agreements were fully
amortized in June 2010. Future amortization expense is estimated as follows (in thousands):
|
|
|
|
|
Years Ending December 31, |
|
Amortization Expense |
|
2011 |
|
$ |
12,080 |
|
2012 |
|
|
11,863 |
|
2013 |
|
|
10,900 |
|
2014 |
|
|
10,900 |
|
2015 |
|
|
10,900 |
|
Thereafter |
|
|
12,438 |
|
|
|
|
|
Total amortization expense |
|
$ |
69,081 |
|
|
|
|
|
(5) Accrued Expenses and Other Current Liabilities
Included in accrued expenses and other current liabilities as of December 31, 2010
and 2009 is $30,703,000 and $62,289,000, respectively, of trade credit liabilities.
Included in accrued expenses and other current liabilities as of December 31, 2010 and 2009 is
an accrual for $74,223,000 and $62,760,000, respectively, of sales tax, value-added tax and other
indirect taxes.
(6) Debt, Capital Lease Obligation and Inventory Financing Facility
Debt
Our long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Senior revolving credit facility |
|
$ |
90,000 |
|
|
$ |
147,000 |
|
Accounts receivable securitization financing facility |
|
|
|
|
|
|
|
|
Capital lease obligation |
|
|
2,616 |
|
|
|
3,224 |
|
|
|
|
|
|
|
|
Total |
|
|
92,616 |
|
|
|
150,224 |
|
Less: current portion of obligation under capital lease |
|
|
(997 |
) |
|
|
(875 |
) |
Less: current portion of revolving credit facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
91,619 |
|
|
$ |
149,349 |
|
|
|
|
|
|
|
|
On April 1, 2008, we entered into a five-year $300,000,000 senior revolving credit facility.
Amounts outstanding under the senior revolving credit facility bear interest, payable quarterly, at
a floating rate equal to the prime rate or, at our option, a LIBOR rate plus a pre-determined
spread of 0.75% to 1.75%. In addition, we pay a commitment fee on the unused portion of the
facility of 0.175% to 0.35%. The weighted average interest rate on amounts outstanding under our
senior revolving credit facility, including the commitment fee and origination costs incurred, was
2.1%, 2.6% and 4.8% during the years ended December 31, 2010, 2009 and 2008, respectively. As of
December 31, 2010, $210,000,000 was available under the senior revolving credit facility. The
senior revolving credit facility matures on April 1, 2013.
We have a $150,000,000 accounts receivable securitization financing facility (the ABS
facility) pursuant to which we can sell receivables periodically to a special purpose accounts
receivable and financing entity (the SPE), which is exclusively engaged in purchasing receivables
from us. The SPE is a wholly-owned, bankruptcy-remote entity that we have included in our
consolidated financial statements. The SPE funds its purchases by selling undivided interests in
eligible trade accounts receivable to a multi-seller conduit administered by an independent
financial institution. The SPEs assets are available first and foremost to satisfy the claims of
the creditors of the conduit. We maintain effective control over the receivables that are sold.
Accordingly, the receivables remain recorded on our consolidated balance sheets. At December 31,
2010 and 2009, the SPE owned $616,339,000 and $525,178,000, respectively, of receivables recorded
at fair value and included in our consolidated balance sheets. On July 1, 2010, we entered into an
amendment to the ABS facility, which amends certain provisions of the ABS facility to improve
availability in the Borrowing Base, as defined in the ABS facility, but did not change the
$150,000,000 maximum borrowing capacity. Specifically, the amendment (i) excludes from the
Borrowing Base receivables of a specified obligor that had a negative impact on availability under
the facility, (ii) creates a basket to allow up to 10% of gross receivables with terms between 60
and 90 days to be eligible for borrowing, and
58
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(iii) increases to 35% from 25% the threshold above
which the total amount of a
particular obligors receivables are treated as ineligible if the percentage of such obligors
receivables that are more than 60 days past due exceeds such threshold. In addition, the amendment
extends the maturity date of the ABS facility, which was to have expired on July 23, 2010, to April
1, 2013, and decreases the variable interest rate by approximately 80 basis points for funds
provided under the ABS facility, calculated as the specified Pooled Commercial Paper Rate, as
defined in the ABS facility, plus a fixed 1.45% margin (the CP Margin). However, beginning on
July 1, 2012 (the Reset Date), the CP Margin may increase (but in no event exceed 1.50%) based
on percentage changes in high yield spreads comparing average index rates for the calendar month
prior to the Reset Date against average index rates for the corresponding calendar month in the
previous year. Finally, the amendment provides that, under certain circumstances, the Company may
be required to obtain a public rating of the ABS facility from one or more credit rating agencies
of at least A or its equivalent. Failure by the Company to obtain such rating would result in an
Amortization Event under the ABS facility. While the ABS facility has a stated maximum
amount, the Companys ability to borrow up to the full $150,000,000 under the ABS facility is based
on formulae relating to the amount and quality of the Companys accounts receivable in the United
States. Total availability under our ABS facility at December 31, 2010 was $150,000,000.
No amounts are outstanding under the ABS facility at December 31, 2010 or 2009. Interest is
payable monthly, and the interest rate which would have been applicable at December 31, 2010 had
there been outstanding balances was 1.8% per annum. In addition, we pay a commitment fee on the
unused portion of the facility of 0.75%, which was reduced from 1.15%
as part of the July 1, 2010
amendment. During the year ended December 31, 2010, due to availability under our other debt and
financing facilities, weighted average borrowings under our ABS facility decreased to $1,671,000.
Interest expense associated with the ABS facility was $2,139,000 in 2010, including the commitment
fee and amortization to interest expense of deferred financing fees capitalized in conjunction with
amendments to the ABS facility. During the years ended December 31, 2009 and 2008, our weighted
average interest rate per annum and weighted average borrowings under the facility were 8.5% and
$27,449,000 and 4.30% and $128,420,000, respectively.
Capital Lease Obligation
In July 2009, we entered into a four-year lease for certain IT equipment. We amended this
lease in November 2009 and again in July 2010 to include additional IT equipment to be used in the
same manner as the initial lease. The July 2010 amendment added $319,000 to the value of the
equipment held under the capitalized lease. These obligations under the capitalized lease are
included in long-term debt in our consolidated balance sheets as of December 31, 2010 and 2009.
The current and long-term portions of the obligation are included in the table above. The capital
lease was a non-cash transaction and, accordingly, is not reflected in our consolidated statements
of cash flows for the years ended December 31, 2010 or 2009.
The value of the equipment held under the capitalized lease, $3,867,000, is included in
property and equipment. These capital lease assets are amortized on a straight-line basis over the
lease term. The related amortization expense is included in selling and administrative expenses in
our consolidated statements of operations for the years ended December 31, 2010 and 2009. As of
December 31, 2010 and 2009, accumulated amortization on the capital lease assets was $1,283,000 and
$333,000, respectively.
Future minimum payments under the capitalized lease consist of the following as of December
31, 2010 (in thousands):
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
2011 |
|
$ |
1,039 |
|
2012 |
|
|
1,039 |
|
2013 |
|
|
606 |
|
|
|
|
|
Total minimum lease payments |
|
|
2,684 |
|
Less amount representing interest |
|
|
(68 |
) |
|
|
|
|
Present value of minimum lease payments |
|
$ |
2,616 |
|
|
|
|
|
Inventory Financing Facility
On April 26, 2010, we entered into an amendment to our inventory financing facility to
increase the aggregate availability for vendor purchases under the facility from $90,000,000 to
$100,000,000. On August 12, 2010, we entered into a second amendment to the facility to further
increase the aggregate availability for vendor purchases under the facility from $100,000,000 to
$150,000,000. The facility matures on April 1, 2013 but may be cancelled with 90 days notice.
Additionally, the facility may be renewed under certain circumstances described in the agreement
for successive twelve month periods. Interest does not accrue on accounts payable under this
facility provided the accounts payable are paid within stated vendor terms (ranging from 30 to 60
days). We impute interest
59
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
on the average daily balance
outstanding during these stated vendor terms based on our blended incremental borrowing rate
during the period under our senior revolving credit facility and our ABS facility. Imputed
interest of $2,112,000 and $1,798,000 was recorded in 2010 and 2009, respectively. If balances are
not paid within stated vendor terms, they will accrue interest at prime plus 1.25%. The facility
is guaranteed by the Company and each of its material domestic subsidiaries and is secured by a
lien on substantially all of the Companys domestic assets that is of equal priority to the liens
securing borrowings under our senior revolving credit facility. As of December 31, 2010 and 2009,
$135,112,000 and $94,282,000, respectively, was included in accounts payable related to this
facility. Although the $90,000,000 maximum was exceeded as of December 31, 2009, it was
non-interest bearing, was paid down below the $90,000,000 maximum on January 4, 2010 and had no
effect on our debt covenant compliance.
Covenants
Our financing facilities contain various covenants customary for transactions of this type,
including the requirement that we comply with maximum leverage, minimum fixed charge and minimum
asset coverage ratio requirements and meet weekly, monthly, quarterly and annual reporting
requirements. If we fail to comply with these covenants, the lenders would be able to demand
payment within a specified period of time. At December 31, 2010, we were in compliance with all
such covenants.
Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under
our senior revolving credit facility and our ABS facility is limited by certain financial
covenants, particularly a maximum leverage ratio. The maximum leverage ratio is calculated as
aggregate debt outstanding divided by the sum of the Companys trailing twelve month net earnings
(loss) plus (i) interest expense, less non-cash imputed interest on our inventory financing
facility, (ii) income tax expense (benefit), (iii) depreciation and amortization and (iv) non-cash
stock-based compensation (referred to herein as adjusted earnings). The maximum leverage ratio
permitted under the agreements was 2.50 times as of December 31, 2010. A significant drop in
adjusted earnings would limit the amount of indebtedness that could be outstanding at the end of
any fiscal quarter, to a level that would be below the Companys consolidated maximum debt
capacity. As a result of this limitation, of the $450,000,000 of aggregate maximum debt capacity
available under our senior revolving credit facility and our ABS facility, the Companys debt
balance that could have been outstanding as of December 31, 2010 was limited to $414,138,000 based
on 2.50 times the Companys trailing twelve-month adjusted earnings.
(7) 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 net earnings to changes in short-term interest rates since interest rates on the
underlying obligations are variable. We had $90,000,000 outstanding under our senior revolving
credit facility and no amounts outstanding under our ABS facility at December 31, 2010. The
interest rates attributable to the borrowings under our senior revolving credit facility and the
ABS facility were 1.3% and 1.8%, respectively, per annum at December 31, 2010. The change in
annual net earnings from continuing operations, pretax, resulting from a hypothetical 10% increase
or decrease in the highest applicable interest rate would approximate $158,000.
Foreign Currency Exchange Risk
We use the U.S. dollar as our reporting currency. The functional currencies of our
significant foreign subsidiaries are generally 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. Translation adjustments are recorded in other comprehensive income 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, are reported as a separate component of non-operating (income) expense, net in our
consolidated statements of operations. We also maintain cash accounts denominated in currencies
other than the functional currency which expose us to foreign exchange rate movements.
Remeasurement of these cash balances results in gains/losses that are also reported as a separate
component of non-operating (income) expense.
60
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We monitor our foreign currency exposure and have begun to enter, selectively, 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 forward contracts in non-operating (income) and expense, net. The Company does not have
a significant concentration of credit risk with any single counterparty.
The Company generally enters into forward contracts with maturities of three months or less.
The derivatives entered into during 2010 were not designated as hedges. The following derivative
contracts were entered into during the year ended December 31, 2010, and remained open and
outstanding at December 31, 2010. All U.S. dollar and foreign currency amounts (British Pounds and
Canadian Dollars) are presented in thousands.
|
|
|
|
|
|
|
|
|
|
|
Buy |
|
|
Buy |
|
Foreign Currency |
|
|
GBP |
|
|
|
CAD |
|
Foreign Amount |
|
|
6,424 |
|
|
|
10,000 |
|
Exchange Rate |
|
|
1.5566 |
|
|
|
1.0029 |
|
USD Equivalent |
|
$ |
10,000 |
|
|
$ |
9,971 |
|
Maturity Date |
|
|
January 7, 2011 |
|
|
|
January 6, 2011 |
|
The Company does not enter into derivative contracts for speculative or trading purposes. The
fair value of all forward contracts at December 31, 2010 was a
net liability of $63,000.
(8) Leases
We have several non-cancelable operating leases with third parties, primarily for
administrative and distribution center space and computer equipment. Our facilities leases
generally provide for periodic rent increases and many contain escalation clauses and renewal
options. We recognize rent expense on a straight-line basis over the lease term. Rental expense
for these third-party operating leases was $15,643,000, $15,561,000 and $16,132,000 for the years
ended December 31, 2010, 2009 and 2008, respectively, and is included in selling and administrative
expenses in our consolidated statements of operations.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining
lease terms in excess of one year) as of December 31, 2010 are as follows (in thousands):
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
2011 |
|
$ |
13,186 |
|
2012 |
|
|
9,690 |
|
2013 |
|
|
8,366 |
|
2014 |
|
|
7,258 |
|
2015 |
|
|
5,845 |
|
Thereafter |
|
|
7,437 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
51,782 |
|
|
|
|
|
61
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(9) Severance, Restructuring and Acquisition Integration Activities
Severance Costs Expensed in 2010
During the year ended December 31, 2010, North America and EMEA recorded severance expense
totaling $2,003,000 and $1,476,000, respectively, relating to 2010 restructuring actions. The
North America charge was part of the roll-out of our new sales engagement model and plans to add
new leadership in key areas, and the EMEA charge was associated with the severance for the
elimination of certain positions based on a re-alignment of roles and responsibilities. The
following table details the 2010 activity and the outstanding obligation related to the 2010
severance actions as of December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
Consolidated |
|
Severance costs |
|
$ |
2,003 |
|
|
$ |
1,476 |
|
|
$ |
3,479 |
|
Foreign currency
translation
adjustments |
|
|
|
|
|
|
19 |
|
|
|
19 |
|
Cash payments |
|
|
(837 |
) |
|
|
(920 |
) |
|
|
(1,757 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2010 |
|
$ |
1,166 |
|
|
$ |
575 |
|
|
$ |
1,741 |
|
|
|
|
|
|
|
|
|
|
|
All remaining outstanding obligations are expected to be paid during 2011 and are therefore
included in accrued expenses and other current liabilities.
Severance Costs Expensed in 2009
During the year ended December 31, 2009, North America, EMEA and APAC recorded severance
expense totaling $10,515,000, $3,784,000 and $302,000, respectively, related to the departure of
our former President and Chief Executive Officer from the Company and ongoing restructuring efforts
to reduce operating expenses. The following table details the changes in these liabilities during
the year ended December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
Consolidated |
|
Balance at December 31, 2009 |
|
$ |
38 |
|
|
$ |
1,904 |
|
|
$ |
1,942 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
(166 |
) |
|
|
(166 |
) |
Adjustments |
|
|
|
|
|
|
(453 |
) |
|
|
(453 |
) |
Cash payments |
|
|
(38 |
) |
|
|
(867 |
) |
|
|
(905 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
$ |
|
|
|
$ |
418 |
|
|
$ |
418 |
|
|
|
|
|
|
|
|
|
|
|
In EMEA, adjustments totaling $453,000 were recorded as a reduction to severance and
restructuring expense during the year ended December 31, 2010 and a reduction of the related
severance accrual due to changes in estimates as cash payments were made. All remaining
outstanding obligations are expected to be paid during 2011 and are therefore included in accrued
expenses and other current liabilities.
Severance Costs Expensed for 2008 Resource Actions
During the year ended December 31, 2008, North America, EMEA and APAC recorded severance
expense totaling $4,633,000, $3,923,000 and $39,000, respectively, related to ongoing restructuring
efforts to reduce operating expenses related to support and management functions as well as certain
sales functions. As of December 31, 2009, all severance costs recorded by APAC in connection with
the 2008 resource actions had been paid. During the first quarter of 2010, final cash payments
totaling $19,000 were made on the remaining accrued severance costs in North America and an
adjustment of $70,000 was recorded as a reduction to severance and restructuring expense and the
related severance accrual in EMEA due to changes in estimates. As of December 31, 2010, there were
no outstanding severance obligations associated with the 2008 resource actions.
Acquisition-Related Costs Capitalized in 2006 as a Cost of Acquisition of Software Spectrum
In 2006, we recorded $9,738,000 of employee termination benefits and $1,676,000 of facility
based costs in connection with the integration of Software Spectrum. These costs were recognized
as a liability assumed in the purchase business combination and included in the allocation of the
cost to acquire Software Spectrum.
The employee termination benefits relate to severance payments for Software Spectrum teammates
in North America and EMEA who have been or will be terminated in connection with integration plans.
The facilities based costs relate to future lease payments or lease termination costs associated
with vacating certain Software Spectrum facilities in EMEA.
The following table details the changes in these liabilities during the year ended December
31, 2010 (in thousands):
|
|
|
|
|
|
|
EMEA |
|
Balance at December 31, 2009 |
|
$ |
1,358 |
|
Foreign currency translation adjustments |
|
|
(79 |
) |
Adjustments |
|
|
(105 |
) |
Cash payments |
|
|
(479 |
) |
|
|
|
|
Balance at December 31, 2010 |
|
$ |
695 |
|
|
|
|
|
62
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All remaining outstanding obligations are expected to be paid during 2011 and are therefore
included in accrued expenses and other current liabilities. In 2010 an adjustment of $105,000 was
recorded as a reduction of selling and administrative expenses and the related severance accrual
due to changes in estimates of the costs of the integration plan.
Restructuring Costs Expensed in 2005
During the year ended December 31, 2005, Insight UK moved into a new facility and recorded
facilities-based restructuring costs of $7,458,000. The related leases expired in October 2009,
and the remaining balance in the accrual as of January 1, 2010 of $77,000 (related to certain
service charges) was settled during the year ended December 31, 2010, leaving no accrual remaining
as of December 31, 2010.
(10) Income Taxes
The following table presents the U.S. and foreign components of earnings (loss) from
continuing operations before income taxes and the related income tax expense (benefit) (in
thousands):
Earnings (loss) from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
U.S |
|
$ |
71,271 |
|
|
$ |
14,644 |
|
|
$ |
(282,554 |
) |
Foreign |
|
|
43,903 |
|
|
|
27,099 |
|
|
|
(43,520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
115,174 |
|
|
$ |
41,743 |
|
|
$ |
(326,074 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
8,850 |
|
|
$ |
(4,804 |
) |
|
$ |
5,379 |
|
U.S. State and local |
|
|
1,251 |
|
|
|
(237 |
) |
|
|
360 |
|
Foreign |
|
|
11,531 |
|
|
|
8,876 |
|
|
|
14,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,632 |
|
|
|
3,835 |
|
|
|
20,413 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
15,466 |
|
|
|
6,293 |
|
|
|
(97,126 |
) |
U.S. State and local |
|
|
1,205 |
|
|
|
920 |
|
|
|
(10,254 |
) |
Foreign |
|
|
1,386 |
|
|
|
(78 |
) |
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,057 |
|
|
|
7,135 |
|
|
|
(106,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39,689 |
|
|
$ |
10,970 |
|
|
$ |
(86,347 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense relating to a discontinued operation was $1,659,000 for the year ended
December 31, 2009.
The following schedule reconciles the differences between the U.S. federal income taxes at the
U.S. statutory rate to our income tax expense (benefit) (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Expected expense (benefit) at U.S. Statutory rate of 35% |
|
$ |
40,311 |
|
|
$ |
14,610 |
|
|
$ |
(114,126 |
) |
Change resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income
tax expense (benefit), net of federal income tax benefit |
|
|
2,386 |
|
|
|
960 |
|
|
|
(9,227 |
) |
Audits and adjustments, net |
|
|
(173 |
) |
|
|
(267 |
) |
|
|
2,641 |
|
Change in valuation allowance |
|
|
(392 |
) |
|
|
386 |
|
|
|
8,707 |
|
Foreign income taxed at different rates |
|
|
(2,453 |
) |
|
|
(230 |
) |
|
|
460 |
|
Non-deductible goodwill impairment charges |
|
|
|
|
|
|
|
|
|
|
25,785 |
|
Recapitalization of foreign subsidiary |
|
|
(1,611 |
) |
|
|
(2,141 |
) |
|
|
|
|
True-up of foreign deferred tax assets |
|
|
|
|
|
|
(1,224 |
) |
|
|
|
|
Non-deductible compensation |
|
|
737 |
|
|
|
(302 |
) |
|
|
751 |
|
Other, net |
|
|
884 |
|
|
|
(822 |
) |
|
|
(1,338 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
39,689 |
|
|
$ |
10,970 |
|
|
$ |
(86,347 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
34.5 |
% |
|
|
26.3 |
% |
|
|
26.5 |
% |
63
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The total income tax expense in 2010 includes a net U.S. benefit of $1,611,000 related to the
recapitalization of one of our foreign operations. The total income tax expense in 2009 includes
the recognition of certain tax benefits, including a net U.S. tax benefit of $2,141,000 related to
the recapitalization of one of our foreign operations, $1,544,000 related primarily to the true-up
of foreign tax credits resulting from the filing of our 2008 U.S. federal tax return and the
recognition of certain tax benefits resulting from the settlement of audits and a $1,224,000 tax
benefit related to the true-up of certain foreign tax deferred items.
For foreign entities not treated as branches for U.S. tax purposes, we do not provide for U.S.
income taxes on the undistributed earnings of these subsidiaries as these earnings are reinvested
and, in the opinion of management, will continue to be reinvested indefinitely outside of the U.S.
The undistributed earnings of foreign subsidiaries that are deemed to be indefinitely invested
outside of the U.S. were approximately $28,600,000 at December 31, 2010. It is not practicable to
determine the unrecognized deferred tax liability on those earnings.
The significant components of deferred tax assets and liabilities are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Trade credits |
|
$ |
5,555 |
|
|
$ |
17,854 |
|
Net operating loss carryforwards |
|
|
11,704 |
|
|
|
13,347 |
|
Miscellaneous accruals |
|
|
10,985 |
|
|
|
12,551 |
|
Stock-based compensation |
|
|
2,864 |
|
|
|
3,212 |
|
Allowance for doubtful accounts and returns |
|
|
5,965 |
|
|
|
7,352 |
|
Foreign tax credit carryforwards |
|
|
9,116 |
|
|
|
10,182 |
|
Accrued vacation and other payroll liabilities |
|
|
1,628 |
|
|
|
1,098 |
|
Write-downs of inventories |
|
|
1,993 |
|
|
|
1,743 |
|
Depreciation allowance carryforwards |
|
|
770 |
|
|
|
1,336 |
|
Amortization of goodwill and other intangibles |
|
|
78,249 |
|
|
|
84,032 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
128,829 |
|
|
|
152,707 |
|
Valuation allowance |
|
|
(20,764 |
) |
|
|
(21,943 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
108,065 |
|
|
|
130,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(14,137 |
) |
|
|
(17,380 |
) |
Prepaid expenses |
|
|
(522 |
) |
|
|
(538 |
) |
Other, net |
|
|
(1,338 |
) |
|
|
(1,661 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(15,997 |
) |
|
|
(19,579 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
92,068 |
|
|
$ |
111,185 |
|
|
|
|
|
|
|
|
The net current and non-current portions of deferred tax assets and liabilities are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net current deferred tax asset |
|
$ |
23,283 |
|
|
$ |
35,750 |
|
Net non-current deferred tax asset |
|
|
68,785 |
|
|
|
75,435 |
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
92,068 |
|
|
$ |
111,185 |
|
|
|
|
|
|
|
|
As of December 31, 2010, we have U.S. state net operating loss carryforwards (NOLs) of
$1,586,000 that will expire between 2011 and 2030. We also have NOLs from various non-U.S.
jurisdictions of $42,761,000. While the majority of the non-U.S. NOLs has no expiration date,
$290,000 will fully expire in 2019.
On the basis of currently available information, we 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, 2010 and 2009, our valuation allowances totaled
$20,764,000 and $21,943,000, respectively, representing certain U.S. state NOLs, non-U.S. NOLs,
foreign depreciation allowances and foreign tax credits. In the future, if we determine that
additional realization of all or part of these deferred tax assets is more likely than not, then
the reversal of all or part of the related valuation allowance will reduce income tax expense.
Changes that occur after acquisition date in deferred tax asset
valuation allowances and income tax uncertainties resulting from a business combination will
generally affect income tax expense.
64
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We believe it is more likely than not that forecasted income, including income that may be
generated as a result of prudent and feasible tax planning strategies, together with the tax
effects of deferred tax liabilities, will be sufficient to fully recover our remaining deferred tax
assets. In the future, if we determine that realization of the remaining deferred tax asset and
the availability of certain previously paid taxes to be refunded are not more likely than not, we
will need to increase our valuation allowance and record additional income tax expense.
The following table summarizes the change in the valuation allowance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Valuation allowance at beginning of year |
|
$ |
21,943 |
|
|
$ |
21,888 |
|
Decreases in income tax expense |
|
|
(392 |
) |
|
|
(501 |
) |
Foreign currency translation adjustments |
|
|
(787 |
) |
|
|
556 |
|
|
|
|
|
|
|
|
Valuation allowance at end of year |
|
$ |
20,764 |
|
|
$ |
21,943 |
|
|
|
|
|
|
|
|
A net tax shortfall of $317,000, $6,712,000 and $2,737,000, respectively, related to the
exercise of employee stock options and other employee stock programs was applied to stockholders
equity during the years ended December 31, 2010, 2009 and 2008.
Various taxing jurisdictions are examining our tax returns for certain tax years. Although
the outcome of tax audits cannot be predicted with certainty, management believes the ultimate
resolution of these examinations will not result in a material adverse effect to our financial
position or results of operations.
As of December 31, 2010 and 2009, we had approximately $6,013,000 and $5,923,000,
respectively, of unrecognized tax benefits. Of these amounts, approximately $425,000 and $330,000,
respectively, relate to accrued interest. A reconciliation of the beginning and ending amount of
unrecognized tax benefits, excluding interest, is as follows (in thousands):
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
5,593 |
|
Additions for tax positions in prior periods |
|
|
327 |
|
Additions for tax positions in current period |
|
|
815 |
|
Subtractions due to foreign currency translation |
|
|
(139 |
) |
Subtractions due to audit settlements |
|
|
(1,008 |
) |
|
|
|
|
Balance at December 31, 2010 |
|
$ |
5,588 |
|
|
|
|
|
Our policy is to classify interest and penalties relating to uncertain tax positions as a
component of income tax expense (benefit) in our consolidated statements of operations.
As of December 31, 2010, if recognized, $5,431,000 of the total liability associated with
uncertain tax positions of $6,013,000 would affect our effective tax rate. The remaining $582,000
balance arose from business combinations that, if recognized, ultimately would be recorded as an
adjustment to an indemnification receivable with no effect on our effective tax rate. We do not
believe there will be any changes over the next twelve months that would have a material effect on
our effective tax rate.
Several of our subsidiaries are currently under audit for tax years 2002 through 2009. It is
reasonably possible that the examination phase of these audits may conclude in the next 12 months
and that the related unrecognized tax benefits for uncertain tax positions may change, potentially
having a material effect on our effective tax rate. 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.
We, including our subsidiaries, file income tax returns in the U.S. federal jurisdiction, and
many state and local and non-U.S. jurisdictions. In the U.S., federal income tax returns for 2006
through 2009 remain open to examination. For U.S. state and local as well as non-U.S.
jurisdictions, the statute of limitations generally varies between three and ten years.
65
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) Stock-Based Compensation
We recorded the following pre-tax amounts in selling and administrative expenses for
stock-based compensation, by operating segment, in our consolidated financial statements (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
North America |
|
$ |
5,264 |
|
|
$ |
5,466 |
|
|
$ |
5,794 |
|
EMEA |
|
|
1,512 |
|
|
|
2,137 |
|
|
|
1,985 |
|
APAC |
|
|
181 |
|
|
|
161 |
|
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
Total Continuing Operations |
|
$ |
6,957 |
|
|
$ |
7,764 |
|
|
$ |
7,985 |
|
|
|
|
|
|
|
|
|
|
|
Company Plans
On October 1, 2007, Insights Board of Directors approved the 2007 Omnibus Plan (the 2007
Plan), and the 2007 Plan became effective when it was approved by Insights stockholders at the
annual meeting on November 12, 2007. On August 12, 2008, the 2007 Plan was amended to clarify
certain provisions relating to forfeiture restrictions and grants of discretionary awards to
non-employee directors. The 2007 Plan is administered by the Compensation Committee of Insights
Board of Directors, and, except as provided below, the Compensation Committee has the exclusive
authority to administer the 2007 Plan, including the power to determine eligibility, the types of
awards to be granted, the price and the timing of awards. Under the 2007 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. Teammates, officers and members of the Board
of Directors are eligible for awards under the 2007 Plan, and consultants and independent
contractors are also eligible if they provide bona fide services that are not related to capital
raising or promoting or maintaining a market for the Companys stock. The 2007 Plan allows for
awards of options, stock appreciation rights, restricted stock, RSUs, performance awards as well as
grants of cash awards. A total of 4,250,000 shares of stock are reserved for awards issued under
the 2007 Plan. As of December 31, 2010, 2,038,815 shares of stock were available for grant under
the 2007 Plan.
In 1997, we established the 1998 Long-Term Incentive Plan (the 1998 LTIP) for our officers,
teammates, directors, consultants and independent contractors. The 1998 LTIP, as amended,
authorized grants of incentive stock options, non-qualified stock options, stock appreciation
rights, performance shares, restricted common stock and performance-based awards. In 1998 and
1999, we also established the 1998 Employee Restricted Stock Plan for our teammates, the 1998
Officer Restricted Stock Plan for our officers and the 1999 Broad Based Employee Stock Option Plan
for our teammates. Although certain vested and unexercised grants made under these plans remain
outstanding as of December 31, 2010, since stockholder approval of the 2007 Plan in November 2007,
as discussed above, there have been, and will be, no further grants under these plans.
Accounting for Stock Options
For the years ended December 31, 2010, 2009 and 2008, we recorded in continuing operations
stock-based compensation expense related to stock options, net of forfeitures, of $354,000,
$368,000 and $524,000, respectively. As of December 31, 2010, all stock options had vested and
total compensation cost related to all previously granted stock options had been recognized. We
had no grants of stock options during the years ended December 31, 2010, 2009 and 2008.
66
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes our stock option activity during the year ended December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
Remaining |
|
|
|
Number |
|
|
Weighted Average |
|
|
Intrinsic Value |
|
|
Contractual |
|
|
|
Outstanding |
|
|
Exercise Price |
|
|
(in-the-money options) |
|
|
Life (in years) |
|
Outstanding at the beginning
of year |
|
|
589,424 |
|
|
$ |
18.82 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(3,500 |
) |
|
|
14.00 |
|
|
$ |
4,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(342,472 |
) |
|
|
19.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of year |
|
|
243,452 |
|
|
|
17.99 |
|
|
$ |
|
|
|
|
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of year |
|
|
243,452 |
|
|
|
17.99 |
|
|
$ |
|
|
|
|
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest |
|
|
243,452 |
|
|
|
17.99 |
|
|
$ |
|
|
|
|
1.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic
value, based on our closing stock price of $13.16 as of December 31, 2010, which would have been
received by the option holders had all option holders exercised options and sold the underlying
shares on that date. Options exercisable as of December 31, 2010, 2009 and 2008 had no aggregate
intrinsic value because there were no in-the-money options.
The following table summarizes the status of outstanding stock options as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
Range of |
|
Number of |
|
|
Remaining |
|
|
Exercise |
|
|
Number of |
|
|
Exercise |
|
Exercise |
|
Options |
|
|
Contractual |
|
|
Price Per |
|
|
Options |
|
|
Price Per |
|
Prices |
|
Outstanding |
|
|
Life (in years) |
|
|
Share |
|
|
Exercisable |
|
|
Share |
|
$14.00 16.82 |
|
|
18,455 |
|
|
|
0.22 |
|
|
$ |
15.59 |
|
|
|
18,455 |
|
|
$ |
15.59 |
|
17.77 |
|
|
200,000 |
|
|
|
1.96 |
|
|
$ |
17.77 |
|
|
|
200,000 |
|
|
$ |
17.77 |
|
18.36 27.88 |
|
|
24,997 |
|
|
|
0.31 |
|
|
$ |
21.50 |
|
|
|
24,997 |
|
|
$ |
21.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,452 |
|
|
|
1.66 |
|
|
$ |
17.99 |
|
|
|
243,452 |
|
|
$ |
17.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for Restricted Stock
We have issued shares of restricted common stock and RSUs as incentives to certain
officers and teammates. We recognize compensation expense associated with the issuance of such
shares and RSUs over the vesting period for each respective share and RSU. No shares of restricted
common stock have been issued since 2005, and all previously issued shares fully vested in 2008.
Compensation expense related to service-based 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). The total compensation expense associated with restricted stock represents the
value based upon the number of shares or RSUs awarded multiplied by the closing price of our common
stock on the date of grant. Recipients of shares of restricted common stock are entitled to
receive any dividends declared on our common stock and have voting rights, regardless of whether
such shares have vested. Recipients of RSUs do not have voting or dividend rights until the
vesting conditions are satisfied and shares are released.
Starting in 2006, we elected to primarily issue service-based and performance-based RSUs
instead of stock options and shares of restricted common stock. The number of RSUs ultimately
awarded under the performance-based RSUs varies based on whether we achieve certain financial
results. We record compensation expense each period based on the market price of our common stock
on the grant date and our estimate of the most probable number of RSUs that will be issued under
the grants of performance-based RSUs. Additionally, the compensation expense is adjusted for our
estimate of forfeitures.
67
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the years ended December 31, 2010, 2009 and 2008, we recorded in continuing operations
stock-based compensation expense, net of estimated forfeitures, related to shares of restricted
common stock and RSUs of $6,603,000, $7,396,000 and $7,461,000, respectively. As of December 31,
2010, total compensation cost related to nonvested RSUs not yet recognized is $10,022,000, which is
expected to be recognized over the next 1.17 years on a weighted-average basis.
On January 23, 2008, the Compensation Committee of our Board of Directors approved a special
long-term incentive award for the former Chief Executive Officer, the former President of our North
America/APAC operating segments and the President of our EMEA operating segment. The plan provided
for the award of RSUs that were to be issued based upon achievement of specific stock price hurdles
within specific timeframes over a three-year period from 2009 2011. For the year ended December
31, 2008, we recorded stock-based compensation expense related to these RSUs of $961,000, which is
included in the 2008 stock-based compensation expense amount discussed above. However, due to the
economic climate and the decrease in Insights stock price, on February 19, 2009, the three
executives agreed to forfeit the awards, resulting in the termination of the awards. Accordingly,
no shares were, or will be, issued under these awards. A non-cash charge of $5,478,000 as a result
of the cancellation of these awards is included in selling and administrative expenses in the
consolidated statement of operations for the year ended December 31, 2009.
The following table summarizes our RSU activity, during the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Number |
|
|
Grant Date Fair Value |
|
|
Fair Value |
|
Nonvested at the beginning of year |
|
|
1,126,797 |
|
|
$ |
5.95 |
|
|
|
|
|
Granted |
|
|
1,087,342 |
|
|
$ |
13.20 |
|
|
|
|
|
Vested, including shares withheld
to cover taxes |
|
|
(471,936 |
) |
|
$ |
8.44 |
|
|
$ |
6,339,196 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(142,827 |
) |
|
$ |
7.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at the end of year |
|
|
1,599,376 |
|
|
$ |
9.99 |
|
|
$ |
21,047,788 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
Expected to vest |
|
|
1,507,627 |
|
|
|
|
|
|
$ |
19,840,371 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The 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 vested shares of restricted common stock and RSUs during 2009 and 2008
was $2,785,111 and $7,733,859, 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 $13.16 as of
December 31, 2010, which would have been received by holders of RSUs had all such holders
sold their underlying shares on that date. |
During the years ended December 31, 2010, 2009 and 2008, the shares of restricted common stock
and 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 the years ended
December 31, 2010, 2009 and 2008 of 106,876, 126,986 and 120,492, respectively, were based on the
value of the shares of restricted common stock or RSUs on their vesting dates as determined by our
closing stock price on such dates. For the years ended December 31, 2010, 2009 and 2008, total
payments for the employees tax obligations to the taxing authorities were $1,429,000, $691,000 and
$2,120,000, respectively, and are reflected as a financing activity within the 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.
Change in Accounting Estimate
In the fourth quarter of 2009, we recorded a reduction of stock-based compensation expense of
$1,060,000 as a result of a change in our estimate of future forfeitures.
68
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(12) Derivative Financial Instruments
We use derivatives to partially offset our exposure to fluctuations in certain foreign
currencies. We do not enter into derivatives for speculative or trading purposes. Derivatives are
recorded at fair value on the balance sheet and gains or losses resulting from changes in fair
value of the derivative are recorded currently in income. The Company does not designate its
hedges for hedge accounting.
We use foreign exchange forward contracts to hedge certain non-functional currency assets and
liabilities from changes in exchange rate movements. Our non-functional currency assets and
liabilities are primarily related to foreign currency denominated payables, receivables, and cash
balances. The foreign currency forward contracts, carried at fair value, typically have a maturity
of one month or less. We currently enter into approximately three foreign exchange forward
contracts per month with an average notional value of $8,793,000 and an average maturity of
approximately one week.
The counterparties associated with our foreign exchange forward contracts are large credit
worthy 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 following table summarizes our derivative financial instruments as of December 31, 2010
and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
Asset |
|
|
Liability |
|
|
Asset |
|
|
Liability |
|
|
|
|
|
Derivatives |
|
|
Derivatives |
|
|
Derivatives |
|
|
Derivatives |
|
|
|
Balance Sheet Location |
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
|
Fair Value |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
Other current assets |
|
$ |
28 |
|
|
$ |
|
|
|
$ |
105 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts |
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
|
|
$ |
28 |
|
|
$ |
91 |
|
|
$ |
105 |
|
|
$ |
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the effect of our derivative financial instruments on our
results of operations during the years ended December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as |
|
Location of (Gain) Loss Recognized in |
|
Amount of (Gain) Loss Recognized |
|
Hedging Instruments |
|
Earnings on Derivatives |
|
in Earnings on Derivatives |
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2010 |
|
|
2009 |
|
Foreign exchange forward contracts |
|
Net foreign currency exchange (gain) loss |
|
$ |
(1,046 |
) |
|
$ |
2,702 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
(1,046 |
) |
|
$ |
2,702 |
|
|
|
|
|
|
|
|
|
|
69
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(13) Fair Value Measurements
The following table summarizes the valuation of our financial instruments by the following
three categories as of December 31, 2010 and 2009 (in thousands):
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
Non-qualified |
|
|
|
|
|
|
Non-qualified |
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
Deferred |
|
|
|
|
|
Foreign |
|
|
Compensation |
|
|
Foreign |
|
|
Compensation |
|
|
|
|
|
Exchange |
|
|
Plan |
|
|
Exchange |
|
|
Plan |
|
Balance Sheet Classification |
|
|
|
Derivatives |
|
|
Investments |
|
|
Derivatives |
|
|
Investments |
|
Other current assets |
|
Level 1 |
|
$ |
|
|
|
$ |
1,245 |
|
|
$ |
|
|
|
$ |
1,166 |
|
|
|
Level 2 |
|
|
28 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28 |
|
|
$ |
1,245 |
|
|
$ |
105 |
|
|
$ |
1,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current
liabilities |
|
Level 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Level 2 |
|
|
91 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
91 |
|
|
$ |
|
|
|
$ |
65 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Derivative
We have elected to use the income approach to value the foreign exchange derivatives, using
observable Level 2 market expectations at the measurement date and standard valuation techniques to
convert future amounts to a single present value amount assuming that participants are motivated,
but not compelled, to transact. Level 2 inputs for the valuations are limited to quoted prices for
similar assets or liabilities in active markets and inputs other than quoted prices that are
observable for the asset or liability (specifically LIBOR rates, foreign exchange rates, and
foreign exchange forward points). Mid-market pricing is used as a practical expedient for fair
value measurements. Fair value measurement of an asset or liability must reflect the
nonperformance risk of the entity and the counterparty. Therefore, the impact of the
counterpartys creditworthiness when in an asset position and the Companys creditworthiness when
in a liability position has also been factored into the fair value measurement of the derivative
instruments and did not have a material impact on the fair value of these derivative instruments.
Both the counterparty and the Company are expected to continue to perform under the contractual
terms of the instruments.
Non-qualified Deferred Compensation Plan Investments
The assets of the non-qualified deferred compensation plan (discussed in Note 14) are set up
in a Rabbi Trust. They represent money market funds that are carried at fair value, based on
quoted market prices, and are classified within Level 1 of the fair value hierarchy.
As of December 31, 2010, we have no non-financial assets or liabilities that are measured and
recorded on a recurring basis and our other financial assets or liabilities generally consist of
cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and other
current liabilities. The estimated fair values of our cash and cash equivalents is determined
based on quoted prices in active markets for identical assets. The fair value of the other
financial assets and liabilities is based on the value that would be received or paid in an orderly
transaction between market participants and approximates the carrying value due to their nature and
short duration.
(14) Benefit Plans
We have adopted a defined contribution benefit plan (the Defined Contribution Plan) which
complies with section 401(k) of the Internal Revenue Code. On March 7, 2009, the Company suspended
discretionary matching contributions to the Defined Contribution Plan. Prior to March 2009, we
made discretionary matching contributions at the rate of 25% of the teammates pre-tax
contributions up to a maximum of 6% of eligible compensation per pay period. Contribution expense
under this plan was $0, $380,000 and $2,014,000 for the years ended December 31, 2010, 2009 and
2008, respectively.
In November 2007, we established the Insight Nonqualified Deferred Compensation Plan (the
Deferred Compensation Plan) with an effective date of January 1, 2008. The Deferred Compensation
Plan permits a select group of management or highly compensated employees as defined by the
Employee Retirement Income Security Act of 1974, as amended, to voluntarily defer receipt of
compensation and earn a rate of return on their deferred amounts based on their selection from a
variety of independently managed funds. All amounts in this plan are employee contributions and
all gains or losses on amounts held in the Deferred Compensation Plan are fully allocable to plan
participants. We do not provide a guaranteed rate of return on these deferred amounts nor do we make any
contributions to the Deferred Compensation Plan. As of December 31, 2010 and 2009, the Deferred
Compensation Plan related assets were $1,245,000 and $1,166,000, respectively. Liabilities related
to the Deferred Compensation Plan as of December 31, 2010 and
2009 were $846,000 and $862,000,
respectively.
70
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(15) Share Repurchase Program
On November 13, 2007, our Board of Directors authorized the repurchase of up to $50,000,000 of
our common stock through September 30, 2008. During the year ended December 31, 2008, we purchased
3,493,500 shares of our common stock on the open market at an average price of $14.31 per share,
which represented the full amount authorized under the repurchase program. All shares repurchased
were retired.
(16) Commitments and Contingencies
Contractual
We have entered into a sponsorship agreement through 2013 with the Valley of the Sun Bowl
Foundation, d/b/a Insight Bowl, which is the not-for-profit entity that conducts the Insight Bowl
post-season intercollegiate football game. We have committed to pay an aggregate amount of
approximately $5,913,000 through 2013 for sponsorship arrangements, ticket purchases and
miscellaneous expenses.
We have committed to pay the Arizona Cardinals an aggregate amount of approximately $5,733,000
through February 2014 for advertising and marketing events at the University of Phoenix stadium.
In the ordinary course of business, we issue performance bonds to secure our performance under
certain contracts or state tax requirements. As of December 31, 2010, we had approximately
$14,285,000 of performance bonds outstanding. These bonds are issued on our behalf by a surety
company on an unsecured basis; however, if the surety company is ever required to pay out under the
bonds, we have contractually agreed to reimburse the surety company.
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 stock-based compensation 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.
Guaranties
In the ordinary course of business, we may guarantee the indebtedness of our subsidiaries to
vendors and clients. We have not recorded specific liabilities for these guaranties in the
consolidated financial statements because we have recorded the underlying liabilities associated
with the guaranties. In the event we are required to perform under the related contracts, we
believe the cost of such performance would not have a material adverse effect on our consolidated
financial position or results of operations.
Indemnifications
From time to time, in the ordinary course of business, we enter into contractual arrangements
under which we agree to indemnify either our clients or third-party service providers from certain
losses incurred relating to services performed on our behalf or for losses arising from defined
events, which may include litigation or claims relating to past performance. These arrangements
include, but are not limited to, the indemnification of our 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, 2010. Accordingly, we have not accrued any liabilities related to such
indemnifications in our consolidated financial statements.
71
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We have entered into separate indemnification agreements with 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 paid
by such individuals in connection with any action arising out of such individuals status or
service as our executive officers or directors (subject to exceptions such as where the individuals
failed to act in good faith or in a manner the individuals reasonably believed to be in or not
opposed to the best interests of the Company) and to advance expenses incurred by such individuals
with respect to which such individuals may be entitled to indemnification by us. Other than the
pending purported class action litigation, the State derivative actions and the Federal derivative
action discussed under Legal Proceedings below, there are no pending legal proceedings that
involve the indemnification of any of the Companys directors or officers.
Legal Proceedings
We are party to various legal proceedings arising in the ordinary course of business,
including preference payment claims asserted in client bankruptcy proceedings, claims of alleged
infringement of patents, trademarks, copyrights and other intellectual property rights, claims of
alleged non-compliance with contract provisions and claims related to alleged violations of laws
and regulations.
Beginning in March 2009, three purported class action lawsuits were filed in the U.S. District
Court for the District of Arizona against us and certain of our current and former directors and
officers on behalf of purchasers of our securities during the period April 22, 2004 to February 6,
2009. The second amended complaint (the only remaining complaint then on file) of the lead
plaintiff was dismissed with prejudice in November 2010, and another purported class member
plaintiff has appealed the order of dismissal with prejudice to the U.S. Court of Appeals for the
Ninth Circuit. In June 2009, three shareholder derivative lawsuits were filed, two in the Superior
Court in Maricopa County, Arizona (the State derivative actions) and one in the U.S. District
Court for the District of Arizona (the Federal derivative action), by persons identifying
themselves as Insight shareholders and purporting to act on behalf of Insight, naming Insight as a
nominal defendant and current and former officers and directors as defendants. The Federal
derivative action was dismissed with prejudice in July 2010, and the plaintiff in that action has
appealed the order of dismissal to the U.S. Court of Appeals for the Ninth Circuit. The two State
derivative actions were consolidated into a single action, and in October 2010, the State
derivative actions were dismissed with prejudice. The plaintiff in the State derivative actions
did not appeal the order of dismissal. We have tendered a claim to our D&O liability insurance
carriers, and our carriers have acknowledged their obligations under these policies subject to a
reservation of rights. Based on the information available at this time, the Company is not able to
estimate the possible loss or range of loss for the purported class action or the Federal
derivative action at this time.
In August 2010, in connection with an investigation being conducted by the United States
Department of Justice (the DOJ), Calence received a subpoena from the Office of the Inspector
General of the Federal Communications Commission (the FCC OIG) requesting documents and
information related to the expenditure, by the Universal Service Administration Company, of funds
under the E-Rate program. The E-Rate program provides schools and libraries with discounts to
obtain affordable telecommunications and internet access and related hardware and software. We are
cooperating with the DOJ and FCC OIG and are in the process of responding to the subpoena, and,
based on the information available at this time, the Company is not able to estimate the possible
loss or range of loss at this time. The Company is pursuing its rights under the Calence
acquisition agreements to indemnification for losses that may arise out of or result from this
matter, including our fees and expenses for responding to the subpoena.
Aside from the matters discussed above, the Company is not involved in any pending or
threatened legal proceedings that it believes could reasonably be expected to have a material
adverse effect on its financial condition, results of operations or liquidity.
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 vendor audits. We continually assess whether
or not such claims have merit and warrant accrual. Where appropriate, we accrue estimates of
anticipated liabilities in the consolidated financial statements. Such estimates are subject to
change and may affect our results of operations and our cash flows.
72
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(17) Supplemental Financial Information
A summary of additions and deductions related to the allowances for doubtful accounts
receivable for the years ended December 31, 2010, 2009 and 2008 follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
of Year |
|
|
Additions |
|
|
Deductions |
|
|
End of Year |
|
Allowance for doubtful accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 |
|
$ |
22,364 |
|
|
$ |
1,626 |
|
|
$ |
(6,450 |
) |
|
$ |
17,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
|
$ |
20,156 |
|
|
$ |
7,377 |
|
|
$ |
(5,169 |
) |
|
$ |
22,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 |
|
$ |
22,831 |
|
|
$ |
3,452 |
|
|
$ |
(6,127 |
) |
|
$ |
20,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18) Segment and Geographic Information
We operate in three reportable geographic operating segments: North America; EMEA; and APAC.
Currently, our offerings in North America and the United Kingdom include IT hardware, software and
services. Our offerings in the remainder of our EMEA segment and in APAC are almost entirely
software and select software-related services. Net sales by product or service type for North
America, EMEA and APAC were as follows for the years ended December 31, 2010, 2009 and 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
Year Ended December 31, |
|
Sales Mix |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Hardware |
|
$ |
2,131,815 |
|
|
$ |
1,689,526 |
|
|
$ |
2,127,694 |
|
Software |
|
|
1,000,418 |
|
|
|
916,876 |
|
|
|
1,049,538 |
|
Services |
|
|
207,929 |
|
|
|
234,384 |
|
|
|
185,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,340,162 |
|
|
$ |
2,840,786 |
|
|
$ |
3,362,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA |
|
|
|
Year Ended December 31, |
|
Sales Mix |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Hardware |
|
$ |
427,600 |
|
|
$ |
388,264 |
|
|
$ |
460,122 |
|
Software |
|
|
863,720 |
|
|
|
749,301 |
|
|
|
837,028 |
|
Services |
|
|
19,229 |
|
|
|
14,184 |
|
|
|
12,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,310,549 |
|
|
$ |
1,151,749 |
|
|
$ |
1,309,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APAC |
|
|
|
Year Ended December 31, |
|
Sales Mix |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Hardware |
|
$ |
1,002 |
|
|
$ |
1,025 |
|
|
$ |
338 |
|
Software |
|
|
153,966 |
|
|
|
141,120 |
|
|
|
152,586 |
|
Services |
|
|
4,251 |
|
|
|
2,225 |
|
|
|
656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
159,219 |
|
|
$ |
144,370 |
|
|
$ |
153,580 |
|
|
|
|
|
|
|
|
|
|
|
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 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 year ended December 31, 2010.
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.
73
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tables below present information about our reportable operating segments as of and for the
years ended December 31, 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Net sales |
|
$ |
3,340,162 |
|
|
$ |
1,310,549 |
|
|
$ |
159,219 |
|
|
$ |
4,809,930 |
|
Costs of goods sold |
|
|
2,898,094 |
|
|
|
1,134,531 |
|
|
|
131,208 |
|
|
|
4,163,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
442,068 |
|
|
|
176,018 |
|
|
|
28,011 |
|
|
|
646,097 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
348,842 |
|
|
|
149,945 |
|
|
|
20,278 |
|
|
|
519,065 |
|
Severance and restructuring expenses |
|
|
2,003 |
|
|
|
953 |
|
|
|
|
|
|
|
2,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations |
|
$ |
91,223 |
|
|
$ |
25,120 |
|
|
$ |
7,733 |
|
|
$ |
124,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,509,928 |
|
|
$ |
522,752 |
|
|
$ |
99,782 |
|
|
$ |
2,132,462 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2009 |
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Net sales |
|
$ |
2,840,786 |
|
|
$ |
1,151,749 |
|
|
$ |
144,370 |
|
|
$ |
4,136,905 |
|
Costs of goods sold |
|
|
2,451,069 |
|
|
|
992,640 |
|
|
|
124,582 |
|
|
|
3,568,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
389,717 |
|
|
|
159,109 |
|
|
|
19,788 |
|
|
|
568,614 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
346,306 |
|
|
|
140,380 |
|
|
|
15,416 |
|
|
|
502,102 |
|
Severance and restructuring expenses |
|
|
10,327 |
|
|
|
2,979 |
|
|
|
302 |
|
|
|
13,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations |
|
$ |
33,084 |
|
|
$ |
15,750 |
|
|
$ |
4,070 |
|
|
$ |
52,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,358,096 |
|
|
$ |
462,095 |
|
|
$ |
58,843 |
|
|
$ |
1,879,034 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Net sales |
|
$ |
3,362,544 |
|
|
$ |
1,309,365 |
|
|
$ |
153,580 |
|
|
$ |
4,825,489 |
|
Costs of goods sold |
|
|
2,913,358 |
|
|
|
1,118,692 |
|
|
|
129,856 |
|
|
|
4,161,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
449,186 |
|
|
|
190,673 |
|
|
|
23,724 |
|
|
|
663,583 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
391,629 |
|
|
|
152,617 |
|
|
|
17,741 |
|
|
|
561,987 |
|
Goodwill impairment |
|
|
323,422 |
|
|
|
59,852 |
|
|
|
13,973 |
|
|
|
397,247 |
|
Severance and restructuring expenses |
|
|
4,633 |
|
|
|
3,923 |
|
|
|
39 |
|
|
|
8,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(270,498 |
) |
|
$ |
(25,719 |
) |
|
$ |
(8,029 |
) |
|
$ |
(304,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,280,771 |
|
|
$ |
447,789 |
|
|
$ |
49,422 |
|
|
$ |
1,777,982 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Consolidated total assets do not reflect intercompany eliminations and corporate assets
of $329,179,000, $275,713,000 and $170,479,000 at December 31, 2010, 2009 and 2008,
respectively. |
74
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of our geographic continuing operations net sales and long-lived
assets, consisting of property and equipment, net (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
Foreign |
|
|
Total |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
3,141,159 |
|
|
$ |
1,668,771 |
|
|
$ |
4,809,930 |
|
Total long-lived assets |
|
$ |
108,145 |
|
|
$ |
33,254 |
|
|
$ |
141,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,681,043 |
|
|
$ |
1,455,862 |
|
|
$ |
4,136,905 |
|
Total long-lived assets |
|
$ |
117,186 |
|
|
$ |
32,917 |
|
|
$ |
150,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
3,163,758 |
|
|
$ |
1,661,731 |
|
|
$ |
4,825,489 |
|
Total long-lived assets |
|
$ |
131,171 |
|
|
$ |
26,163 |
|
|
$ |
157,334 |
|
Foreign net sales and total long-lived assets summarized above for 2010, 2009 and 2008 include
net sales and net property and equipment of $661,966,000 and $19,846,000; $580,386,000 and
$21,075,000; and $653,458,000 and $16,425,000, respectively, attributed to the United Kingdom. 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, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
30,678 |
|
|
$ |
34,125 |
|
|
$ |
33,675 |
|
EMEA |
|
|
6,598 |
|
|
|
6,420 |
|
|
|
6,882 |
|
APAC |
|
|
737 |
|
|
|
618 |
|
|
|
682 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
38,013 |
|
|
$ |
41,163 |
|
|
$ |
41,239 |
|
|
|
|
|
|
|
|
|
|
|
(19) Discontinued Operation
Direct Alliance
During the year ended December 31, 2009, we recorded earnings from a discontinued operation of
$4,460,000, $2,801,000 net of tax, as a result of the favorable settlement on July 7, 2009 of an
arbitrated claim related to the sale of Direct Alliance, a former subsidiary that was sold on June
30, 2006. The amount recognized was net of payments to holders of 1,997,500 exercised stock
options of the former subsidiary and a broker success fee with respect to the settlement totaling
$540,000. In December 2009, we received a reimbursement of legal fees associated with the
arbitration settlement of $1,414,000. Such amount was recorded as a reduction of selling and
administrative expenses in the accompanying consolidated statement of operations for the year ended
December 31, 2009.
In connection with the sale of Direct Alliance, we entered into a lease agreement with Direct
Alliance pursuant to which Direct Alliance leases from us the facilities it used prior to the sale.
The company that bought Direct Alliance is the guarantor under the lease. Lease income related to
these buildings was $1,682,000, $1,633,000 and $1,594,000 for the years ended December 31, 2010,
2009 and 2008, respectively, and is classified as net sales. Depreciation expense related to the
buildings was $748,000, $748,000 and $687,000 for the years ended December 31, 2010, 2009 and 2008,
respectively, and is classified as costs of goods sold.
75
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(20) Selected Quarterly Financial Information (unaudited)
The following tables set forth selected unaudited consolidated quarterly financial information
for the years ended December 31, 2010 and 2009 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
Mar. 31, |
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
Mar. 31, |
|
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
(a) |
|
|
(a) |
|
|
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,339,199 |
|
|
$ |
1,169,197 |
|
|
$ |
1,266,913 |
|
|
$ |
1,034,621 |
|
|
$ |
1,178,648 |
|
|
$ |
969,935 |
|
|
$ |
1,037,162 |
|
|
$ |
951,160 |
|
Costs of goods sold |
|
|
1,166,597 |
|
|
|
1,014,552 |
|
|
|
1,093,108 |
|
|
|
889,576 |
|
|
|
1,023,136 |
|
|
|
836,449 |
|
|
|
889,318 |
|
|
|
819,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
172,602 |
|
|
|
154,645 |
|
|
|
173,805 |
|
|
|
145,045 |
|
|
|
155,512 |
|
|
|
133,486 |
|
|
|
147,844 |
|
|
|
131,772 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
134,013 |
|
|
|
129,511 |
|
|
|
127,830 |
|
|
|
127,711 |
|
|
|
127,271 |
|
|
|
117,623 |
|
|
|
123,865 |
|
|
|
133,343 |
|
Severance and restructuring
expenses |
|
|
1,269 |
|
|
|
298 |
|
|
|
1,318 |
|
|
|
71 |
|
|
|
1,137 |
|
|
|
3,994 |
|
|
|
2,130 |
|
|
|
6,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
37,320 |
|
|
|
24,836 |
|
|
|
44,657 |
|
|
|
17,263 |
|
|
|
27,104 |
|
|
|
11,869 |
|
|
|
21,849 |
|
|
|
(7,918 |
) |
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(247 |
) |
|
|
(161 |
) |
|
|
(179 |
) |
|
|
(127 |
) |
|
|
(91 |
) |
|
|
(45 |
) |
|
|
(188 |
) |
|
|
(100 |
) |
Interest expense |
|
|
1,720 |
|
|
|
1,899 |
|
|
|
1,691 |
|
|
|
2,367 |
|
|
|
4,369 |
|
|
|
2,333 |
|
|
|
1,988 |
|
|
|
2,100 |
|
Net foreign currency exchange (gain)
loss |
|
|
(221 |
) |
|
|
130 |
|
|
|
404 |
|
|
|
209 |
|
|
|
(208 |
) |
|
|
93 |
|
|
|
(162 |
) |
|
|
(51 |
) |
Other expense, net |
|
|
320 |
|
|
|
348 |
|
|
|
403 |
|
|
|
346 |
|
|
|
425 |
|
|
|
217 |
|
|
|
202 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
|
35,748 |
|
|
|
22,620 |
|
|
|
42,338 |
|
|
|
14,468 |
|
|
|
22,609 |
|
|
|
9,271 |
|
|
|
20,009 |
|
|
|
(10,146 |
) |
Income tax expense (benefit) |
|
|
10,774 |
|
|
|
8,188 |
|
|
|
15,424 |
|
|
|
5,303 |
|
|
|
5,204 |
|
|
|
1,999 |
|
|
|
7,116 |
|
|
|
(3,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing
operations |
|
|
24,974 |
|
|
|
14,432 |
|
|
|
26,914 |
|
|
|
9,165 |
|
|
|
17,405 |
|
|
|
7,272 |
|
|
|
12,893 |
|
|
|
(6,797 |
) |
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
24,974 |
|
|
$ |
14,432 |
|
|
$ |
26,914 |
|
|
$ |
9,165 |
|
|
$ |
17,405 |
|
|
$ |
7,272 |
|
|
$ |
15,694 |
|
|
$ |
(6,797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing
operations |
|
$ |
0.54 |
|
|
$ |
0.31 |
|
|
$ |
0.58 |
|
|
$ |
0.20 |
|
|
$ |
0.38 |
|
|
$ |
0.16 |
|
|
$ |
0.28 |
|
|
$ |
(0.15 |
) |
Net earnings from a discontinued
operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.54 |
|
|
$ |
0.31 |
|
|
$ |
0.58 |
|
|
$ |
0.20 |
|
|
$ |
0.38 |
|
|
$ |
0.16 |
|
|
$ |
0.34 |
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing
operations |
|
$ |
0.53 |
|
|
$ |
0.31 |
|
|
$ |
0.58 |
|
|
$ |
0.20 |
|
|
$ |
0.37 |
|
|
$ |
0.16 |
|
|
$ |
0.28 |
|
|
$ |
(0.15 |
) |
Net earnings from a discontinued
operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.53 |
|
|
$ |
0.31 |
|
|
$ |
0.58 |
|
|
$ |
0.20 |
|
|
$ |
0.37 |
|
|
$ |
0.16 |
|
|
$ |
0.34 |
|
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We reduced net sales and costs of goods sold amounts in the accompanying selected
quarterly financial information for the quarters ended September 30, June 30, and March
31, 2010 compared to the amounts previously reported in our quarterly reports on Form
10-Q for the periods then ended. The changes were made to properly net our sales of
certain software assurance products for which we were not the primary obligor. The
change had no effect on previously reported gross profit, net earnings or cash flow
amounts. Although the effects of these changes, which relate to our APAC operating
segment, are immaterial to our consolidated financial statements, we determined that
recording the entire amount in the fourth quarter of 2010 would distort quarterly
trends in our APAC operating results. Periods prior to January 1, 2010 have not been
adjusted as the amounts involved are not considered material. |
76
INSIGHT ENTERPRISES, INC.
|
|
|
Item 9. |
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
None.
|
|
|
Item 9A. |
|
Controls and Procedures |
(a) Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as such term is defined under Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934, as amended (the Exchange Act)). Our management, including our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2010. In making this assessment, our
management used the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has
concluded that the Company maintained effective internal control over financial reporting as of
December 31, 2010, based on the criteria established in COSOs Internal Control Integrated
Framework.
KPMG LLP, the independent registered public accounting firm that audited the Consolidated
Financial Statements in Part II, Item 8 of this report, has issued an attestation report on the
Companys internal control over financial reporting as of December 31, 2010.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2010
that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
(c) Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act). Our Chief Executive Officer and Chief Financial Officer, as of the end of the
period covered by this report, evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) and
determined that as of December 31, 2010 our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
(d) Inherent Limitations of Disclosure Controls and Internal Control Over Financial Reporting
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to risks that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
|
|
|
Item 9B. |
|
Other Information |
None.
PART III
|
|
|
Item 10. |
|
Directors, Executive Officers and Corporate Governance |
The information required by this item and included under the captions Information
Concerning Directors and Executive Officers, Meetings of the Board and Its Committees, Section
16(a) Beneficial Ownership Reporting Compliance and Code of Ethics and can be found in our
definitive Proxy Statement relating to our 2011 Annual Meeting of Stockholders (our Proxy
Statement) and is incorporated herein by reference.
77
INSIGHT ENTERPRISES, INC.
|
|
|
Item 11. |
|
Executive Compensation |
The information required by this item and included under the captions The Board and Its
Committees, Compensation Discussion and Analysis, Compensation Committee Report, Compensation
Committee Interlocks and Insider Participation, Summary Compensation Table, Grants of
Plan-Based Awards, Outstanding Equity Awards at Fiscal Year-End, Option Exercises and Stock
Vested Table, Director Compensation and Employment Agreements, Severance and Change in Control
Plans, can be found in our Proxy Statement and is incorporated herein by reference.
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item and included under the captions Securities
Authorized for Issuance Under Equity Compensation Plans and Security Ownership of Certain
Beneficial Owners and Management can be found in our Proxy Statement and is incorporated herein by
reference.
|
|
|
Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
The information required by this item and included under the caption The Board and Its
Committees, and Transactions With Related Persons can be found in our Proxy Statement and is
incorporated herein by reference.
|
|
|
Item 14. |
|
Principal Accounting Fees and Services |
The information required by this item and included under the captions Audit Committee
Report and Relationship with Independent Registered Public Accounting Firm can be found in our
Proxy Statement and is incorporated herein by reference.
PART IV
|
|
|
Item 15. |
|
Exhibits, Financial Statement Schedules |
(a) Financial Statements and Schedules
The Consolidated Financial Statements of Insight Enterprises, Inc. and subsidiaries and the
related Reports of Independent Registered Public Accounting Firm are filed herein as set forth
under Part II, Item 8 of this report.
Financial statement schedules have been omitted since they are either not required, not
applicable, or the information is otherwise included in the Consolidated Financial Statements or
notes thereto.
(b) Exhibits
The exhibits list in the Index to Exhibits immediately following the signature page is
incorporated herein by reference as the list of exhibits required as part of this report.
78
INSIGHT ENTERPRISES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
INSIGHT ENTERPRISES, INC.
|
|
|
By: |
/s/ Kenneth T. Lamneck
|
|
|
|
Kenneth T. Lamneck |
|
|
|
Chief Executive Officer |
|
Dated: February 23, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Kenneth T. Lamneck
|
|
President, Chief Executive Officer
and Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Glynis A. Bryan
|
|
Chief Financial Officer
|
|
February 23, 2011 |
|
|
(principal financial officer) |
|
|
|
|
|
|
|
/s/ David C. Olsen
|
|
Corporate Controller
|
|
February 23, 2011 |
|
|
(principal accounting officer) |
|
|
|
|
|
|
|
/s/ Timothy A. Crown*
|
|
Chairman of the Board
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Bennett Dorrance*
|
|
Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Michael M. Fisher*
|
|
Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Larry A. Gunning*
|
|
Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Anthony A. Ibargüen*
|
|
Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Robertson C. Jones*
|
|
Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Kathleen S. Pushor*
|
|
Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
/s/ Robert F. Woods*
|
|
Director
|
|
February 23, 2011 |
|
|
|
|
|
|
|
|
|
|
* By:
|
|
/s/ Steven R. Andrews |
|
|
|
|
Steven R. Andrews, Attorney in Fact
|
|
|
79
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31, 2010
Commission File No. 0-25092
(Unless otherwise noted, exhibits are filed herewith.)
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
No. |
|
Description |
|
3.1 |
|
|
|
|
Composite Certificate of Incorporation of Registrant (incorporated by
reference to Exhibit 3.1 of our annual report on Form 10-K for the year ended
December 31, 2005). |
|
3.2 |
|
|
|
|
Amended and Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.1 of our current report on Form 8-K filed on January 14, 2008). |
|
4.1 |
|
|
|
|
Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of our Registration Statement on Form S-1 (No. 33-86142) declared
effective January 24, 1995). |
|
10.1 |
(1) |
|
|
|
Form of Indemnification Agreement (incorporated by reference to Exhibit
10.1 of our annual report on Form 10-K for the year ended December 31, 2006). |
|
10.2 |
(2) |
|
|
|
1998 Employee Restricted Stock Plan (incorporated by reference to Exhibit
99.3 of our Form S-8 (No. 333-69113) filed on December 17, 1998). |
|
10.3 |
(2) |
|
|
|
1998 Officer Restricted Stock Plan (incorporated by reference to Exhibit
99.2 of our Form S-8 (No. 333-69113) filed on December 17, 1998). |
|
10.4 |
(2) |
|
|
|
1999 Broad Based Employee Stock Option Plan (incorporated by reference to
Exhibit 10.14 of our annual report on Form 10-K for the year ended December
31, 1999). |
|
10.5 |
(2) |
|
|
|
1998 Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1
of our Registration Statement on Form S-8 (No. 333-110915) declared effective
December 4, 2004). |
|
10.6 |
(2) |
|
|
|
2007 Omnibus Plan (incorporated by reference to Annex A of our Proxy
Statement filed on October 9, 2007). |
|
10.7 |
(2) |
|
|
|
First Amendment to 2007 Omnibus Plan (incorporated by reference to Exhibit
10.4 of our quarterly report on Form 10-Q for the quarter ended September 30,
2008). |
|
10.8 |
(2) |
|
|
|
Executive Service Agreement between Insight Direct (UK) Limited and Stuart
Fenton dated May 18, 2010 (incorporated by reference to Exhibit 10.1 of our
Form 8-K filed on May 27, 2010). |
|
10.9 |
(2) |
|
|
|
Executive Management Separation Plan effective as of January 1, 2008
(incorporated by reference to Exhibit 10.5 for our quarterly report on Form
10-Q for the quarter ended September 30, 2008). |
|
10.10 |
(2) |
|
|
|
Amended and Restated Employment Agreement between Insight Enterprises,
Inc. and Glynis A. Bryan dated as of January 1, 2009 (incorporated by
reference to Exhibit 10.3 of our current report on Form 8-K filed January 7,
2009). |
|
10.11 |
(2) |
|
|
|
Amended and Restated Employment Agreement between Insight Enterprises,
Inc. and Steven R. Andrews dated as of January 1, 2009 (incorporated by
reference to Exhibit 10.4 of our current report on Form 8-K filed on January
7, 2009). |
|
10.12 |
(2) |
|
|
|
Amended and Restated Employment Agreement between Insight Enterprises,
Inc. and Stephen A. Speidel dated as of January 1, 2009 (incorporated by
reference to Exhibit 10.7 of our current report on Form 8-K filed on January
7, 2009). |
|
10.13 |
(2) |
|
|
|
Letter Agreement with Anthony A. Ibargüen, dated as of September 7, 2009
(incorporated by reference to Exhibit 10.2 of our current report on Form 8-K
filed on September 8, 2009). |
|
10.14 |
(2) |
|
|
|
Executive Employment Agreement between Insight Enterprises, Inc. and
Kenneth T. Lamneck, dated as of December 14, 2009 (incorporated by reference
to Exhibit 10.24 of our annual report on Form 10-K for the year ended
December 31, 2009). |
|
10.15 |
(2) |
|
|
|
Employment Agreement between Insight Enterprises, Inc. and David C. Olsen,
dated as of June 15, 2010 (incorporated by reference to Exhibit 10.3 of our
quarterly report on Form 10-Q for the quarter ended June 30, 2010). |
|
10.16 |
(2) |
|
|
|
Employment Agreement between Insight Enterprises, Inc. and Michael P.
Guggemos, dated as of November 1, 2010. |
|
10.17 |
(2) |
|
|
|
Offer of employment letter to Michael P. Guggemos, dated September 28, 2010. |
|
10.18 |
|
|
|
|
Receivables Purchase Agreement dated as of December 31, 2002 among Insight
Receivables, LLC, Insight Enterprises, Inc., Jupiter Securitization
Corporation, Bank One NA, and the entities party thereto from time to time as
financial institutions (incorporated by reference to Exhibit 10.38 of our
annual report on Form 10-K for the year ended December 31, 2002). |
80
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2010
Commission File No. 0-25092
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Exhibit |
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No. |
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Description |
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10.19 |
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Amended and Restated Receivables Sale Agreement dated as of September 3,
2003 by and among Insight Direct USA, Inc. and Insight Public Sector, Inc. as
originators, and Insight Receivables, LLC, as buyer (incorporated by
reference to Exhibit 10.1 of our quarterly report on Form 10-Q for the
quarter ended September 30, 2003). |
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10.20 |
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Amendment No. 1 to Receivables Purchase Agreement dated as of September 3,
2003 (incorporated by reference to Exhibit 10.2 of our quarterly report on
Form 10-Q for the quarter ended September 30, 2003). |
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10.21 |
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Amendment No. 2 to Receivables Purchase Agreement dated as of December 23,
2003 among Insight Receivables, LLC, Insight Enterprises, Inc. and Jupiter
Securitization Corporation, Bank One NA (incorporated by reference to Exhibit
10.42 of our annual report on Form 10-K for the year ended December 31,
2003). |
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10.22 |
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Amendment No. 5 to Receivables Purchase Agreement dated as of March 25,
2005 (incorporated by reference to Exhibit 10.4 of our quarterly report on
Form 10-Q for the quarter ended March 31, 2005). |
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10.23 |
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Amendment No. 6 to Receivables Purchase Agreement dated as of December 19,
2005 (incorporated by reference to Exhibit 10.1 of our current report on Form
8-K filed on December 22, 2005). |
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10.24 |
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Amendment No. 7 to Receivables Purchase Agreement dated as of September 7,
2006 (incorporated by reference to Exhibit 10.2 of our current report on Form
8-K filed on September 8, 2006). |
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10.25 |
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Amendment No. 9 to Receivables Purchase Agreement dated as of September
17, 2008 (incorporated by reference to Exhibit 10.3 of our current report on
Form 8-K filed on September 23, 2008). |
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10.26 |
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Amendment No. 11 and Joinder Agreement to Receivables Purchase Agreement
dated as of July 24, 2009 (incorporated by reference to Exhibit 10.1 of our
quarterly report on Form 10-Q for the quarter ended June 30, 2009). |
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10.27 |
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Amendment No. 12 to Receivables Purchase Agreement dated as of July 1,
2010 among Insight Receivables, LLC, Insight Enterprises, Inc., the
Purchasers and Managing Agents party thereto, and JPMorgan Chase Bank, N.A.
(successor by merger to Bank One, NA (Main Office Chicago)), as agent for the
Purchasers (incorporated by reference to Exhibit 10.1 of our quarterly report
on Form 10-Q for the quarter ended September 30, 2010). |
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10.28 |
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Second Amended and Restated Credit Agreement, dated as of April 1, 2008,
among Insight Enterprises, Inc., the European Borrowers (as defined therein),
the lenders party thereto, J.P. Morgan Europe Limited, as European Agent,
Wells Fargo Bank, National Association and U.S. Bank National Association, as
Co-Syndication Agents, and JPMorgan Chase Bank, National Association, as
Administrative Agent (incorporated by reference to Exhibit 10.2 of our
quarterly report on Form 10-Q for the quarter ended September 30, 2009). |
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10.29 |
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Amendment No. 1 to Second Amended and Restated Credit Agreement dated as
of September 17, 2008 (incorporated by reference to Exhibit 10.2 of our
current report on Form 8-K filed on September 23, 2008). |
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10.30 |
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Amendment No. 3 to Second Amended and Restated Credit Agreement, dated as
of August 12, 2010, among Insight Enterprises, Inc., Insight Direct (UK)
Ltd., Insight Enterprises B.V., JPMorgan Chase Bank, National Association, as
Administrative Agent, and certain lenders identified therein (incorporated by
reference to Exhibit 10.3 of our quarterly report on Form 10-Q for the
quarter ended September 30, 2010). |
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10.31 |
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Credit Agreement among Castle Pines Capital LLC, as an Administrative
Agent, Wells Fargo Foothill, LLC as an Administrative Agent, as Syndication
Agent and as Collateral Agent and Castle Pines Capital LLC and the other
lenders party thereto and Calence, LLC, Insight Direct USA, Inc. as Resellers
(incorporated by reference to Exhibit 10.1 of our current report on Form 8-K
filed on September 23, 2008). |
81
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2010
Commission File No. 0-25092
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Exhibit |
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No. |
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Description |
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10.32 |
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Amendment to Credit Agreement, dated as of April 26, 2010, among Calence,
LLC, Insight Direct USA, Inc., Insight Public Sector, Inc., Castle Pines
Capital LLC, as an administrative agent, Wells Fargo Foothill, LLC, as an
administrative agent, as syndication agent and as collateral agent, and the
lenders party thereto (incorporated by reference to Exhibit 10.1 of our
quarterly report on Form 10-Q for the quarter ended March 31, 2010). |
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10.33 |
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Amendment Number Two to Credit Agreement, dated as of August 12, 2010,
among Calence, LLC, Insight Direct USA, Inc., Insight Public Sector, Inc. and
the lenders party thereto (incorporated by reference to Exhibit 10.2 of our
quarterly report on Form 10-Q for the quarter ended September 30, 2010). |
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10.34 |
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Agreement and Plan of Merger, dated January 24, 2008, among Insight
Enterprises, Inc., Insight Networking Services, LLC, and Calence, LLC
(incorporated by reference to Exhibit 2.1 of our quarterly report on Form
10-Q for the quarter ended September 30, 2009). |
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10.35 |
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Support Agreement, dated January 24, 2008 among Insight Enterprises, Inc.,
Insight Networking Services, LLC, Avnet, Inc., Calence Holdings, Inc.,
Michael F. Fong, Timothy J. Porthouse, Richard J. Lesniak, Jr., Mary Donna
Rives Lesniak, The Richard J. Lesniak Irrevocable Trust, and the Mary Donna
Lesniak Irrevocable Trust (incorporated by reference to Exhibit 10.1 of our
quarterly report on Form 10-Q for the quarter ended September 30, 2009). |
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21 |
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Subsidiaries of the Registrant. |
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23.1 |
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Consent of KPMG LLP. |
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24.1 |
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Power of Attorney for Timothy A. Crown dated February 16, 2011. |
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24.2 |
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Power of Attorney for Bennett Dorrance dated February 16, 2011. |
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24.3 |
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Power of Attorney for Michael M. Fisher dated February 16, 2011. |
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24.4 |
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Power of Attorney for Larry A. Gunning dated February 16, 2011. |
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24.5 |
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Power of Attorney for Anthony A. Ibargüen dated February 16, 2011. |
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24.6 |
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Power of Attorney for Robertson C. Jones dated February 16 2011. |
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24.7 |
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Power of Attorney for Kathleen S. Pushor dated February 16, 2011. |
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24.8 |
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Power of Attorney for Robert F. Woods dated February 16, 2011. |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Securities and
Exchange Act Rule 13a-14. |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Securities and
Exchange Act Rule 13a-14. |
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32.1 |
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Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the
Sarbanes-Oxley Act of 2002. |
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(1) |
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We have entered into a separate indemnification agreement with each of the following
directors and executive officers that differ only in names and dates: Steven R. Andrews,
Glynis A. Bryan, Timothy A. Crown, Bennett Dorrance, Michael M.
Fisher, Michael P. Guggemos, Larry A. Gunning,
Anthony A. Ibargüen, Helen K. Johnson, Robertson C. Jones, Kenneth T. Lamneck, David C.
Olsen, Kathleen S. Pushor, Stephen A. Speidel and Robert F. Woods. Pursuant to the
instructions accompanying Item 601 of Regulation S-K, the Registrant is filing the form of
such indemnification agreement. |
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(2) |
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Management contract or compensatory plan or arrangement. |
82