New Accounting Standards and Accounting Policies

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

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Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.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 - different businesses within PCM have had varying terms of sale related to when title and risk of loss transfer to the customer, either upon shipment or delivery. Historically, regardless of the terms of sale, we have recorded revenue upon delivery to the customer. The adoption of ASU 2014-09 changes the way we recognize revenue for sales with terms where title and risk of loss transfer at shipping point, such that they are now to be recorded at shipment, which is when we transfer control, rather than upon delivery, to our customers. Given that we are migrating to a common ERP, and to ensure consistent application of the new revenue standard across all of our businesses, we changed the terms of sale in the fourth quarter of 2017 such that all of our businesses have terms where title and risk of loss transfer upon delivery to the customer. As a result, following our adoption of ASC 606 on January 1, 2018, we record all sales similar to how we have historically recorded them in 2017 and prior by recording them upon delivery to our customers. Since we have elected the retrospective method of adoption, the 2016 and 2017 results will reflect the impact of recording revenue at its historical stated terms and conditions. See below for more information.

● Gross vs. net treatment of certain security software revenues – in certain security software transactions when accompanying third-party delivered software assurance is deemed to be critical or essential to the core functionality of the software license, we have determined that the software license and the accompanying third-party delivered software assurance are a single performance obligation. The value of the product is primarily the accompanying support delivered by a third-party and therefore we act as an agent in these transactions, which are recognized on a net basis. Following our adoption of ASC 606 on January 1, 2018, we recognize revenue from the software license on a gross basis (i.e., acting as a principal) and accompanying third-party delivered software assurance on a net basis. This change reduces both net sales and cost of sales with no impact on reported gross profit.

● 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 Recognition Standard Adjustment			As Adjusted			As Reported			New Revenue Recognition Standard 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 Recognition Standard Adjustment		As Adjusted		As Reported		New Revenue Recognition Standard 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.