| New Accounting Standards and Accounting Policies | 2. New Accounting Standards and Accounting Policies In August 2018, the SEC adopted the final
rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements
that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements
on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in
each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement and
present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income
is required to be filed. We anticipate that the first presentation of changes in stockholders’ equity required by these amendments
will be included in our Form 10-Q for the quarter ending March 31, 2019. In January 2017, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04, “Intangibles – Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplified the testing of goodwill for impairment
by eliminating Step 2 from the goodwill impairment test. Step 2 measured a goodwill impairment loss by comparing the implied fair
value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for public companies
for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are currently evaluating
the effects that the adoption of ASU 2017-04 will have on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-01,
“Business Combinations (Topic 805): Clarifying the Definition of a Business,” which provides a more robust framework
to use in determining when a set of assets and activities is a business. ASU 2017-01 provides a more narrow definition of what
is referred to as outputs and align it with how outputs are described in Topic 606 in order to narrow the broad interpretations
of the definition of a business. ASU 2017-01 is effective for public companies in their annual periods beginning after December
15, 2017, including interim periods within those periods. We adopted ASU 2017-01 effective January 1, 2018 and it did not have
a material effect on our consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15,
“Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments,” which aims
to eliminate the diversity in practice related to classification of eight types of cash flows. ASU 2016-15 is effective for public
companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We adopted ASU
2016-15 effective January 1, 2018 and it did not have a material effect on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842)” which requires lessees to recognize right-of-use assets and lease liability, initially measured
at present value of the lease payments, on its balance sheet for leases with terms longer than 12 months and classified as either
financing or operating leases. ASU 2016-02 requires a modified retrospective transition approach for capital and operating leases
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and
provides certain practical expedients that companies may elect. In July 2018, the FASB issued ASU No. 2018-11, “Targeted
Improvements” which provides entities with an additional transition method to adopt Topic 842. Under the new transition method,
an entity initially applies the new leases standard at the adoption date and recognizes a cumulative effect adjustment to the opening
balance of retained earnings in the period of adoption. The new lease standard is effective for public companies for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the transition
methods available under the new standard and the effects that the adoption of the new lease standard will have on our consolidated
financial statements. We expect that the primary effect of adopting the new lease standard on January 1, 2019 will be recording
right-of-use assets and corresponding lease obligations for current operating leases on our balance sheet, which is expected to
be material. Adoption of New Revenue Recognition Standard In May 2014, the FASB issued ASU 2014-09, “Revenue
from Contracts with Customers (Topic 606)” (“ASU 2014-09” or “ASC 606”), which, along with amendments
issued in 2015 and 2016, replaced most existing revenue recognition guidance under GAAP and eliminated industry specific guidance.
The core principle of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal
to an amount it expects to be entitled to receive for those goods and services. The new guidance permits two methods of adoption:
retrospectively to each prior reporting period presented (full retrospective method), or retrospectively by recognizing the cumulative
effect of initially applying the guidance to all contracts existing at the date of initial application (the modified retrospective
method). The ASU, as amended, was effective beginning in the first quarter of 2018. We adopted the guidance on January 1, 2018
using the full retrospective method and we have retrospectively adjusted our prior period financial information presented herein.
See below for more information. We have updated our accounting policies to
conform with the new guidance, the adoption of which impacted two of our revenue streams as follows:
● Timing of revenue recognition of product in transit to customers
● Gross vs. net treatment of certain security software revenues
● The accounting for revenue related to hardware, software (excluding the above) and services remains unchanged. The adoption of ASU 2014-09 resulted
in the following retrospective adjustments to our previously-reported financial statement amounts for the periods presented below
(some items may not foot across due to rounding) (in thousands, except per share amounts):
Three Months Ended March 31, 2017
Three Months Ended June 30, 2017
Three Months Ended September 30, 2017
Three Months Ended December 31, 2017
As Reported
New Revenue Recognition Standard Adjustment As Adjusted As Reported
New Revenue Recognition Standard Adjustment As Adjusted As Reported
New Revenue Recognition Standard Adjustment As Adjusted As Reported
New Revenue Recognition Standard Adjustment As Adjusted
Net sales $ 524,399 $ (1,639 ) $ 522,760 $ 560,110 $ (4,028 ) $ 556,082 $ 545,479 $ (2,204 ) $ 543,275 $ 563,448 $ (18,678 ) $ 544,770
Gross profit 78,205 293 78,498 85,371 (226 ) 85,145 81,294 163 81,457 80,852 (1,224 ) 79,628
Gross profit margin 14.9 % 10 bps 15.0 % 15.2 % 7 bps 15.3 % 14.9 % 9 bps 15.0 % 14.3 % 27 bps 14.6 %
Operating profit (loss) 4,473 238 4,711 5,624 (220 ) 5,404 1,385 121 1,506 (41 ) (952 ) (993 )
Income tax expense (benefit) (1,069 ) 93 (976 ) 1,273 (86 ) 1,187 427 47 474 353 (371 ) (18 )
Net income (loss) 4,027 145 4,172 2,500 (134 ) 2,366 (841 ) 74 (767 ) (2,595 ) (581 ) (3,176 )
Earnings (Loss) Per Share:
Basic 0.33 0.01 0.34 0.20 (0.01 ) 0.19 (0.07 ) 0.01 (0.06 ) (0.22 ) (0.05 ) (0.27 )
Diluted 0.30 0.01 0.31 0.19 (0.01 ) 0.18 (0.07 ) 0.01 (0.06 ) (0.22 ) (0.05 ) (0.27 )
At March 31, 2017 At June 30, 2017 At September 30, 2017
As Reported
New Revenue Recognition Standard Adjustment As Adjusted As Reported
New Revenue Recognition Standard Adjustment As Adjusted As Reported
New Revenue Recognition Standard Adjustment As Adjusted
Accounts receivable $ 354,301 $ 12,618 $ 366,919 $ 442,460 $ 12,269 $ 454,729 $ 412,733 $ 14,497 $ 427,230
Inventory 66,417 (11,331 ) 55,086 77,439 (11,208 ) 66,231 74,871 (13,273 ) 61,598
Total current assets 446,602 1,287 447,889 541,735 1,061 542,796 506,011 1,224 507,235
Total assets 611,045 1,287 612,332 710,041 1,061 711,102 678,537 1,224 679,761
Accounts payable 241,470 236 241,706 355,834 229 356,063 271,841 271 272,112
Total current liabilities 447,006 236 447,242 536,910 229 537,139 506,050 271 506,321
Deferred income tax liability 1,556 410 1,966 3,758 324 4,082 3,819 371 4,190
Total liabilities 473,698 646 474,344 569,386 554 569,940 548,548 643 549,191
Retained Earnings 32,184 641 32,825 34,778 507 35,285 33,843 581 34,424
Total stockholders’ equity 137,347 641 137,988 140,655 507 141,162 129,989 581 130,570
Total liabilities and stockholders’ equity 611,045 1,287 612,332 710,041 1,061 711,102 678,537 1,224 679,761
Year Ended December 31, 2017 Year Ended December 31, 2016
As Reported
New Revenue Adjustment As Adjusted As Reported
New Revenue Adjustment As Adjusted
Net sales $ 2,193,436 $ (26,549 ) $ 2,166,887 $ 2,250,587 $ (11,030 ) $ 2,239,557
Gross profit 325,722 (994 ) 324,728 318,801 126 318,927
Gross profit margin 14.8 % 14 bps 15.0 % 14.2 % 8 bps 14.2 %
Operating profit 11,441 (813 ) 10,628 34,791 110 34,901
Income tax expense 984 (317 ) 667 11,115 43 11,158
Net income 3,091 (496 ) 2,595 17,593 67 17,660
Earnings Per Share:
Basic 0.25 (0.04 ) 0.21 1.49 0.01 1.49
Diluted 0.24 (0.04 ) 0.20 1.40 0.01 1.41
At December 31, 2017 At December 31, 2016
As Reported
New Revenue Adjustment As Adjusted As Reported
New Revenue Adjustment As Adjusted
Accounts receivable $ 439,658 $ - $ 439,658 $ 358,949 $ 9,647 $ 368,596
Inventory 103,471 - 103,471 80,872 (8,653 ) 72,219
Total current assets 561,575 - 561,575 469,055 994 470,049
Total assets 740,252 - 740,252 629,810 994 630,804
Accounts payable 289,201 - 289,201 276,524 180 276,704
Total current liabilities 569,294 - 569,294 474,052 180 474,232
Deferred income tax liability 3,102 - 3,102 1,498 317 1,815
Total liabilities 612,626 - 612,626 501,339 498 501,837
Retained Earnings 31,248 - 31,248 28,251 496 28,747
Total stockholders’ equity 127,626 - 127,626 128,471 496 128,967
Total liabilities and stockholders’ equity 740,252 - 740,252 629,810 994 630,804 Revenue Recognition Policy We adhere to the guidelines and principles of
revenue recognition described in ASC 606. Under ASC 606, we identify and account for a contract with a customer when it has written
approval and commitment of the parties, the rights of the parties including payment terms are identified, the contract has commercial
substance, and consideration is probable of collection. We recognize revenue upon delivery to the customer when control, title
and risk of loss of a promised product or service transfers to a customer, as per our contractual agreement with customers, in
an amount that reflects the consideration to which we expect to be entitled in exchange for transferring those products or services.
In certain types of arrangements, as discussed more fully below, revenue from sales of third-party vendor products or services
is recorded on a net basis when we act as an agent between the customer and the vendor, and on a gross basis when we act as the
principal for the transaction. To determine whether the company is an agent or principal, we consider whether we obtain control
of the products or services before they are transferred to the customer, as well as whether we have primary responsibility for
fulfillment to the customer, inventory risk and pricing discretion. Product and service revenues are recognized
upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to
receive in exchange for those products or services. The following indicators are evaluated in determining when control has transferred
to the customer: (i) the Company has a right to payment, (ii) the customer has legal title to the product, (iii) the Company has
transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership,
and (v) the customer has accepted the product. Products Revenue from sales of product (hardware and
software) is recognized at a point in time when the product has been delivered to the customer. The Company’s shipping terms
are FOB destination and it is upon delivery that the Company has right to payment, the customer obtains legal title to the product,
and physical possession of the product has transferred to the customer. We act as the principal in these transactions and, as such,
record product revenue at gross sales amounts. For all product sales shipped directly from suppliers to customers, we take title
to the products sold upon shipment, bear credit risk, and bear inventory risk for returned products that are not successfully returned
to suppliers. Therefore, these revenues are also recognized at gross sales amounts. When product sales incorporate a bill and hold
arrangement, whereby the customer agrees to purchase product but requests delivery at a later date, we have determined that control
transfers when the product is ready for delivery, which occurs when the product has been set aside or obtained specifically to
fulfill the contract with the customer. It is at this point that we have right to payment, the customer obtains legal title, and
the customer has the significant risks and rewards of ownership. We recognize certain products on a net basis,
as an agent. Products in this category include the sale of third-party services, warranties, software assurance (“SA”),
and subscriptions. Warranties represent third-party product warranties.
Warranties not sold separately are assurance-type warranties that only provide assurance that products will conform to the manufacturer’s
specifications and are not considered separate performance obligations. Warranties that are sold separately, such as extended warranties,
provide the customer with a service in addition to assurance that the product will function as expected. We consider these service-type
warranties to be separate performance obligations from the underlying product. We arrange for a third-party to provide those services
and therefore we act as an agent in the transaction and record revenue on a net basis at the point of sale. SA is a product that allows customers to upgrade
their software, at no additional cost, to the latest technology if new applications are introduced during the period that the SA
is in effect. Most software licenses are sold with accompanying third-party delivered SA. The Company evaluates whether the SA
is a separate performance obligation by assessing if the third-party delivered SA is critical to the core functionality of the
software. This involves considering if the software provides its original intended functionality to the customer without the updates,
if the customer would ascribe a higher value to the upgrades versus the initial software delivered, and if the customer would expect
updates to the software to maintain the functionality. When the SA for a software product is deemed critical to maintaining the
core functionality of the underlying software, the software license and SA are considered a single performance obligation and the
value of the product is primarily the SA service delivered by a third-party. Therefore, the Company is acting as an agent in these
transactions and the revenue is recognized on a net basis when the underlying software is delivered to the customer. Under net
sales recognition, the cost paid to the vendor or third-party service provider is recorded as a reduction to sales, resulting in
net sales being equal to the gross profit on the transaction. When the SA for a software product is deemed not critical to the
core functionality of the underlying software, the SA is recognized as a separate performance obligation and the revenue is recognized
on a net basis when the underlying software license is delivered to the customer. Some of our larger customers are offered the
opportunity by certain of our vendors to purchase software licenses and SA under enterprise agreements (“EAs”). Under
EAs, customers are considered to be compliant with applicable license requirements for the ensuing year, regardless of changes
to their employee base. Customers are charged an annual true-up fee for changes in the number of users over the year. With most
EAs, our vendors will transfer the license and invoice the customer directly, and we act as a sales agent in the transaction. In
addition to the vendor being primarily responsible for fulfilling the promise to the customer, they also assume the inventory risk
as they are responsible for providing remedy or refund if the customer is not satisfied with the delivered services. At the time
of sale, our obligation as an agent is fulfilled and we recognize revenue in the amount of an agency fee or commission. We record
these fees as a component of net sales and there is no corresponding cost of sales amount. In certain instances, we invoice the
customer directly under an EA and account for the individual items sold based on the nature of the item. Our vendors typically
dictate how the EA will be sold to the customer. Services Service revenues are recognized over time since
customers simultaneously receive and consume the benefits of the Company’s services as they are provided. The Company is
the principal in service transactions and therefore recognizes revenue on a gross basis. Revenue for data center services, including
internet connectivity, web hosting, server co-location and managed services, is recognized over the period the service is performed
in the amount to which the Company has the right to invoice in accordance with the practical expedient in paragraph 606-10-55-18.
Revenue for fixed fee services are recognized using an input method based on the total number of hours incurred for the period
as a proportion of the total expected hours for the project. Total expected hours to complete the project is updated for each period
and best represents the transfer of control of the service to the customer. Bundled Arrangements Bundled arrangements are contracts that can
include various combinations of products and services. When a contract includes multiple performance obligations delivered at varying
times, we determine whether the delivered items are distinct under ASC 606. For arrangements with multiple performance obligations,
the transaction price is allocated among the performance obligations based on their relative standalone selling prices (“SSP”).
When observable evidence from recent transactions exists, it is used to confirm that prices are representative of SSP. When evidence
from recent transactions is not available, an expected cost plus a margin approach is used. Sales In Transit In order to recognize revenues in accordance
with our revenue recognition policy under ASC 606, we perform an analysis to estimate the number of days that products we have
shipped are in transit to our customers using data from our third party carriers and other factors. We record an adjustment to
reverse the impact of sale transactions that are initially recorded in our accounting records based on the estimated value of products
that have shipped, but have not yet been delivered to our customers, and we recognize such amounts in the subsequent period when
delivery has occurred. Changes in delivery patterns or unforeseen shipping delays beyond our control could have a material impact
on the timing of revenue recognized in future periods. Freight Costs The Company records freight billed to its customers
on a gross basis to net sales and related freight costs to cost of sales when the product is delivered to the customer. For freight
not billed to its customers, the Company records the freight costs as cost of sales. The Company’s shipping terms are FOB
destination, which results in shipping being performed before the customer obtains control of the product, thus shipping activities
are not a promised service to the customer. Rather, shipping is an activity to fulfill the promise to deliver the products. Other The Company’s contracts give rise to variable
consideration in the form of sales returns and allowances which we estimate at the most likely amount to which we are expected
to be entitled. This estimate is included in the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The most
likely amount estimates of variable consideration and determination of whether to include estimated amounts in the transaction
price are based on an assessment of the Company’s anticipated performance and historical experience and are recorded at the
time of sale. Sales are reported net of estimated returns
and allowances, discounts, mail-in rebate redemptions, credit card chargebacks, and taxes collected from customers. If the actual
sales returns, allowances, discounts, mail-in rebate redemptions or credit card chargebacks are greater than estimated by management,
additional reductions to revenue may be required. Generally, the period between when control of
the promised products or services transfer to the customer and when the customer pays for the product or service is one year or
less. As such, we elected the practical expedient allowed in paragraph 606-10-32-18 and we do not adjust product and service consideration
for the effects of a significant financing component. The amortization period of any asset resulting
from incremental costs of obtaining a contract would generally be one year or less. As such, we elected the practical expedient
allowed in paragraph 340-40-25-4 and we expense these costs as incurred. The following table presents our total net
sales disaggregated by our major product line and our reportable segments (in thousands):
Commercial Public Sector Canada United Kingdom Corporate & Other Consolidated
Three Months Ended September 30, 2018
Hardware & Software Products $ 351,077 $ 63,024 $ 36,108 $ 15,806 $ (155 ) $ 465,860
Services 30,487 5,254 7,753 1,226 — 44,720
Total $ 381,564 $ 68,278 $ 43,861 $ 17,032 $ (155 ) $ 510,580
Three Months Ended September 30, 2017
Hardware & Software Products $ 393,814 $ 76,446 $ 30,245 $ 2,691 $ (137 ) $ 503,059
Services 29,665 2,664 7,841 46 — 40,216
Total $ 423,479 $ 79,110 $ 38,086 $ 2,737 $ (137 ) $ 543,275
Nine Months Ended September 30, 2018
Hardware & Software Products $ 1,114,361 $ 185,890 $ 122,596 $ 44,799 $ (469 ) $ 1,467,177
Services 92,884 13,162 22,801 3,818 — 132,665
Total $ 1,207,245 $ 199,052 $ 145,397 $ 48,617 $ (469 ) $ 1,599,842
Nine Months Ended September 30, 2017
Hardware & Software Products $ 1,182,452 $ 211,530 $ 107,620 $ 3,053 $ (342 ) $ 1,504,313
Services 84,440 10,613 22,705 46 — 117,804
Total $ 1,266,892 $ 222,143 $ 130,325 $ 3,099 $ (342 ) $ 1,622,117 The change in our deferred revenue related
to contracts with customers was as follows (in thousands):
Current Long-Term Total
Balance at December 31, 2017 $ 7,913 (1) $ 463 (2) $ 8,376
Deferral of revenue 22,855 391 23,246
Recognition of deferred revenue (22,638 ) (837 ) (23,475 )
Foreign currency translation (53 ) — (53 )
Balance at September 30, 2018 $ 8,077 (1) $ 17 (2) $ 8,094
(1) Presented as “Deferred revenue” on our consolidated balance sheets.
(2) Presented as part of “Other long-term liabilities” on our consolidated balance sheets. At September 30, 2018, we had an immaterial
amount of contract assets resulting from revenue being recognized in excess of the amount that we have the right to invoice the
customer. Revenue allocated to remaining performance
obligations represents non-cancellable contracted revenue that has not yet been recognized, which includes unearned revenue and
amounts that will be delivered and recognized as revenue in future periods. Contracted, but not recognized, revenue was $28.9
million as of September 30, 2018, of which we expect to recognize approximately 59% over the next 12 months and the remainder
thereafter. We applied the practical expedient provided under ASC 606-10-50-14(a) and have not included information about remaining
performance obligations that have original expected duration of one year or less. |
