UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X/
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008
/ /
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to ___________.
or
Commission File Number: 0-25092
INSIGHT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
86-0766246
(IRS Employer
Identification No.)
6820 South Harl Avenue, Tempe, Arizona 85283
(Address of principal executive offices, Zip Code)
Registrant’s telephone number, including area code: (480) 902-1001
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.01
Name of each exchange on which registered
NASDAQ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No X
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
No X
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.
No ___
Yes X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s 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. / /
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.
Large accelerated filer X
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No X
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 registrant’s common stock as reported on The Nasdaq Global Select Market on June 30, 2008, the last business
day of the registrant’s most recently completed second fiscal quarter, was $527,456,717.
The number of shares outstanding of the registrant’s common stock on April 30, 2009 was 45,846,171.
INSIGHT ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2008
TABLE OF CONTENTS
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART I
Business ............................................................................................................
Risk Factors ......................................................................................................
Unresolved Staff Comments .............................................................................
Properties ..........................................................................................................
Legal Proceedings .............................................................................................
Submission of Matters to a Vote of Security Holders .......................................
PART II
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities ........................................
Selected Financial Data .....................................................................................
Management’s Discussion and Analysis of Financial Condition and
Results of Operations ....................................................................................
Quantitative and Qualitative Disclosures About Market Risk ..........................
Financial Statements and Supplementary Data .................................................
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ......................................................................................
Controls and Procedures ...................................................................................
Other Information .............................................................................................
PART III
Directors, Executive Officers and Corporate Governance ................................
Executive Compensation ...................................................................................
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ...................................................................
Certain Relationships and Related Transactions, and Director Independence ..
Principal Accountant Fees and Services ...........................................................
ITEM 15.
PART IV
Exhibits and Financial Statement Schedules ...................................................
SIGNATURES ..........................................................................................................................
EXHIBITS TO FORM 10-K ......................................................................................................
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INSIGHT ENTERPRISES, INC.
EXPLANATORY NOTE REGARDING RESTATEMENT OF OUR
CONSOLIDATED FINANCIAL STATEMENTS
This Annual Report on Form 10-K contains the restatement of our consolidated statements of operations, of
stockholders’ equity and comprehensive income (loss) and of cash flows for the years ended December 31, 2007 and
2006, our consolidated balance sheet as of December 31, 2007 as presented in “Financial Statements and Supplementary
Data” in Item 8 of this report, our selected consolidated statements of operations data for the years ended December 31,
2007, 2006, 2005 and 2004, and our selected consolidated balance sheet data as of December 31, 2007, 2006, 2005 and
2004 as presented in “Selected Financial Data” in Item 6 of this report and our selected quarterly financial information
for each of the quarters in the year ended December 31, 2007 and the quarters ended March 31, June 30, and September
30, 2008 as presented in Note 21 of our Notes to Consolidated Financial Statements in Item 8 of this report.
In a Form 8-K filed on February 10, 2009, we reported that the Company's financial statements, assessment of the
effectiveness of internal control over financial reporting and related audit reports thereon in our most recently filed
Annual Report on Form 10-K, for the year ended December 31, 2007, and the interim financial statements in our
Quarterly Reports on Form 10-Q for the first three quarters of 2008, and all earnings press releases and similar
communications issued by the Company relating to such financial statements, should no longer be relied upon.
Following an internal review, we identified errors in the Company’s accounting for trade credits in prior periods
dating back to December 1996. The internal review encompassed aged trade credits, including both aged accounts
receivable credits and aged accounts payable credits, arising in the ordinary course of business that were recognized in
the Company’s statements of operations prior to the legal discharge of the underlying liabilities under applicable
domestic and foreign laws. The cumulative restatement charge covering the period from December 1, 1996 through
September 30, 2008 related to this trade credit issue is $61.2 million, or $37.7 million after taxes. These aged trade
credit liabilities totaled $59.4 million as of December 31, 2008. We expect that the final settlement of these liabilities
with our clients and our partners and ultimately with state and/or foreign regulatory bodies may take multiple years and
may be settled for less than the estimated liability. However, we cannot provide any assurances that the final settlement
will be materially lower.
We 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 and the related income tax effects as a
result of these incorrect releases of aged trade credits. These trade credits arose from 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.
We recorded an aggregate gross charge of approximately $21.2 million to our consolidated retained earnings as of
December 31, 2003 and established a related current liability. This amount represented approximately $19.0 million of
costs of goods sold and $2.2 million of selling and administrative expenses relating to the period from December 1, 1996
through December 31, 2003. The aggregate tax benefit related to these trade credit restatement adjustments is $8.4
million, which benefit reduced the charge to retained earnings as of December 31, 2003 and established a related
deferred tax asset. In addition, our statements of operations for the years ended December 31, 2006 and 2007, and the
quarters ended March 31, June 30, and September 30, 2008 contained in this Annual Report have been restated to reflect
an aggregate of approximately $9.5 million, $10.2 million, $2.8 million, $2.2 million and $1.3 million, respectively, of
increases in costs of goods sold and to establish a related current liability relating to aged trade credits. Our selected
consolidated statements of operations data for the years ended December 31, 2004 through 2007 have also been restated.
The years ended December 31, 2004 and 2005 reflect an aggregate of approximately $4.8 million and $9.1 million,
respectively, of increases in costs of goods sold for the respective periods relating to aged trade credits. The reinstated
liabilities are recorded in accrued expenses and other current liabilities. These increases in costs of goods sold and
selling and administrative expenses result from our determination, based upon the results of our internal review and
analysis and the internal investigation, that the periods in which certain aged trade credits in accounts receivable and
accounts payable were previously recorded as a reduction of costs of goods sold preceded the periods in which the
Company was legally discharged of the underlying liabilities under applicable domestic and foreign laws.
In addition to the restatements for aged trade credits, we also corrected previously reported financial statements and
selected financial data for the following other miscellaneous accounting adjustments as a result of a review of our critical
accounting policies:
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INSIGHT ENTERPRISES, INC.
• An adjustment of $2.7 million to allocate a portion of our North America goodwill not previously allocated
to the carrying amount of a division of our North America operating segment that we sold on March 1,
2007 in determining the gain on sale. This adjustment reduced the gain on sale of the discontinued
operation recorded in the three months ended March 31, 2007, which gain is included in earnings from
discontinued operations. The tax effect of this adjustment was $1.1 million.
• Adjustments to hardware net sales and costs of goods sold recognized in prior periods to recognize sales
based on a “de facto” passage of title at the time of delivery. Although 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, we have a
general practice of covering customer losses while products are in transit despite our stated shipping terms,
and as a result delivery is not deemed to have occurred until the product is received by the client. The net
increase (decrease) in gross profit resulting from these adjustments was $1.0 million, ($135,000), $20,000,
$440,000 and ($522,000) for the years ended December 31, 2004, 2005, 2006 and 2007 and the nine
months ended September 30, 2008, respectively. Adjustments related to periods prior to 2004 resulted in a
$1.4 million reduction of retained earnings as of December 31, 2003.
• Adjustments to recognize stock based compensation expense related to performance-based restricted stock
units (“RSUs”) 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) instead of on a
straight-line basis over the requisite service period for the entire award. The net increase (decrease) in
operating expenses was $2.4 million, $2.5 million and ($1.2 million) for the years ended December 31,
2006 and 2007 and the nine months ended September 30, 2008, respectively.
• Adjustments to capitalize interest on internal-use software development projects in prior periods and
record the related amortization expense thereon. The net increase (decrease) in pretax earnings resulting
from these adjustments was $21,000, $61,000, $805,000, $386,000 and ($4,000) for the years ended
December 31, 2004, 2005, 2006 and 2007 and the nine months ended September 30, 2008, respectively.
• Revisions in the classification of consideration that exceeded the specific, incremental identifiable costs of
shared marketing expense programs of $925,000, $2.8 million, $5.0 million, $7.3 million and $4.6 million
for the years ended December 31, 2004, 2005, 2006 and 2007 and the nine months ended September 30,
2008, respectively, to reflect such excess consideration as a reduction of costs of goods sold instead of a
reduction of the related selling administration expenses. These revisions in classification related to our
EMEA operating segment and had no effect on reported net earnings in any period.
All financial information contained in this Annual Report on Form 10-K gives effect to the restatement of our
consolidated financial statements as described above. We have not amended, and we do not intend to amend, our
previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for each of the fiscal years and fiscal
quarters of 1996 through 2007, or for the first nine months of the fiscal year ended December 31, 2008. Financial
information included in reports previously filed or furnished by Insight Enterprises, Inc. for the periods from January 1,
1996 through September 30, 2008 should not be relied upon and are superseded by the information in this Annual Report
on Form 10-K.
For more information on the matters that have caused us to restate our financial statements and data previously
reported, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and
Note 2 of our Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. We identified
a material weakness in our internal control over financial reporting. As a result, management has concluded that the
Company’s internal control over financial reporting was not effective as of December 31, 2008. A description of that
material weakness, as well as management’s plan to remediate that material weakness, is more fully discussed in Part II,
Item 9A, “Controls and Procedures.”
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INSIGHT ENTERPRISES, INC.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including statements in “Management’s 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, earnings from discontinued operations, net earnings or cash
flows, cash needs and the sufficiency of our capital resources, the payment of accrued expenses and liabilities and costs
or gains that may result from post-closing adjustments pertaining to business acquisitions or dispositions; effects of
acquisitions or dispositions; projections of capital expenditures, our business outlook and earnings per share expectations
in 2009; plans for future operations; the availability of financing and our needs or plans relating thereto; plans relating to
our products and services; 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 option and other equity award forfeitures, and deferred compensation
cost amortization periods; our positions and strategies with respect to ongoing and threatened litigation, including those
matters identified in “Legal Proceedings” in Part I, Item 3 of this report; 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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•
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general economic conditions, including concerns regarding a global recession and credit constraints;
changes in the information technology industry and/or the economic environment;
our reliance on partners for product availability, marketing funds, purchasing incentives and competitive
products to sell;
the informal inquiry from the Division of Enforcement of the SEC and stockholder litigation related to the
restatement of our consolidated financial statements;
our ability to maintain compliance with Nasdaq’s requirements for continued listing;
our ability to collect our accounts receivable;
increased debt and interest expense and lower availability on our financing facilities and changes in the overall
capital markets that could increase our borrowing costs or reduce future availability of financing;
disruptions in our information technology systems and voice and data networks, including our system upgrade
and the migration of acquired businesses to our information technology systems and voice and data networks;
actions of our competitors, including manufacturers and publishers of products we sell;
the integration and operation of acquired businesses, including our ability to achieve expected benefits of the
acquisitions;
seasonal changes in demand for sales of software licenses;
the risks associated with international operations;
exposure to changes in, or interpretations of, tax rules and regulations;
exposure to currency exchange risks and volatility in the U.S. dollar, Canadian dollar, the Euro and the British
Pound Sterling exchange rates;
our dependence on key personnel;
failure to comply with the terms and conditions of our public sector contracts;
rapid changes in product standards; and
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 SEC. 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.
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INSIGHT ENTERPRISES, INC.
PART I
Item 1. Business
General
Insight Enterprises, Inc. (“Insight” or the “Company”) is a leading provider of brand-name information technology
(“IT”) hardware, software and services to small, medium and large businesses and public sector institutions 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*
North America
Geography
United States and Canada
% of 2008
Consolidated Net Sales
70%
EMEA
APAC
Europe, Middle East and Africa
Asia-Pacific
27%
3%
* Additional detailed segment and geographic information can be found in “Management’s
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 are a global provider of technology solutions, helping companies around the world design, enable, manage and
secure their IT environment with our process knowledge, technical expertise and product fulfillment and logistics
capabilities. Our management tools and capabilities make designing and deploying IT solutions easier, and we help our
clients streamline IT management and control IT costs. Insight is located in 22 countries, and we support clients in 170
countries, transacting business in 17 languages and 13 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 currently only include software and select software-related services. On a consolidated basis, hardware,
software and services represented 54%, 42% and 4%, respectively, of our net sales in 2008, compared to 56%, 42% and
2%, respectively, in 2007.
We were incorporated in Delaware in 1991 as the successor to an Arizona corporation that commenced operations in
1988. 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 penetrated 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 of 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, we sold PC
Wholesale, a seller of IT products to other resellers in the U.S., in 2007 and Direct Alliance Corporation (“Direct
Alliance”), a business process outsourcing provider in the U.S., in 2006. Our corporate headquarters are located in
Tempe, Arizona.
Business Strategy
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 and to establish Insight as a Global Value-Added
Reseller (“G-VAR”), differentiating us in the marketplace and giving us a competitive advantage. We are one of the
largest direct marketers providing broad product selection, competitive prices and an efficient supply chain. We have
successfully expanded on this value proposition and increasingly, our role has shifted to one of a trusted advisor, where
we are involved earlier in our clients’ IT planning cycles, assisting our clients as they make technology decisions. We
believe this creates stronger relationships with our clients, allowing us to help accelerate attainment of our clients’
business objectives, expand the range of products and services we sell to our current clients, and attract new clients. We
are focused on bringing more value to our clients, teammates (we refer to our employees as “teammates”) and partners
(we refer to our suppliers as “partners”) through the evolution of Insight’s value proposition.
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INSIGHT ENTERPRISES, INC.
To enable our strategic vision, Insight is focused on seven strategic initiatives:
• Continue to build “VAR-like” solutions capabilities;
• Leverage existing client relationships;
• Extend our reach into new client segments;
• Expand our global capabilities;
• Align tactics to ensure we deliver value to partners;
• Drive operational efficiency and improve our return on invested capital (“ROIC”); and
• Continue to strengthen the teammate experience.
Continue to build “VAR-like” solutions capabilities. The Value-Added Resellers (“VARs”) that have historically
serviced the solutions needs of business end-users are typically smaller companies with technical expertise in fewer
product and service specialties and in more limited geographic areas than Insight. Unlike “typical” VARs, Insight has
broader capabilities with expanding service capabilities, a wider product offering with an efficient supply chain, and the
ability to service clients across multiple industries and geographies.
In addition to our standard IT lifecycle services offerings, our strategy is to focus on expanding our technical
expertise in three high-growth advanced IT solution areas:
• Networking and Communication;
• High Performance Systems and Storage; and
• Enterprise Software.
By maintaining the strength of our base value proposition and continuing to develop these differentiators, Insight
seeks to be a single source for our clients’ technology needs – from standard hardware and software offerings to
advanced technologies, and from standard IT lifecycle services to advanced IT solutions.
Leverage existing client relationships. Our relationships with our clients and their loyalty to Insight are based on the
trust they have in our organization, their interactions with our teammates, and their confidence that Insight will provide
the right solutions to address their needs. By fostering these relationships and providing an exceptional experience for
our clients, we believe that we will increase our value to our clients and create stronger and deeper relationships with
them.
We are focused on increasing our “share of wallet” with our existing client base through expansion of our product
and services portfolio. Our strategy is not only to increase the assortment of products and services a client purchases
from us, but also to diversify from PCs into higher-end technologies, directing clients to advanced technologies in order
to enhance their businesses.
An important differentiator for Insight is our multi-faceted selling approach, which makes it easier for clients to do
business with us. Based on their preferences, clients can interact with us face-to-face, via the Web or over the phone,
selecting the type of interaction method that best meets their needs and preferences at any given point in time.
Although we are focused on leveraging existing client relationships, no single client accounted for more than 3% of
our consolidated net sales in 2008.
Extend our reach into new client segments. Our clients include businesses as well as governmental and educational
entities. We believe that clients with over 500 technology users who regularly use business technology in the
performance of their jobs are a valuable portion of the IT hardware, software and services market because they demand
high-performance technology solutions, appreciate well-trained account executives, purchase frequently, are value
conscious and are knowledgeable buyers who require less technical support than the average individual consumer.
Although we believe there is substantial opportunity to grow our market share in this client segment, part of our strategy
to extend our reach into new client segments is to expand our target base to include clients with 50 – 500 technology
users. We believe this market segment provides incremental opportunity for Insight, specifically in the U.S., and that
this portion of the market is underserved and typically contributes higher gross margins. Our operating model, which
allows us to tailor our offerings to the size and complexity of our client, positions us to serve our target markets
effectively by combining highly qualified field and telesales account executives, advanced service capabilities, focused
client service, competitive pricing and cost-effective distribution systems.
Expand our global capabilities. We believe that our global delivery capabilities differentiate us with our clients and
partners. Insight has a larger geographic footprint than many of our competitors, particularly when compared to U.S.-
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INSIGHT ENTERPRISES, INC.
based hardware resellers. We also offer the benefit of independent support and advice compared to
manufacturers/publishers. Strategic imperatives for our global expansion include diversifying from the U.S. market by
seizing opportunities in new markets, such as our recent expansion into Russia, and serving our existing client base in a
greater number of locations around the world. While current economic conditions make it more difficult to expand into
new markets, we continue to look for appropriate opportunities.
Our global expansion plans are focused on two distinct activities:
• Geographic expansion – Focused on increasing our penetration in EMEA and APAC in growing markets
where we see the greatest growth and return on investment opportunity.
• Portfolio expansion – Focused on broadening our offering in established markets by adding hardware and
services and expanding our client base in certain existing markets, specifically in EMEA and APAC, where
we currently only offer software and software related services.
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 U.S., 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.
Align tactics to ensure we deliver value to partners. We are focused on understanding our partners’ objectives and
developing plans and programs to grow our mutual businesses. Our strategy is focused on: increasing partner alignment
by increasing skills and marketing alignment with key partners; building enhanced capabilities to deliver, monitor,
analyze and report return on marketing investment for our partners; and building strong relationships with our key
partners’ field sales organizations.
We measure partner satisfaction annually through a partner satisfaction survey in North America and EMEA and
through similar means in APAC. We 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 an annual partner
conference in North America and EMEA where we articulate our strategy and facilitate various strategic and tactical
discussions with our partners.
For a discussion of risks associated with our reliance on partners, see “Risk Factors – We rely on our partners for
product availability, marketing funds, purchasing incentives and competitive products to sell,” in Part I, Item 1A of this
report.
Drive operational efficiency and improve our return on invested capital (“ROIC”). Our goal is to decrease selling,
general and administrative expenses as a percentage of net sales. In the short term, to address market weakness and the
deterioration in our operational performance, we took significant restructuring actions in 2008 to reduce fixed costs and
discretionary spending. In 2009, we plan to continue to take actions to decrease discretionary spending, such as
eliminating merit increases, reducing equity incentive programs, foregoing employee recognition events, minimizing
non-client travel, and continuing to evaluate all aspects of our cost structure given the current economic environment.
We also plan to leverage the functionality of our IT systems to automate manual processes and improve efficiencies
throughout the organization. We have implemented a ROIC focus into our core management systems and have
introduced appropriate metrics and rewards to reinforce the importance of this key measure. We also maintain a close
focus on cash flow and liquidity and have initiatives underway to improve working capital metrics, such as days sales
outstanding and days purchases outstanding, and to continue to focus on strong inventory management through
balancing warehousing versus direct shipments to our clients.
Continue to strengthen the teammate experience. We believe our teammates are the foundation of the Insight
experience. Therefore, we focus on teammate development to promote teammate satisfaction, build teammates’ skill sets
and motivate teammates to ensure client satisfaction. We use a multi-faceted approach to assess and improve teammate
satisfaction, including confidential surveys, teammate interviews, focus groups and a variety of other methods. In
addition, we monitor key teammate metrics each month, such as turnover and attrition rates, as well as measures against
development, diversity and training goals.
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 leading
manufacturers as Hewlett-Packard (“HP”), Cisco, Lenovo, IBM, Panasonic and American Power Conversion
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INSIGHT ENTERPRISES, INC.
Corporation (“APC”). Our scale and purchasing power, combined with our efficient, high-volume and cost effective
direct sales and marketing forces, allow us to offer competitive prices. We believe that offering multiple vendor 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, through the use of EDI and XML links
allowing us to expand our product offerings without further increasing inventory, handling costs or inventory risk
exposure. As a result, we are able to provide a vast 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 solution across all product categories.
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, “Software as a Service” (“SaaS”). Under
SaaS, clients subscribe to software that is hosted by the software publisher 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 for each user. For most clients, the overall cost of acquiring software through a licensing arrangement is
substantially less than purchasing boxed products.
As software publishers choose different procedures 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 professional services in the U.S. and the United Kingdom via our
own field service personnel, augmented by services partners to fill gaps in our geographic coverage or capabilities. We
also utilize partners to deliver these services in Canada. Developing these capabilities internally or through targeted
acquisitions over time in other geographies is an essential element of a technology solution and, we believe, 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 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 believe that none of our
competition is able to offer the same breadth and depth of IT solutions that we offer across our target client groups in
North America and EMEA.
In the Company today, we have the following four technology practice groups that focus on key emerging
technologies and the best practice standards that are required to build, upgrade and/or optimize agile and cost-
effective IT infrastructures:
• Networking and Communications;
• High Performance Systems and Storage;
• Enterprise Software; and
•
IT Lifecycle Services.
These technology practice groups are responsible for understanding client needs and, together with our technology
partners, customizing total solutions that address those needs. These technology practice groups are made up of
industry- and product-certified engineers, consultants and specialists who are up-to-date on best practices and the latest
developments in their respective practice areas.
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INSIGHT ENTERPRISES, INC.
Networking and Communications. Advanced networking technologies that merge voice, data and video
applications are becoming a critical component of an enterprise’s strategic IT infrastructure and the backbone of an
organization’s unified communications strategy. 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 U.S. Our networking and
communications solutions provide clients secure voice and data communications within and across organizations and are
marketed and delivered in four areas:
• Network strategy and infrastructure;
• Unified communications;
• Security; and
• Managed services.
We offer design, implementation and support of a wide range of networking and communications solutions
including IP-based telephony, unified communications, wireless LAN, network security, network management and
network infrastructure, and mobility solutions. We have the scale, skill and technology investments required to execute a
spectrum of management services. Operating 24 hours a day, 7 days a week, 365 days a year, through our network
operations center, we serve as an extension of our clients’ teams, dedicating resources that keep their networks operating
at optimal capacity. We expect to leverage our 2008 acquisitions of Calence and MINX to continue expanding our
global capabilities around networking and communications.
High-Performance Systems and Storage. Using technology from HP, IBM, EMC, AMD and VMware, 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 maintenance and management costs.
Enterprise Software Solutions. As one of the leading resellers of Microsoft business software, we provide desktop
deployment, migration, communication and collaboration solutions for clients. We assess, implement and manage a
clients’ software environment through our portfolio of service offerings including configuration and integration services.
These services remove time-consuming steps and costs from our client’s deployment process.
IT Lifecycle Services. We 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. We:
•
•
•
•
•
•
•
•
•
provide advice on hardware, software licensing and financing programs;
streamline procurement;
plan and manage the rollout;
assist with developing standards and implementing best practices;
pre-configure systems, load custom software images and tag assets;
provide logistics planning and drop-ship to locations;
provide on-site implementation;
offer help desk support for users; and
provide IT maintenance services and disposal of equipment at end-of-life.
These services are available primarily in the U.S., Canada and the United Kingdom at present.
In addition, 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. Our SAM services are provided to clients throughout North America, EMEA and APAC.
Information Technology Systems
We have committed significant resources to the IT systems we use to manage our business. We 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. These systems affect our ability to manage our sales,
client service, distribution, inventories and accounting systems and the reliability of our voice and data networks. Our
U.S. and foreign locations are not on a single IT system platform.
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INSIGHT ENTERPRISES, INC.
To support our business more efficiently and effectively, we recently completed an IT systems upgrade project in
the U.S. hardware and services portion of our North America operations. We are focused on driving improvements in
sales productivity through this upgraded IT system to support higher levels of client satisfaction and new client
acquisition as well as garnering efficiencies in this portion of our business as more processes become automated. We are
also in the process of the conversion of our EMEA operations to a new IT system platform intended to enable us to sell
hardware and services to clients in that region to promote future sales growth. We believe that in order to remain
competitive, we will need to continue to make enhancements and upgrades to our IT systems.
For a discussion of risks associated with our IT systems, see “Risk Factors – Disruptions in our IT systems and voice
and data networks, including our systems upgrades and the migration of acquired businesses to our IT systems and voice
and data networks, could affect our ability to service our clients and cause us to incur additional expenses,” in Part I,
Item 1A of this report.
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:
•
•
•
•
•
•
•
•
product manufacturers, such as Dell, HP, IBM and Lenovo;
software publishers, such as IBM and Microsoft;
direct marketers, such as CDW Corporation (North America) and Systemax (Europe);
software resellers, such as SoftChoice, PC Ware and Software House International;
systems integrators, such as Compucom Systems, Inc.;
national and regional resellers, including VARs, 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;
national and global service providers, such as IBM Global Services and HP/EDS; and
e-tailers, such as Amazon, 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 Software as a Service (SaaS) are creating new competitors and
opportunities.
We believe that we have three advantages over our competitors:
• Global Reach – We have one of the broadest footprints in the IT industry, with physical presence in 22
countries and the ability to service clients in 170 countries, either internally or through partner
relationships. Our ability to conduct business with clients in their language and currency is a key
differentiator.
• Client Penetration and Retention – We have deep penetration in small, medium and large businesses and
public sector institutions. Most competitors focus on one or two of these sectors. This enables us to reach
a broad range of clients on behalf of our partners. In addition, we have very strong client retention and
loyalty that can be leveraged as we build our trusted advisor capabilities.
• Technical Expertise and Service Offerings – We have broad technical expertise when compared to the
competition as evidenced by our long list of certifications, licensing capability and technology practices. In
addition, we offer a broad array of technology-related services to our clients.
We have two primary weaknesses:
• Brand Awareness – The Insight brand is less known than those of our primary competitors, and we believe
our advertising expenditures are significantly lower than many of our competitors.
•
Inconsistent Geographic Delivery Capabilities – While we have deeper capabilities than many of our
competitors, our ability to deliver across all geographies varies considerably. Our most developed
capabilities (hardware, software and services) are found in the U.S. and the United Kingdom. Our
capabilities in Canada are deep in software and hardware and are developing in services. The balance of
our footprint currently delivers only software and software-related services.
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INSIGHT ENTERPRISES, INC.
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 2008, we purchased products and software from approximately 5,160 partners. Approximately 58% (based
on dollar volume) of these purchases from partners were directly from manufacturers or software publishers, with the
balance purchased through distributors. Purchases from Microsoft, a software publisher, Ingram Micro, a distributor,
and HP, a manufacturer, accounted for approximately 22%, 11%, and 11%, respectively, of our aggregate purchases in
2008. No other partner accounted for more than 10% of purchases in 2008. Our top five partners as a group for 2008
were Microsoft, Ingram Micro, HP, Tech Data (a distributor) and Cisco (a manufacturer). Approximately 60% of our
total purchases during 2008 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 supplier reimbursements 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
reimbursements 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 supplier reimbursements allow us to increase our
marketing reach and strengthen our relationships with leading manufacturers and publishers. These reimbursements are
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 and net earnings. During 2008, sales of
Microsoft products and HP products accounted for approximately 26% and 17%, respectively, of our consolidated net
sales. No other manufacturer’s products accounted for more than 10% of our consolidated net sales in 2008. Sales of
product from our top five manufacturers/publishers as a group (Microsoft, HP, Cisco, Lenovo and IBM) accounted for
approximately 60% of Insight’s consolidated net sales during 2008. We believe that the majority of IT purchases by our
clients, with the exception of Microsoft, are made based on the ability of our total product and service offering to meet
their IT needs, more than on the offering or availability of specific brands.
As we move into new service areas, consistent with our strategy to expand our technical expertise, we may become
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, marketing funds, purchasing incentives and competitive
products to sell,” in Part I, Item 1A of this report.
Teammates
We believe our teammate relations are good. Our teammates are not represented by any labor union, and we have
not experienced any work stoppages. Certain teammates in various countries outside of the U.S. are subject to laws
providing representation rights to teammates on work councils. At December 31, 2008, we had 4,581 teammates as
follows:
Management, support services
and administration .................
Sales account executives ............
Distribution ................................
Total ...................................
North
America
1,705
1,285
129
3,119
EMEA
APAC
Consolidated
573
680
44
1,297
69
96
-
165
2,347
2,061
173
4,581
We have invested in our teammates’ futures and our future through an ongoing program of internal and external
training. Training programs include new hire orientation, sales training, general industry and computer education,
technical training, specific product training and on-going teammate and management development programs. We
emphasize on-the-job training and provide our teammates and managers with development opportunities through online
and classroom training relevant to their needs.
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INSIGHT ENTERPRISES, INC.
Information regarding the number and tenure of account executives in North America, EMEA and APAC at
December 31, 2008 and 2007 follows:
North America
EMEA
APAC
12/31/08
12/31/07
12/31/08
12/31/07
12/31/08
12/31/07
Number of account
executives .............
1,285
1,349
680
571
96
Tenure:
Less than one year ......
One to two years ..........
Two to three years .......
More than three years ..
23%
15%
8%
54%
100%
27%
11%
11%
51%
100%
30%
21%
14%
35%
100%
31%
19%
16%
34%
100%
34%
19%
17%
30%
100%
58
35%
21%
22%
22%
100%
Average tenure .............
4.7 years
4.2 years
3.4 years
3.0 years
2.5 years
3.4 years
Tenure is important to our business as our statistics show that account executive productivity increases with
experience. The number of account executives and tenure statistics for EMEA at December 31, 2007 have been changed
to conform to the current year presentation. This presentation also conforms to how we define account executive in our
North America and APAC operating segments. The increase in average tenure for North America and EMEA is due
primarily to expense actions taken in 2008, which tended to result in reductions in our lesser experienced account
executives in those segments. Average tenure for APAC has decreased as the result of the hiring of additional software
account executives in 2008.
For a discussion of risks associated with our dependence on key personnel, including sales personnel, see “Risk
Factors – We depend on key personnel,” in Part I, Item 1A of this report.
Seasonality
General economic conditions have an effect on our business and results of operations. We also experience some
seasonal trends in our sales of IT hardware, software and services. For example:
•
•
•
•
software sales are seasonally significantly higher in our second and fourth quarters, particularly the second
quarter;
business clients, particularly larger enterprise businesses in the U.S., tend to spend less in the first quarter
and more in our fourth quarter as they utilize their remaining capital budget authorizations;
sales to the federal government in the U.S. are often stronger in our third quarter; and
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 – Sales of software licenses are subject to seasonal changes in demand and resulting sales activities,” 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 indicative 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
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INSIGHT ENTERPRISES, INC.
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 with, or furnish
to, the Securities and Exchange Commission (“SEC”). 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. Please see “Explanatory Note Regarding
Restatement of Our Consolidated Financial Statements” above regarding our previous reports not being amended for the
restatement of our financial statements. The financial information included in reports previously filed or furnished by
Insight Enterprises, Inc. for prior periods should not be relied upon and are superseded by the information in this Annual
Report on Form 10-K.
Item 1A. Risk Factors
General economic conditions, including concerns regarding a global recession and 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. A continued slowdown or recession in the global economy, or in
a particular region, or business or industry sector, or sustained or further 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.
Changes in the IT industry and/or the economic environment 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, general economic conditions, shifts in demand for, or availability of, IT hardware, software, peripherals and
services, and industry introductions of new products, upgrades or methods of distribution. Weak economic conditions
generally or a reduction in IT spending adversely affects our business, operating results and financial condition. 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. Our operating results are also 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 supplier reimbursements and marketing funds, volumes of
purchases, changes in client mix, the relative mix of products sold during the period, general competitive conditions,
opportunistic purchases of inventory and opportunities to increase market share. In addition, our expense levels,
including the cost of recruiting account executives, are based, in part, on anticipated net sales and the anticipated amount
and timing of vendor 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.
We rely on our partners for product availability, marketing funds, purchasing incentives and competitive
products to sell. We acquire products for resale both directly from manufacturers/publishers and indirectly through
distributors. The loss of a partner could cause a disruption in the availability of products. Additionally, there is no
assurance that, as manufacturers/publishers continue to sell directly to end users and through the distribution channel,
they will not limit or curtail the availability of their product to resellers like us. In addition, a reduction in the amount of
credit granted to us by our partners could increase our cost of working capital and have a material adverse effect on our
business, results of operations and financial condition.
Although product is generally available from multiple sources via the distribution channel as well as directly from
manufacturers/publishers, we rely on the manufacturers/publishers of products we offer not only for product availability
and vendor funding, but also for development and marketing of products that compete effectively with products of
manufacturers/publishers we do not currently offer, particularly Dell. Although we have the ability to sell, and from
time to time do sell, Dell product if it is specifically requested by our clients and approved by Dell, we do not proactively
advertise for or offer Dell products.
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INSIGHT ENTERPRISES, INC.
Certain manufacturers/publishers and distributors provide us with substantial incentives in the form of rebates,
supplier reimbursements and marketing funds, early payment discounts, referral fees and price protections. Vendor
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 net 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/publishers. Additionally, partners routinely change the requirements for, and the amount of, funds
available, and we expect that many of our partners will reduce the amount of funds available during periods of economic
slowdown. 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. We anticipate that, during 2009, the
incentives that many vendors provide to us will be reduced. Any sizeable reduction in, the discontinuance of, a
significant delay in receiving or the inability to collect such incentives, particularly related to programs with our largest
vendors, HP and Microsoft, could have a material adverse effect on our business, results of operations and financial
condition.
We have received an informal inquiry from the Division of Enforcement of the SEC and are subject to
stockholder litigation related to the restatement of our consolidated financial statements. As described elsewhere in
this annual report, we identified errors in the Company’s 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 and the related income tax effects of these
incorrect releases of certain aged trade credits.
There is a pending informal inquiry from the Division of Enforcement of the SEC regarding our historical
accounting treatment of aged trade credits, and we cannot make any assurances regarding the outcome or consequences
of that inquiry. Our internal review and related activities have already required the Company to incur substantial
expenses for legal, accounting, tax and other professional services, and any future related investigations or litigation
would require further expenditures and could harm our business, 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, financial condition, results of operations and cash flows.
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 period specified in the first complaint is January 30,
2007 to February 6, 2009). The complaints, which seek unspecified damages, assert claims under the federal securities
laws relating to our February 9, 2009 announcement that we expected to restate our financial statements for the year
ended December 31, 2007 and for the first three quarters of 2008 and that the restatement would include a material
reduction of retained earnings. The complaints also allege that we issued false and misleading financial statements and
issued misleading public statements about our results of operations. None of the defendants have responded to the
complaints at this time.
Our common stock could be delisted from Nasdaq if we fail to maintain compliance with Nasdaq’s requirements
for continued listing. The Company has received a Nasdaq Staff Determination letter stating that, as a result of the
delayed filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, the Company was
not in compliance with the filing requirements for continued listing as set forth in Marketplace Rule 5250(c)(1) and was
therefore subject to delisting from the Nasdaq Global Select Market. With the filing of this report, the Company believes
that it has remedied its non-compliance with Marketplace Rule 5250(c)(1). However, if the SEC disagrees with the
manner in which the Company has accounted for and reported, or not reported, the financial effects of past aged trade
credits, there could be further delays in filing subsequent SEC reports that might result in delisting of the Company’s
common stock from the Nasdaq Global Select Market.
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 or unable 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
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INSIGHT ENTERPRISES, INC.
payment cycles, increased collection costs and defaults in excess of management’s 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.
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 disruptions 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
$90.0 million inventory financing facility. As of December 31, 2008, we had $228.0 million of outstanding long-term
indebtedness, all of which was borrowed under our senior revolving credit facility. As of the end of fiscal 2008, the
following amounts were available under our credit facilities, prior to the limitations discussed below:
•
•
•
$72.0 million under our senior revolving credit facility;
$150.0 million under our accounts receivable securitization financing facility; and
$9.1 million under our inventory financing facility.
Our borrowing capacity under our senior revolving credit facility and the 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 Company’s trailing twelve months EBITDA, as defined in the agreements. The maximum
leverage ratio permitted under the agreements is currently 3.0 times trailing twelve-month EBITDA and steps down to
2.75 times in October 2009. A significant drop in EBITDA would limit the amount of indebtedness that could be
outstanding at the end of any fiscal quarter, to a level that could be below the Company’s total debt capacity. As of
December 31, 2008, of the $450.0 million of total debt capacity available, the Company’s borrowing capacity was
limited to $402.1 million based on trailing twelve-month EBITDA of $134.0 million.
Subsequent to December 31, 2008, as a result of the decline in overall sales volume in the U.S. legacy hardware
business in the first quarter of 2009, our availability under the ABS facility decreased by $40.3 million as of March 31,
2009. Additionally, we further reduced our eligible receivables under this facility by $45.9 million to reflect the U.S.
legacy gross trade credit liabilities that were recorded as part of our financial statement restatement described in Note 2
of our Notes to the Consolidated Financial Statements in Item 8 of this report. As a result, total availability under our
ABS facility at March 31, 2009 was $63.8 million.
The term of our accounts receivable securitization financing facility is scheduled to expire on September 17, 2009.
Our senior revolving credit facility and inventory financing facility both 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.
While we believe we can meet our capital requirements from our cash resources, future cash flow and the sources of
financing that we anticipate will be available to us, we can provide no assurance that we will continue to be able to do so,
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.
Disruptions in our IT systems and voice and data networks, including the system upgrade and the migration of
acquired businesses to our IT systems and voice and data networks, 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 accuracy, quality and utilization of the information generated by
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. We have been making and will continue to make
enhancements and upgrades to our IT systems. Additionally, certain assumed expense synergies are dependent on
migrating acquired businesses to our IT systems. There can be no assurances that these enhancements or conversions
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. The conversion of EMEA to a new IT system platform is intended to enable us to sell
hardware and services to clients in that region, and therefore any delay in that implementation or disruption of service
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INSIGHT ENTERPRISES, INC.
during that implementation 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 we complete conversions that shorten the life
of existing technology or impair the value of the existing system, 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 telephone communication systems would have a material adverse
effect on our business, results of operations and financial condition.
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. We compete with manufacturers/publishers,
including manufacturers/publishers of products we sell, as well as a large number and wide variety of marketers and
resellers of IT hardware, software and services. Product manufacturers/publishers have programs to sell directly to
business clients, particularly larger corporate clients, and are thus a competitive threat to us. In addition, the manner in
which software products are distributed and sold and the manner in which publishers compensate channel partners like
us are continually changing. Software publishers may intensify their efforts to sell their products directly to end-users,
including our current and potential clients, and may reduce the compensation to resellers or change the requirements for
earning these amounts. Other products and methodologies for distributing software may be introduced by publishers,
present competitors or other third parties. An increase in the volume of products sold through any of these competitive
programs or distributed directly electronically to end-users or a decrease in the amount of referral fees paid to us, or
increased competition for providing services to these clients, could have a material adverse effect on our business, results
of operations and financial condition.
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, whereby software vendors develop and make their
applications available for use over the Internet. 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 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.
The integration and operation of acquired businesses may disrupt our business and create additional expenses,
and we may not achieve the anticipated benefits of the acquisitions. Integration of an acquired business involves
numerous risks, including assimilation of operations of the acquired business and difficulties in the convergence of IT
15
INSIGHT ENTERPRISES, INC.
systems, the diversion of management’s attention from other business concerns, risks of entering markets in which we
have had no or only limited direct experience, assumption of unknown and unquantifiable liabilities, the potential loss of
key teammates and/or clients, difficulties in completing strategic initiatives already underway in the acquired companies,
and unfamiliarity with partners of the acquired company, each of which could have a material adverse effect on our
business, results of operations and financial condition. The success of our integration of acquired businesses assumes
certain synergies and other benefits. We cannot assure that these risks or other unforeseen factors will not offset the
intended benefits of the acquisitions, in whole or in part.
Sales of software licenses are subject to seasonal changes in demand and resulting sales activities. Our software
business is subject to seasonal change. In particular, software sales are seasonally much higher in our second and fourth
quarters. As a result, our quarterly results will be affected by lower demand in the first and third quarters. A majority of
our costs are not variable, and therefore a substantial reduction in sales during a quarter could have a negative effect on
operating results. In addition, periods of higher sales activities during certain quarters may require a greater use of
working capital to fund the business. During these periods, these increased working capital requirements could
temporarily increase our leverage and liquidity needs and expose us to greater financial risk. Due to these seasonal
changes, the operating results for any three-month period will not be indicative of the results that may be achieved for
any subsequent fiscal quarter or for a full fiscal year.
There are risks associated with our international operations that are different than the risks associated with our
operations in the U.S., 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, Finland, France,
Germany, Hong Kong, Italy, the Netherlands, Norway, Russia, Singapore, Spain, Sweden, Switzerland, the United
Kingdom and the U.S., and sales presence in Ireland and New Zealand. 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 Japan, we
serve our clients through a joint venture with Uchida Spectrum. 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:
political or economic instability;
changes in governmental regulation or taxation;
changes in import/export laws, regulations and customs and duties;
trade restrictions;
difficulties and costs of staffing and managing operations in certain foreign countries;
•
•
•
•
•
• work stoppages or other changes in labor conditions;
•
•
•
taxes and other restrictions on repatriating foreign profits back to the U.S.;
extended payment terms; and
seasonal reductions in business activity in some parts of the world.
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, 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.
Changes in, or interpretations of, 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;
changes in tax laws, regulations, and/or interpretations of such tax laws in multiple jurisdictions;
tax effects related to purchase accounting for acquisitions; and
16
INSIGHT ENTERPRISES, INC.
•
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.
International operations expose us to currency exchange risk and we cannot predict the effect of future exchange
rate fluctuations or the volatility of the U.S. dollar exchange rate on our business and operating results. 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 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.
We depend on certain key personnel. Our future success will be largely dependent on the efforts of key
management personnel. 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 personnel, 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 staff, which could have a material adverse effect on our business, results of
operations and financial condition.
The failure to comply with the terms and conditions of our public sector contracts could result in, among other
things, fines or other liabilities. Net 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. Government contracting is a highly regulated area. Noncompliance with government
procurement regulations or contract provisions could result in civil, criminal, and administrative liability, including
substantial monetary fines or damages, termination of government contracts, and suspension, debarment or ineligibility
from doing business with the government. In addition, substantially all of our contracts in the public sector are
terminable at any time for convenience of the contracting agency or upon default. The effect of any of these possible
actions by any governmental department or agency or the adoption of new or modified procurement regulations or
practices could materially adversely affect our business, financial position and results of operations.
Rapid changes in product standards may result in substantial inventory obsolescence. The IT industry is
characterized by rapid technological change and the frequent introduction of new products and product enhancements,
both of which can decrease demand for current products or render them obsolete. 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 relatively high inventory levels of certain
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.
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
17
INSIGHT ENTERPRISES, INC.
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
tradenames 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 in the form of cease-and-desist
letters, licensing inquiries, lawsuits and other communications. 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 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 tradenames, 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.
On January 11, 2008, the Board of Directors amended our bylaws to 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 teammate’s annual salary up to
two times the teammate’s annual salary and bonus.
18
INSIGHT ENTERPRISES, INC.
Any provision of our certificate of incorporation, bylaws or 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.
Item 2. Properties
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, 2008, we owned or leased a total of approximately 1.3 million square feet of office and warehouse space,
and, while approximately 85% of the square footage is in the United States, we own or lease office and warehouse
facilities in twelve countries in EMEA.
Information about significant sales, distribution, services and administration facilities in use as of December 31,
2008 is summarized in the following table:
Operating Segment
Headquarters
Location
Tempe, Arizona, USA
North America
EMEA
Tempe, Arizona, USA
Tempe, Arizona, USA
Bloomingdale, Illinois, USA
Hanover Park, Illinois, USA
Plano, Texas, USA
Liberty Lake, Washington, USA
Winnipeg, Manitoba, Canada
Montreal, Quebec, Canada
Mississauga, Ontario, Canada
Montreal, Quebec, Canada
Sheffield, United Kingdom
Sheffield, United Kingdom
Uxbridge, United Kingdom
Munich, Germany
Paris, France
Primary Activities
Executive Offices and
Administration
Sales and Administration
Sales and Administration
Sales and Administration
Services and Distribution
Sales and Administration
Sales and Administration
Sales and Administration
Sales and Administration
Sales and Administration
Distribution
Sales and Administration
Distribution
Sales and Administration
Sales and Administration
Sales and Administration
Own or Lease
Own
Own
Lease
Own
Lease
Lease
Lease
Lease
Own
Lease
Lease
Own
Lease
Lease
Lease
Lease
APAC
Sydney, New South Wales, Australia
Sales and Administration
Lease
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 9 to the Consolidated Financial Statements in Part II,
Item 8 of this report. These properties are not included in the table above. Subsequent to December 31, 2008, we
vacated our former headquarters building located in Tempe, Arizona, which is owned by the Company but is currently
19
INSIGHT ENTERPRISES, INC.
unoccupied. We also have leased facilities in the United Kingdom that are no longer in use following a move to more
desirable office space. These properties are also 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
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.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies”
(“SFAS 5”), we make a provision for a liability when it is both probable that a liability has been incurred and the amount
of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and are adjusted to reflect the
effects of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a
particular claim. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any
probable and estimable losses. It is possible, nevertheless, that the results of our operations or cash flows could be
materially and adversely affected in any particular period by the resolution of a legal proceeding. Legal expenses related
to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
On March 10, 2008, TeleTech Holdings, Inc. (“Teletech”) sent us a demand for arbitration pursuant to the Stock
Purchase Agreement (“SPA”) pursuant to which TeleTech acquired Direct Alliance Corporation (“DAC”), a former
subsidiary of Insight, effective June 30, 2006. TeleTech claims that it is entitled to a $5,000,000 “clawback” under the
SPA relating to the non-renewal of an agreement between DAC and one of its clients. We disputed TeleTech’s
allegations and are defending this matter in arbitration. In recording the disposition of DAC on June 30, 2006, we
deferred $5,000,000 as a contingent gain on sale related to this clawback.
On April 1, 2008, we completed the acquisition of Calence pursuant to an agreement and plan of merger (the
“Merger Agreement”), a related support agreement (the “Support Agreement”) and other ancillary agreements. In
April 2008, 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”) requesting documents related to the award, by the Universal Service Administration Company (“USAC”), of
funds under the E-Rate program to a participating school district. The E-Rate program provides schools and libraries
with discounts to obtain affordable telecommunications and internet access. No allegations were made against Calence,
and we have responded to the subpoena. Pursuant to the Merger Agreement and the Support Agreement, the former
owners of Calence have agreed to indemnify us for certain losses and damages that may arise out of or result from this
matter, including our fees and expenses for responding to the subpoena.
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 period specified in the first complaint is January 30,
2007 to February 6, 2009). The complaints, which seek unspecified damages, assert claims under the federal securities
laws relating to our February 9, 2009 announcement that we expected to restate our financial statements for the year
ended December 31, 2007 and for the first three quarters of 2008 and that the restatement would include a material
reduction of retained earnings. The complaints also allege that we issued false and misleading financial statements and
issued misleading public statements about our results of operations. None of the defendants have responded to the
complaints at this time.
On March 19, 2009, we received a letter of informal inquiry from the Division of Enforcement of the SEC
requesting certain documents and information relating to the Company’s historical accounting treatment of aged trade
credits. We are cooperating with the SEC. We cannot predict the outcome of this investigation.
Item 4. Submission of Matters to a Vote of Security Holders
None.
20
INSIGHT ENTERPRISES, INC.
PART II
Item 5. Market for Registrant’s 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 closing price per share for our common stock as reported on
the Nasdaq Global Select Market.
Common Stock
Year 2008
Fourth Quarter ..................................................................
Third Quarter ....................................................................
Second Quarter .................................................................
First Quarter ......................................................................
High Price
$13.38
17.11
18.20
19.00
Year 2007
Fourth Quarter ..................................................................
Third Quarter ....................................................................
Second Quarter .................................................................
First Quarter ......................................................................
$27.78
26.50
22.65
20.33
Low Price
$3.40
10.70
11.00
15.49
$17.47
22.24
17.98
17.75
As of April 30, 2009, we had 45,846,171 shares of common stock outstanding held by approximately 100
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.
Issuer Purchases of Equity Securities
On November 14, 2007, we announced that on November 13, 2007, our Board of Directors had authorized the
purchase of up to $50.0 million of our common stock through September 30, 2008. During the year ended December 31,
2008, we purchased in open market transactions 3.49 million shares of our common stock at a total cost of approximately
$50.0 million, or an average price of $14.31 per share, which represented the full amount authorized under the repurchase
program. All shares repurchased were retired as of June 30, 2008. We did not repurchase any shares of our common stock
during the fourth quarter of 2008.
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, 2004 and ending December 31, 2008. The
graph assumes that $100 was invested on January 1, 2004 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.
21
INSIGHT ENTERPRISES, INC.
NSIT
Market Index
Peer Index
$150
$125
$100
$75
$50
$25
$0
Jan. 1,
2004
Dec. 31,
2004
Dec. 31,
2005
Dec. 31,
2006
Dec. 31,
2007
Dec. 31,
2008
Insight Enterprises, Inc.
Common Stock (NSIT)
Nasdaq Stock Market U.S.
Companies (Market Index)
Nasdaq Retail Trade Stocks
(Peer Index)
Jan. 1,
2004
Dec. 31,
2004
Dec. 31,
2005
Dec. 31,
2006
Dec. 31,
2007
Dec. 31,
2008
100.00
108.98
104.14
100.21
96.87
36.64
100.00
108.84
111.16
122.11
132.42
63.80
100.00
126.84
128.04
139.83
127.23
88.82
22
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 “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in Part II, Item 7 of this report. The information presented in the following tables has been
adjusted to reflect the restatement of our consolidated financial results which is more fully described in the “Explanatory
Note Regarding Restatement of our Consolidated Financial Statements” immediately preceding Part I of this Annual
Report on Form 10-K and in Note 2 “Restatement of Consolidated Financial Statements” in the notes to the consolidated
financial statements. We derived the selected consolidated financial data as of December 31, 2008 and 2007 and for the
years ended December 31, 2008, 2007 and 2006 from our audited consolidated financial statements, and accompanying
notes, included in Part II, Item 8 of this report. The consolidated statements of operations data for the years ended
December 31, 2007 and 2006 and the consolidated balance sheet data as of December 31, 2007 have been restated in
connection with the restatements discussed in Note 2 of the notes to the consolidated financial statements. The
consolidated statement of operations data for the years ended December 31, 2005 and 2004 and the consolidated balance
sheet data as of December 31, 2006, 2005 and 2004 have been restated below as discussed in the Explanatory Note in the
front of this Annual Report on Form 10-K and in Note 2 of the notes to the consolidated financial statements.
We have not amended our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for
the periods affected by the restatement. The financial information that has been previously filed or otherwise reported
for these periods is superseded by the information in this Annual Report on Form 10-K, and the financial statements and
related financial information contained in those previously filed reports should no longer be relied upon.
2008
Consolidated Statements of Operations Data (1)
Net sales ..................................................................... $ 4,825,489
Costs of goods sold .................................................... 4,161,906
663,583
Gross profit ..........................................................
Operating expenses:
Selling and administrative expenses ........................
Goodwill impairment ...............................................
Severance and restructuring expenses ......................
Reductions in liabilities assumed in a previous
acquisition ..............................................................
(Loss) earnings from operations ...........................
Non-operating (income) expense:
Interest income .........................................................
Interest expense .......................................................
Net foreign currency exchange loss (gain) ...............
Other expense, net....................................................
(Loss) earnings from continuing operations
561,987
397,247
8,595
-
(304,246)
(2,387)
13,479
9,629
1,107
Years Ended December 31,
2006
2005
2007
As Restated As Restated As Restated
As Restated
(4)
(5)
(4)
(in thousands, except per share data)
2004
(5)
$ 4,805,474
4,146,848
658,626
$ 3,599,937
3,133,751
466,186
$ 2,920,135
2,561,519
358,616
$ 2,798,545
2,458,828
339,717
542,322
-
2,595
-
113,709
(2,078)
12,852
(3,887)
1,531
376,722
-
729
281,934
-
11,962
277,129
-
2,435
-
88,735
(4,355)
5,985
(1,135)
901
87,339
30,882
56,457
(664)
65,384
(3,394)
1,850
72
782
66,074
26,009
40,065
(3,617)
63,770
(1,849)
1,989
262
1,190
62,178
16,362
45,816
before income taxes ...........................................
(326,074)
105,291
Income tax (benefit) expense .....................................
Net (loss) earnings from continuing operations ...
Earnings from discontinued operations, net of
taxes (2) .................................................................
Net (loss) earnings before cumulative effect of
change in accounting principle ............................
(86,347)
(239,727)
40,686
64,605
-
4,151
13,084
8,975
32,328
(239,727)
68,756
69,541
49,040
78,144
Cumulative effect of change in accounting
principle, net of taxes (3) ...........................................
Net (loss) earnings ..................................................... $ (239,727) $
-
-
68,756
-
69,541
$
(649)
48,391
$
-
78,144
$
23
INSIGHT ENTERPRISES, INC.
2008
Years Ended December 31,
2006
2005
2007
As Restated As Restated As Restated
As Restated
(4)
(5)
(4)
(in thousands, except per share data)
2004
(5)
Consolidated Statements of Operations Data (1)
Net (loss) earnings per share - Basic:
Net (loss) earnings from continuing operations ... $
Net earnings from discontinued operations (2) ........
Cumulative effect of change in accounting
principle (3) .........................................................
Net (loss) earnings per share ................................ $
Net (loss) earnings per share - Diluted:
Net (loss) earnings from continuing operations ... $
Net earnings from discontinued operations (2) ........
Cumulative effect of change in accounting
principle (3) ..........................................................
Net (loss) earnings per share ................................ $
Shares used in per share calculations:
Basic ....................................................................
Diluted .................................................................
(5.15)
-
-
(5.15)
(5.15)
-
-
(5.15)
$
$
$
$
1.32
0.08
-
1.40
1.29
0.08
-
1.37
$
$
$
$
1.17
0.27
-
1.44
1.15
0.27
-
1.42
$
$
$
$
0.83
0.18
(0.01)
1.00
0.82
0.18
(0.01)
0.99
$
$
$
$
0.95
0.67
-
1.62
0.92
0.67
-
1.59
46,573
46,573
49,055
50,120
48,373
49,006
48,553
49,057
48,389
49,220
2008
2007
As Restated
(4)
2005
As Restated As Restated As Restated
(5)
2004
(5)
December 31,
2006
(5)
(in thousands)
Consolidated Balance Sheet Data
Working capital ......................................................... $ 317,467
Total assets ................................................................ 1,607,640
Short-term debt ..........................................................
-
228,000
Long-term debt .........................................................
421,968
Stockholders’ equity ..................................................
Cash dividends declared per common share ..............
-
$ 417,574
1,889,100
15,000
187,250
741,738
-
$ 382,983
1,800,050
30,000
224,250
663,629
-
$ 346,069
933,331
66,309
-
547,729
-
$
355,385
895,162
25,000
-
548,922
-
(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. See further discussion in Note
19 to the Consolidated Financial Statements in Part II, Item 8 of this report.
(2) Earnings from Discontinued Operations. During the year ended December 31, 2007, we sold PC Wholesale, a division of our
North American operating segment. During the year ended December 31, 2006, we sold Direct Alliance, a business process
outsourcing provider in the U.S. During the year ended December 31, 2004, we sold our 95% ownership in PlusNet, an Internet
service provider in the United Kingdom. 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, 2006 and 2004 are the gain on the sale of PC Wholesale of
$5.6 million, $3.4 million net of taxes, the gain on the sale of Direct Alliance of $14.9 million, $9.0 million net of taxes, and the
gain on the sale of PlusNet of $23.7 million, $18.3 million net of taxes, respectively.
(3) Upon adoption of Financial Accounting Standards Board (“FASB”) Financial Interpretation No. 47, “Accounting for
Conditional Asset Retirement Obligations” (“FIN 47”), during 2005, we recorded a non-cash cumulative effect of a change in
accounting principle of $979,000 ($649,000 net of tax), representing cumulative amortization of the leasehold improvements and
accretion of the long-term liability since the lease inception dates.
(4) See the Explanatory Note in the front of this Annual Report on Form 10-K, “Restatement of Consolidated Financial Statements” in
Part II, Item 7 and Note 2 to the Consolidated Financial Statements in Part II, Item 8 of this report for the effects of the restatement
adjustments on our consolidated financial statements as of December 31, 2007 and for the years ended December 31, 2007 and
2006.
(5) The selected consolidated financial data as of December 31, 2006, 2005 and 2004 and for the years ended December 31, 2005 and
2004 have been adjusted to reflect the restatements described in Note 2, “Restatement of Consolidated Financial Statements,” to the
Consolidated Financial Statements in Part II, Item 8 of this report. The effects of the restatement adjustments on our consolidated
statements of operations data for the years ended December 31, 2005 and 2004 and on our consolidated balance sheet data as of
December 31, 2006, 2005 and 2004 are presented in the tables following these notes.
24
INSIGHT ENTERPRISES, INC.
The table below reflects the effects of the restatement adjustments on our consolidated statements of operations data
for the years ended December 31, 2005 and 2004 (in thousands, except per share data):
Year Ended December 31, 2005
Year Ended December 31, 2004
Consolidated Statements of Operations Data
As Reported
Adjustments
Net sales ..................................................... $ 2,931,209 $
Costs of goods sold .....................................
Gross profit .........................................
2,566,100
365,109
Operating expenses:
Selling and administrative expenses .......
Severance and restructuring
Expenses .............................................. 11,962
Reductions in liabilities assumed in a
279,161
previous acquisition .............................
Earnings (loss) from operations ..........
(664)
74,650
Non-operating (income) expense:
Interest income ........................................
Interest expense .......................................
Net foreign currency exchange (gain)
loss ......................................................
Other expense, net ...................................
(3,394)
1,914
72
782
Earnings (loss) from continuing
operations before income taxes .........
75,276
Income tax expense .................................... 29,591
(11,074) $
(4,581)
(6,493)
As Restated
2,920,135
2,561,519
358,616
As Reported Adjustments As Restated
$ 2,798,545
$ 2,780,484 $
2,458,828
339,717
2,437,885
342,599
18,061
20,943
(2,882)
2,773
281,934
276,203
926
277,129
-
11,962
-
(9,266)
-
(64)
-
-
(9,202)
(3,582)
(664)
65,384
(3,394)
1,850
72
782
66,074
26,009
2,435
(3,617)
67,578
(1,849)
2,011
262
1,190
65,964
17,835
-
2,435
-
(3,808)
-
(22)
-
-
(3,786)
(1,473)
(3,617)
63,770
(1,849)
1,989
262
1,190
62,178
16,362
Earnings (loss) from continuing
operations .........................................
Earnings from discontinued
45,685
(5,620)
40,065
48,129
(2,313)
45,816
operations, net of taxes ....................
8,975
-
8,975
32,328
-
32,328
54,660
(5,620)
49,040
80,457
(2,313)
78,144
(649)
54,011 $
-
(5,620) $
(649)
48,391
$
-
80,457 $
-
(2,313) $
-
78,144
Net earnings before cumulative
change in accounting principle ..........
Cumulative effect of changes in
accounting principle, net of taxes of
$330 in 2005 ............................................
Net earnings (loss) ............................. $
Net earnings per share - Basic:
Net earnings (loss) from continuing
operations .........................................
$
Net earnings from discontinued
0.94
$
(0.11)
$
0.83
$
0.99
$
(0.04)
$
operation .........................................
0.18
-
Cumulative effect of changes in
accounting principle
Net earnings per share ........................ $
(0.01)
1.11 $
-
(0.11) $
0.18
(0.01)
1.00
0.67
-
$
-
1.66 $
-
(0.04) $
Net earnings per share - Diluted:
Net earnings (loss) from continuing
operations ..........................................
$
Net earnings from discontinued
operation ...........................................
Cumulative effect of changes in
accounting principle ..........................
Net earnings per share ........................ $
0.93
$
(0.11)
$
0.82
$
0.96
$
(0.04)
$
0.18
-
(0.01)
1.10 $
-
(0.11) $
0.18
(0.01)
0.99
0.67
-
$
-
1.63 $
-
(0.04) $
0.95
0.67
-
1.62
0.92
0.67
-
1.59
Shares used in per share calculations:
Basic
Diluted
48,553
49,057
48,553
49,057
48,389
49,220
-
-
48,389
49,220
-
-
25
INSIGHT ENTERPRISES, INC.
The tables below reflect the effects of the restatement adjustments on our consolidated balance sheet data as of
December 31, 2006, 2005 and 2004 (in thousands):
December 31, 2006
December 31, 2005
As Reported Adjustments
As Restated
As Reported Adjustments
As Restated
(21,115) $
10,991
-
-
(22,184)
346,069
933,331
66,309
-
547,729
Consolidated Balance Sheet Data
Working capital ........................... $ 413,085
1,780,265
Total assets ..................................
30,000
Short-term debt ............................
224,250
Long-term debt ...........................
690,350
Stockholders’ equity ....................
$
(30,102) $
19,785
-
-
(26,721)
382,983
1,800,050
30,000
224,250
663,629
$
367,184 $
922,340
66,309
-
569,913
December 31, 2004
As Reported
Adjustments As Restated
Consolidated Balance Sheet Data
Working capital ........................... $
Total assets ..................................
Short-term debt ............................
Long-term debt ...........................
Stockholders’ equity ....................
370,873 $
887,641
25,000
-
565,517
(15,488) $
7,521
-
-
(16,595)
355,385
895,162
25,000
-
548,922
26
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of our operations, which gives effect to the
restatement discussed in Note 2 to the Consolidated Financial Statements, 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 these 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.
Restatement of Consolidated Financial Statements
Background
On February 9, 2009, following an internal review we issued a press release announcing that our management had
identified errors in the Company’s accounting for trade credits in prior periods dating back to December 1996. The
internal review encompassed aged trade credits, including both aged accounts receivable credits and aged accounts
payable credits, arising in the ordinary course of business that were recognized in the Company’s statements of
operations prior to the legal discharge of the underlying liabilities under applicable domestic and foreign laws. In a Form
8-K filed on February 10, 2009, we reported that the Company’s financial statements, assessment of the effectiveness of
internal control over financial reporting and related audit reports thereon in our most recently filed Annual Report on
Form 10-K, for the year ended December 31, 2007, and the interim financial statements in our Quarterly Reports on
Form 10-Q for the first three quarters of 2008, and all earnings press releases and similar communications issued by the
Company relating to such financial statements, should no longer be relied upon.
We informed the administrative agents and lenders under our senior revolving credit facility, our accounts
receivable securitization financing facility and our inventory financing facility of our intention to restate our financial
statements. The errors and restatement constituted a default under each of these facilities. Accordingly, we sought and
received the waivers required to resolve this default.
Following management’s identification of errors in the Company’s accounting for aged trade credits, the Company
retained outside legal counsel to conduct a factual investigation into the Company’s accounting practices pertaining to
aged trade credits. The Board of Directors and its Audit Committee separately retained counsel to oversee and
participate in the investigation, reach findings, and propose remedial measures to the Audit Committee. Company
counsel and board counsel jointly retained forensic accountants to assist in the investigation and to gather documents and
information from Company personnel. As part of this investigation and review process, outside counsel and forensic
accountants gathered and evaluated documents and interviewed current and former Company employees. The Audit
Committee was advised of the progress of the investigation and the internal review on a regular basis.
Outside counsel has informed the Audit Committee that the internal investigation is complete. Board counsel has
presented its findings to the Audit Committee. Interviews, document reviews and forensic analysis conducted during the
internal investigation did not indicate an intent to manipulate the Company’s accounting or financial results. The Audit
Committee has received these findings as well as the recommendations of management, board counsel and other advisors
concerning the proposed remedial actions to be taken with respect to the aged trade credit issue. The Audit Committee
has adopted these remedial measures and directed management to implement them under the supervision of the Audit
Committee. Detailed information about the remedial measures that management plans to implement is included in Part
II, Item 9A “Controls and Procedures” of this report.
We determined, based upon the results of our internal review and analysis and the related internal investigation, that
the periods in which certain aged trade credits in accounts receivable and accounts payable were previously recorded as a
reduction of costs of goods sold preceded the periods in which the Company was legally discharged of the underlying
liabilities under applicable domestic and foreign laws. The restated consolidated financial statements included in this
Annual Report on Form 10-K reflect the corrections resulting from our determination. The cumulative restatement
charge covering the period from December 1, 1996 through September 30, 2008 related to this trade credit issue is $61.2
million, or $37.7 million after taxes. These aged trade credit liabilities totaled $59.4 million as of December 31, 2008.
We expect that the final settlement of these liabilities with our clients and our partners and ultimately with state and/or
foreign regulatory bodies may take multiple years and may be settled for less than the estimated liability. However, we
cannot provide any assurances that the final settlement will be materially lower.
27
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The matters that have caused us to restate our financial statements and data previously reported are further discussed
below and in Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and
Supplementary Data.” In addition, in connection with the investigation and restatement process, we identified a material
weakness in our internal control over financial reporting. As a result, management has concluded that the Company’s
internal control over financial reporting was not effective as of December 31, 2008. A description of that material
weakness, as well as management’s plan to remediate that material weakness, is more fully discussed in Part II, Item 9A,
“Controls and Procedures.”
We have incurred substantial expenses related to our internal review, including the cost of outside legal counsel,
forensic accounting consultants and outside consultants engaged to assist management in quantifying the related
liabilities under applicable domestic and foreign laws. We have incurred approximately $4.1 million in such costs
through March 31, 2009 and anticipate additional fees will be incurred in the completion of the financial statement
restatement and related matters.
Restatement Adjustments
We determined that corrections to our consolidated financial statements are required to reverse material prior period
reductions of costs of goods sold and the related income tax effects as a result of these incorrect releases of aged trade
credits prior to the legal discharge of the underlying liability. These trade credits arose from 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.
We recorded an aggregate gross charge of approximately $35.2 million to our consolidated retained earnings as of
December 31, 2005 and established a related current liability. This amount represented approximately $33.0 million of
costs of goods sold and $2.2 million of selling and administrative expenses relating to the period from December 1, 1996
through December 31, 2005. The aggregate tax benefit related to these trade credit restatement adjustments is $13.8
million, which benefit reduced the charge to retained earnings as of December 31, 2005 and established a related
deferred tax asset. In addition, our statements of operations for the years ended December 31, 2006 and 2007, and the
quarters ended March 31, June 30, and September 30, 2008 contained in this Annual Report have been restated to reflect
an aggregate of approximately $9.5 million, $10.2 million, $2.8 million, $2.2 million and $1.3 million, respectively, of
increases in costs of goods sold and to establish a related current liability relating to aged trade credits. These reinstated
aged trade credit liabilities totaled $59.4 million at December 31, 2008 and are recorded in accrued expenses and other
current liabilities.
Other Miscellaneous Accounting Adjustments
In addition to the restatements for aged trade credits, we also corrected previously reported financial statements for
the following other miscellaneous accounting adjustments as a result of a review of our critical accounting policies:
• An adjustment of $2.7 million to allocate a portion of our North America goodwill not previously allocated
to the carrying amount of a division of our North America operating segment that we sold on March 1,
2007 in determining the gain on sale. This adjustment reduced the gain on sale of the discontinued
operation recorded in the three months ended March 31, 2007, which gain is included in earnings from
discontinued operations. The tax effect of this adjustment was $1.1 million.
• Adjustments to hardware net sales and costs of goods sold recognized in prior periods to recognize sales
based on a “de facto” passage of title at the time of delivery. Although 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, we have a
general practice of covering customer losses while products are in transit despite our stated shipping terms,
and as a result delivery is not deemed to have occurred until the product is received by the client. The net
increase (decrease) in gross profit resulting from these adjustments was $20,000, $440,000 and ($522,000)
for the years ended December 31, 2006 and 2007 and the nine months ended September 30, 2008,
respectively. The tax expense (benefit) related to these adjustments was $8,000, $174,000 and ($201,000)
for the years ended December 31, 2006 and 2007 and the nine months ended September 30, 2008,
respectively. Adjustments related to periods prior to 2006 resulted in an $895,000 reduction of retained
earnings as of December 31, 2005.
28
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
• Adjustments to recognize stock based compensation expense related to performance-based RSUs 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) instead of on a straight-line basis
over the requisite service period for the entire award. The net increase (decrease) in operating expenses
was $2.4 million, $2.5 million and ($1.2 million) for the years ended December 31, 2006 and 2007 and the
nine months ended September 30, 2008, respectively.
• Adjustments to capitalize interest on internal-use software development projects in prior periods and
record the related amortization expense thereon. The net increase (decrease) in pretax earnings resulting
from these adjustments was $805,000, $386,000 and ($4,000) for the years ended December 31, 2006 and
2007 and the nine months ended September 30, 2008, respectively. The tax expense (benefit) related to
these adjustments was $318,000, $152,000 and ($2,000) for the years ended December 31, 2006 and 2007
and the nine months ended September 30, 2008, respectively. Adjustments related to periods prior to 2006
resulted in a $50,000 reduction of retained earnings as of December 31, 2005.
• Revisions in the classification of consideration that exceeded the specific, incremental identifiable costs of
shared marketing expense programs of $5.0 million, $7.3 million and $4.6 million for the years ended
December 31, 2006 and 2007 and the nine months ended September 30, 2008, respectively, to reflect such
excess consideration as a reduction of costs of goods sold instead of a reduction of the related selling
administration expenses. These revisions in classification related to our EMEA operating segment and had
no effect on reported net earnings in any period.
29
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The table below presents the decrease in net earnings resulting from the individual restatement adjustments for each
respective period presented (in thousands):
Nine Months
Ended
September
30,
2008
Year Ended December 31,
2007
2006
2005
2004
Increase (decrease) in net sales:
F.O.B. destination adjustments .........
$
(9,288)
$
5,043 $
6,681
$
(11,074) $
18,061
Total adjustments to net sales .......
(9,288)
5,043
6,681
(11,074)
18,061
Increase (decrease) in costs of goods sold:
Trade credit adjustments ...................
F.O.B. destination adjustments .........
Reclassification of partner funding ...
Total adjustments to costs of goods
sold ...........................................
6,347
(8,766)
(4,554)
10,161
4,603
(7,259)
9,458
6,661
(4,967)
9,128
(10,939)
(2,770)
4,847
17,021
(925)
(6,973)
7,505
11,152
(4,581)
20,943
Net decrease in gross profit .....................
(2,315)
(2,462)
(4,471)
(6,493)
(2,882)
Increase (decrease) in operating expenses:
Stock-based compensation ................
Reclassification of partner funding ...
Amortization of capitalized interest ..
Goodwill impairment ........................
Total adjustments to operating
(1,243)
4,554
113
(181)
expenses ....................................
3,243
Net decrease in earnings (loss) from
2,543
7,259
129
-
9,931
2,363
4,967
3
-
7,333
-
2,770
3
-
2,773
-
925
1
-
926
operations ...........................................
(5,558)
(12,393)
(11,804)
(9,266)
(3,808)
Decrease in non-operating expenses:
Capitalized interest ............................
Total adjustments to non-operating
expenses ....................................
Total adjustments to earnings (loss) from
continuing operations before income
taxes ..................................................
Income tax benefit ..................................
Total adjustments to earnings (loss) from
continuing operations ........................
Decrease in gain on sale of a discontinued
operation ...........................................
Income tax benefit ..................................
Total adjustments to earnings from
discontinued operations, net of tax ....
(109)
(109)
(515)
(515)
(808)
(808)
(64)
(64)
(22)
(22)
(5,449)
2,187
(11,878)
4,472
(10,996)
3,719
(9,202)
3,582
(3,786)
1,473
(3,262)
(7,406)
(7,277)
(5,620)
(2,313)
-
-
-
(2,699)
1,066
(1,633)
-
-
-
-
-
-
-
-
-
Total decrease in net earnings .................
$
(3,262)
$
(9,039) $
(7,277) $
(5,620) $
(2,313)
The decrease in net earnings resulting from the trade credit adjustments was $3.1 million, $4.5 million, $3.5 million,
$333,000, $762,000, $466,000, $224,000 and $0 for the years ended December 31, 2003, 2002, 2001, 2000, 1999, 1998,
1997 and 1996, respectively. The tax benefit related to these adjustments was $2.0 million, $2.9 million, $2.3 million,
$217,000, $498,000, $304,000, $146,000 and $0 for the years ended December 31, 2003, 2002, 2001, 2000, 1999, 1998,
1997 and 1996, respectively. Aggregate F.O.B. destination adjustments related to periods prior to 2004 resulted in a
$1.4 million reduction of retained earnings. No other restatement adjustments were made prior to the year ended
December 31, 2004.
Related Proceedings
On March 19, 2009, we received an informal inquiry from the Division of Enforcement of the SEC requesting
certain documents and information relating to the Company’s historical accounting treatment of aged trade credits. We
are cooperating with the SEC. We cannot predict the outcome of this investigation.
30
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 period specified in the first complaint is January 30,
2007 to February 6, 2009). The complaints, which seek unspecified damages, assert claims under the federal securities
laws relating to our February 9, 2009 announcement that we expected to restate our financial statements for the year
ended December 31, 2007 and for the first three quarters of 2008 and that the restatement would include a material
reduction of retained earnings. The complaints also allege that we issued false and misleading financial statements and
issued misleading public statements about our results of operations. None of the defendants have responded to the
complaints at this time.
Overview
We are a leading provider of information technology (“IT”) hardware, software and services to small, medium and
large businesses and public sector institutions 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 and to establish Insight as a Global Value-Added
Reseller (“G-VAR”), differentiating us in the marketplace and giving us a competitive advantage.
Net sales for the year ended December 31, 2008 increased slightly over the year ended December 31, 2007. While
net sales for the year ended December 31, 2008 compared to the year ended December 31, 2007 remained flat in North
America, net sales in EMEA declined 2% and net sales in APAC grew 42% year over year. We reported a net loss from
continuing operations of $239.7 million and a diluted loss per share of $5.15 for the year ended December 31, 2008,
primarily as a result of a $276.7 million, net of tax, goodwill impairment charge taken during the year. Net earnings
from continuing operations for the year ended December 31, 2007 increased 14% and diluted earnings from continuing
operations per share increased 12% compared to the year ended December 31, 2006.
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.
The results of operations for the year ended December 31, 2007 include the effect of the following items:
•
•
•
•
expenses of $13.0 million, $7.9 million net of tax, for professional fees and costs associated with our
stock option review;
gain on sale of a discontinued operation of $5.6 million, $3.4 million net of tax;
foreign currency gains of $3.9 million, $2.5 million net of tax; and
severance and restructuring expenses of $2.6 million, $1.5 million net of tax.
The results of operations for the year ended December 31, 2006 include the following items:
•
•
•
•
gain on the sale of a discontinued operation of $14.9 million, $9.0 million net of tax;
expenses of $1.6 million, $1.0 million net of tax, for professional fees associated with our stock
option review;
foreign currency gains of $1.1 million, $751,000 net of tax; and
severance and restructuring expenses of $729,000, $454,000 net of tax.
On July 10, 2008, we acquired MINX Limited (“MINX”), a United Kingdom-based networking services company
with annual net sales of approximately $25.0 million, for an initial cash purchase price of approximately $1.5 million and
31
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
the assumption of approximately $3.9 million of existing debt. Up to an additional $550,000 may be due if MINX
achieves certain performance targets over a one-year period. Founded in 2002, MINX is a network integrator with Cisco
Gold Partner accreditation in the United Kingdom. We believe this acquisition will significantly enhance our
capabilities in the sale, implementation and management of network infrastructure services and solutions in our EMEA
operating segment and will complement 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”), one of the nation’s largest
independent technology solutions providers specializing in Cisco networking solutions, advanced communications and
managed services, for a cash purchase price of $125.0 million plus a preliminary working capital adjustment of
approximately $4.0 million, offset by a final post-closing working capital adjustment of $383,000. Up to an additional
$35.0 million of purchase price consideration may be due if Calence achieves certain performance targets over the next
four years. During the year ended December 31, 2008, we accrued an additional $9.8 million of purchase price
consideration and $532,000 of accrued interest thereon as a result of Calence achieving certain performance targets
during the year. Such amounts were recorded as additional goodwill. See discussion relating to goodwill in Note 5 to
the Consolidated Financial Statements in Part II, Item 8 of this report. We also assumed Calence’s existing debt totaling
approximately $7.3 million, of which $7.1 million was repaid by us at closing. This acquisition is consistent with our
vision and strategy to become a global value added reseller (“G-VAR”) through continued investment in certain key
technology categories, including networking and advanced communications.
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.
We consider the following to be our critical accounting estimates used in the preparation of our Consolidated
Financial Statements:
Sales Recognition
We adhere to guidelines and principles of sales recognition described in Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue Recognition” (“SAB 104”), issued by the staff of the Securities and Exchange Commission (the “SEC”). Under
SAB 104, 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 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
32
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 limit 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.
We also adhere to the guidelines and principles of software revenue recognition described in Statement of Position 97-
2, “Software Revenue Recognition” (“SOP 97-2”). 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 in
accordance with SAB 104 and Emerging Issues Task Force (“EITF”) Issue No. 00-21 “Accounting for Revenue
Arrangements with Multiple Deliverables.” Accordingly, we recognize 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 as defined in SAB 104 and EITF
Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (“EITF 99-19”), 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 in accordance with
the sales recognition criteria outlined in SAB 104 and EITF 99-19. 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 in accordance with statement of position (“SOP”) 81-1 “Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.” We recognize these services using the percentage of
completion method of accounting 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 a reduction to costs of goods sold. Partner funding
received pursuant to volume purchase incentive programs is allocated to inventories based on the applicable incentives
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.
33
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of SFAS No. 123R, “Share-Based
Payment” (“SFAS 123R”). Under the fair value recognition provisions of SFAS 123R, 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, as permitted
by SFAS 123R.
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 12 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. Our asset impairment review
assesses the fair value 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 the fair 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 fair value, an impairment loss is
recognized for the difference. 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.
34
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 our recorded goodwill is impaired. We continually assesses
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 segment
management regularly reviews the operating results of that component. When two or more components of an operating
segment have similar economic characteristics, the components shall 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, 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 the 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 unit’s 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.
At December 31, 2007, our goodwill balance 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.
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 was recorded as goodwill in the respective reporting unit. The primary driver for these acquisitions was
to enhance our technical capabilities around networking, advanced communications and managed services and to help
accelerate our transformation to a broad-based technology solutions advisor and provider.
35
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
In consideration of market conditions and the decline in our overall market capitalization resulting from decreases in
the market price of Insight’s 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 in accordance with SFAS 142. 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 Insight’s 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
Insight’s 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 in
accordance with SFAS 142 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, and included 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, future market growth, forecasted sales and costs and
appropriate discount rates. The Company assigned discount rates of 14%, 18% and 19% for our North America, EMEA
and APAC reporting units, respectively, based on the weighted average cost of capital of seven comparable companies,
excluding Insight. To ensure the reasonableness of the estimated fair values of our reporting units, we performed a
reconciliation of our total market capitalization to the estimated fair value of the all of our reporting units. 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, $201,050,000 net of taxes, 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. The charge is included in (loss) earnings
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 Insight’s 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. We performed the first step of the two-
step goodwill impairment test in accordance with SFAS 142 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, and included 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 included, but were not limited to, future
market growth, forecasted sales and costs and appropriate discount rates. The Company assigned discount rates of 15%,
18% and 19% for our North America, EMEA and APAC reporting units, respectively, based on the weighted average
cost of capital of seven comparable companies, excluding Insight. To ensure the reasonableness of the estimated fair
36
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
values of our reporting units, we performed a reconciliation of our total market capitalization to the estimated fair value
of the all of our reporting units. 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.
In step two of the impairment test, we determined the implied fair value of the goodwill in each of our three
reporting units and compared it to the carrying value of the related goodwill. We allocated the fair value of each of our
reporting units to all of their respective assets and liabilities as if each of the reporting units had been acquired in a
business combination and the fair value of the 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 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, $75,657,000 net of taxes, which
represented the entire amount of the goodwill recorded in all three of our operating segments as of December 31, 2008,
including goodwill recorded in connection with the MINX acquisition. The charge is included in (loss) earnings from
continuing operations for the year ended December 31, 2008.
The goodwill impairment charge in North America in the second quarter of 2008 was a result of the deteriorating
economic environment, particularly its effect on our legacy hardware business, which contributed to lower than expected
net sales and caused management to reassess our expectations about future domestic market growth. By the fourth
quarter of 2008, the effects of the global recession were negatively affecting our results of operations in all of our
operating segments, indicating a need for management to again reassess projections of future domestic and foreign
market growth, leading to the incremental fourth quarter of 2008 goodwill impairment charge in all three of our
operating segments. Market growth projections have been reduced significantly throughout 2008. Until sustained
improvements in the global macroeconomic environment are evident, projections of future growth are not anticipated to
return to the historical levels that contributed to the valuations of the Company’s past business combinations. The
decline in anticipated growth has not, however, affected the sustainability of the Company’s overall business model,
which continues to generate positive cash flow, such that the Company is able to meet our obligations in the normal
course of business.
See further information on the carrying value of goodwill and the impairment charges recorded in 2008 in Note 5 to
the Consolidated Financial Statements in Part II, Item 8 of this report.
In conjunction with the impairment analysis of our goodwill, we assessed the recoverability of our other long-lived
assets, including intangible assets and property and equipment 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 was based on the lowest level for which identifiable cash flows are largely independent of the cash
flows of other groups of assets and liabilities. For each of our intangible assets and property and equipment categories
within each of our three operating segments, the estimated fair value of those assets exceeded the carrying amount, and
no impairment was indicated.
Severance and Restructuring Activities
We have engaged, and may continue to engage, in severance and restructuring activities which require us to utilize
significant estimates related primarily to employee termination benefits, estimated 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, 2008 can be found in Note 10 to the Consolidated Financial Statements in Part II, Item 8 of this report.
Taxes on Earnings
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.
37
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 the net deferred tax assets would be realized, the previously provided
valuation allowance would be reversed. Upon adoption of SFAS No. 141 (revised 2007), “Business Combinations” on
January 1, 2009, any change in a valuation allowance established in purchase accounting will be a benefit to or charge
against earnings. Additional information about the valuation allowance can be found in Note 11 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
under the “probable and estimable” criteria of SFAS 5. 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, 2008, 2007 and 2006:
2008
100.0%
86.2
13.8
2007
As Restated
(1)
2006
As Restated
(1)
100.0%
86.3
13.7
100.0%
87.1
12.9
11.7
8.2
0.2
(6.3)
0.5
(6.8)
(1.8)
(5.0)
-
11.3
-
-
2.4
0.2
2.2
0.9
1.3
0.1
10.5
-
-
2.4
-
2.4
0.8
1.6
0.3
Net sales.................................................................................................
Costs of goods sold ................................................................................
Gross profit.......................................................................................
Operating expenses:
Selling and administrative expenses ....................................................
Goodwill impairment ...........................................................................
Severance and restructuring expenses ..................................................
(Loss) earnings from operations .......................................................
Non-operating expense, net ..............................................................
(Loss) earnings from continuing operations before income taxes....
Income tax (benefit) expense .................................................................
Net (loss) earnings from continuing operations ...............................
Earnings from discontinued operations, net of taxes........................
Net (loss) earnings .................................................................................
(1) See the explanatory note in the front of this Annual Report on Form 10-K, “Restatement of Consolidated Financial
Statements” in Part II, Item 7 and Note 2 to the Consolidated Financial Statements in Part II, Item 8 of this report.
(5.0%)
1.4%
1.9%
2008 Compared to 2007
Net Sales. Net sales for the year ended December 31, 2008 were essentially flat compared to the year ended
December 31, 2007. Our net sales by operating segment for the years ended December 31, 2008 and 2007 were as
follows (dollars in thousands):
38
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
2008
% Change
North America .........................................
EMEA ......................................................
APAC ......................................................
Consolidated ............................................
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
3,362,544
1,309,365
153,580
4,825,489
$
$
-
(2%)
42%
-
2007
As Restated
(1)
$ 3,367,998
1,329,682
107,794
$ 4,805,474
Net sales in North America remained flat for the year ended December 31, 2008 compared to the year ended
December 31, 2007 as the 55% growth in our networking and connectivity hardware sales with the acquisition of
Calence on April 1, 2008 was more than offset by declines in our legacy hardware business such that overall hardware
net sales in North America for the year ended December 31, 2008 decreased 3% year over year. Hardware net sales,
other than networking and connectivity, declined 14% year over year reflecting the effects of the difficult 2008 market.
Software net sales for the year ended December 31, 2008 decreased 2% compared to the year ended December 31, 2007.
Net sales from services, which also benefited from the acquisition of Calence, increased 88% year over year, which
includes 16% growth in the legacy services business in North America. North America had 1,285 account executives at
December 31, 2008, a decrease from 1,349 at December 31, 2007. This decrease is due to planned attrition offset
partially by the net increases as a result of the acquisition of Calence. Net sales per average number of account
executives in North America approximated $2.6 million for the years ended December 31, 2008 and 2007. The average
tenure of our account executives in North America has increased to 4.7 years at December 31, 2008 from 4.2 years at
December 31, 2007.
Net sales in EMEA decreased $20.3 million or 2% for the year ended December 31, 2008 compared to the year
ended December 31, 2007. The negative year over year comparison resulted from an 8% decline in hardware sales,
partially offset by increases in software and services, which grew 2% and 25% respectively, year over year. The results
were also significantly negatively affected by foreign currency translation, which accounted for $12.5 million, or 62% of
the year over year dollar decline. EMEA had 680 account executives at December 31, 2008, an increase from 571 at
December 31, 2007, including net increases as a result of the acquisition of MINX. Net sales per average number of
account executives in EMEA decreased to $2.1 million for the year ended December 31, 2008 compared to $2.5 million
for the year ended December 31, 2007 due primarily to the negative effect of foreign currency translation. The average
tenure of our account executives in EMEA has increased from 3.0 years at December 31, 2007 to 3.4 years at December
31, 2008.
Our APAC segment recognized net sales of $153.6 million for the year ended December 31, 2008, an increase of
$45.8 million or 42%, compared to the year ended December 31, 2007 as the segment has benefited from the hiring of
incremental experienced software sales and support teammates early in 2008.
39
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net sales by category for North America, EMEA and APAC were as follows for the years ended December 31, 2008
and 2007:
North America
Years Ended December 31,
Sales Mix
2008
Network and Connectivity ......
Notebooks and PDAs .............
Servers and Storage ................
Desktops .................................
Printers ...................................
Memory and Processors .........
Supplies and Accessories .......
Monitors and Video ................
Miscellaneous .........................
Hardware .............................
Software ..............................
Services ...............................
17%
9%
9%
7%
4%
3%
3%
4%
8%
64%
31%
5%
100%
2007
As Restated
(1)
11%
11%
10%
7%
5%
4%
4%
5%
8%
65%
32%
3%
100%
EMEA
APAC
Years Ended December 31, Years Ended December 31,
2008
2007
2008
2007
4%
7%
6%
4%
3%
1%
3%
3%
3%
34%
65%
1%
100%
4%
8%
7%
4%
3%
2%
3%
3%
3%
37%
62%
1%
100%
-
-
-
-
-
-
-
-
-
-
100%
-
100%
-
-
-
-
-
-
-
-
-
-
100%
-
100%
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
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.
Gross Profit. Gross profit increased 1% for the year ended December 31, 2008 compared to the year ended
December 31, 2007, with a 10 basis point increase in gross margin. Our gross profit and gross profit as a percent of net
sales by operating segment for the years ended December 31, 2008 and 2007 were as follows (dollars in thousands):
North America ................................
EMEA .............................................
APAC .............................................
Consolidated ...................................
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
449,186
190,673
23,724
663,583
13.4%
14.6%
15.4%
13.8%
$
$
$
$
2008
% of Net
Sales
2007
As Restated
(1)
463,163
174,766
20,697
658,626
% of Net
Sales
13.8%
13.1%
19.2%
13.7%
North America’s gross profit decreased 3% for the year ended December 31, 2008 compared to the year ended
December 31, 2007. Gross profit per account executive decreased 4% to $341,000 for the year ended December 31,
2008 from $355,000 for the year ended December 31, 2007. As a percentage of net sales, gross profit decreased 40 basis
points year over year primarily due to decreases in agency fees for enterprise software agreement renewals of 35 basis
points, market pricing pressures which have driven decreases in product margin, which includes vendor funding, of 28
basis points, and a 25 basis point decline attributable to decreases in margin generated by freight due to a decrease in
hardware sales and increased transportation costs that we were not able to pass on to clients in full. These decreases
were offset partially by a 62 basis point improvement in gross margin resulting from increased sales of higher margin
services, primarily from our acquisition of Calence.
EMEA’s gross profit increased for the year ended December 31, 2008 by 9% compared to the year ended December
31, 2007. Gross profit per account executive decreased 7% to $305,000 for the year ended December 31, 2008 from
$327,000 for the year ended December 31, 2007. As a percentage of net sales, gross profit increased by 150 basis points
from 2007 to 2008 due primarily to increases in product margin, which includes vendor funding, of approximately 80
basis points and an increase in agency fees for enterprise software agreement renewals of approximately 70 basis points.
More specifically, the improvement in vendor funding includes an increase in amounts earned under rebate programs
with hardware distributors as well as some publishers other than Microsoft.
40
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
APAC’s gross profit increased for the year ended December 31, 2008 by $3.0 million or 15% compared to the year
ended December 31, 2007 with the increase in net sales in the segment. As a percentage of net sales, gross profit
decreased 380 basis points from 2007 to 2008 due primarily a decrease in agency fees for enterprise software agreement
renewals and lower margin on public sector sales.
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses increased in the year ended December
31, 2008 compared to the year ended December 31, 2007 due primarily to the acquisition of Calence on April 1, 2008,
partially offset by the benefit of the expense actions we took throughout 2008. Selling and administrative expenses
increased 4% and increased as a percentage of net sales for the year ended December 31, 2008 compared to the year
ended December 31, 2007. Selling and administrative expenses as a percent of net sales by operating segment for the
years ended December 31, 2008 and 2007 were as follows (dollars in thousands):
2008
% of Net
Sales
2007
% of Net
Sales
North America ................................
EMEA .............................................
APAC .............................................
Consolidated ...................................
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
391,629
152,617
17,741
561,987
11.6%
11.7%
11.6%
11.6%
$
$
$
$
As Restated
(1)
383,390
143,611
15,321
542,322
11.4%
10.8%
14.2%
11.3%
North America’s selling and administrative expenses increased $8.2 million or 2% for the year ended December 31,
2008 compared to the year ended December 31, 2007. Incremental selling and administrative expenses relating to
Calence since April 1, 2008 of $39.6 million, including $4.8 million of amortization of acquired intangible assets, were
partially offset by decreases in selling and administrative expenses in the legacy Insight business as a result of our
expense management initiatives as well as reduced performance-based compensation expense due to our financial
performance. Additionally, the 2008 period benefited from the fact that there were no professional fees associated with
the review of our historical stock option practices, whereas selling and administrative expenses in the year ended
December 31, 2007 included $12.5 million of such professional fees.
EMEA’s selling and administrative expenses increased $9.0 million or 6% for the year ended December 31, 2008
compared to the year ended December 31, 2007. The increase in selling and administrative expenses is primarily
attributable to salaries and wages, employee-related expenses and contract labor, which increased due to increases in
sales incentive programs, increases in recruitment costs and employee headcount. In addition, facility related expenses
accounted for $1.1 million of the year over year increase. The effect of currency exchange rates between the U.S. dollar
as compared to the various European currencies in which we do business accounted for approximately $4.3 million of
the net year over year increase.
APAC’s selling and administrative expenses increased $2.4 million or 16% for the year ended December 31, 2008
compared to the year ended December 31, 2007 primarily due to the hiring of experienced software sales and support
teammates during the first quarter of 2008.
Goodwill Impairment. As discussed in Note 5 to the Consolidated Financial Statements in Part II, Item 8 of this
report, we recorded a non-cash goodwill impairment charge during the year ended December 31, 2008 of $397.2 million,
which represented the entire goodwill balance recorded in all three of our operating segments as of December 31, 2008.
The goodwill impairment charge in North America in the second quarter of 2008 was a result of the deteriorating
economic environment, particularly its effect on our legacy hardware business, which contributed to lower than expected
net sales and caused management to reassess our expectations about future domestic market growth. By the fourth
quarter of 2008, the effects of the global recession were negatively affecting our results of operations in all of our
operating segments, indicating a need for management to again reassess projections of future domestic and foreign
market growth, leading to the incremental fourth quarter of 2008 goodwill impairment charge in all three of our
operating segments. Market growth projections have been reduced significantly throughout 2008. Until sustained
improvements in the global macroeconomic environment are evident, projections of future growth are not anticipated to
return to the historical levels that contributed to the valuations of the Company’s past business combinations. The
41
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
decline in anticipated growth has not, however, affected the sustainability of the Company’s overall business model,
which continues to generate positive cash flow, such that the Company is able to meet our obligations in the normal
course of business.
Severance and Restructuring Expenses. 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 on-going
restructuring efforts. During the year ended December 31, 2007, North America, EMEA and APAC recorded severance
expense of $3.0 million, $177,000 and $64,000, respectively, primarily associated with the retirement of our former chief
financial officer. Additionally, a $606,000 benefit related to a reduction in EMEA’s restructuring liability for remaining
lease obligations on a previously vacated legacy Insight office property following a successful renegotiation of a portion
of the long-term lease was recorded during 2007. See Note 10 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, 2008 and 2007 was generated through short-
term investments. The increase in interest income year over year is due to improved cash management, partially offset
by decreases in interest rates.
Interest Expense. Interest expense for the years ended December 31, 2008 and 2007 primarily relates to borrowings
under our financing facilities. Interest expense remained relatively flat from 2007 to 2008 as a result of the increase in
the weighted average borrowings outstanding subsequent to the acquisition of Calence, offset by decreases in interest
rates on the refinanced debt in 2008. In conjunction with our refinancing of our existing term loan and revolving credit
facility on April 1, 2008 (discussed in Note 7 to the Consolidated Financial Statements in Part II, Item 8 if this report),
we recorded a loss on debt extinguishment of $591,000 in the second quarter of 2008 to write off a portion of our
deferred financing fees to interest expense.
Net Foreign Currency Exchange Losses (Gains). These losses (gains) result from foreign currency transactions,
including the period end remeasurement of intercompany balances that are not considered long-term in nature. The net
foreign currency exchange loss in 2008 is due primarily to increases in the volume of software licenses sold in various
foreign currencies and procured in U.S. dollars, changes in intercompany balances of our foreign subsidiaries and the
volatility of the related foreign currency exchange rates, specifically the Canadian dollar, the Euro and the British Pound
Sterling.
Other Expense, Net. Other expense, net, consists primarily of bank fees associated with our cash management
activities.
Income Tax Expense. Our income tax benefit from continuing operations for the year ended December 31, 2008
was $86.3 million compared to income tax expense of $40.7 million for the year ended December 31, 2007. The change
from expense in 2007 to a benefit in 2008 was primarily the result of the impairment charge related to deductible
goodwill during 2008 that resulted in a pre-tax loss from continuing operations for the year ended December 31, 2008.
Earnings from Discontinued Operations. On March 1, 2007, we completed the sale of PC Wholesale. The gain
on the sale of PC Wholesale of $5.6 million, $3.4 million net of taxes, and the results of operations attributable to PC
Wholesale were classified as a discontinued operation in 2007. See Note 20 to the Consolidated Financial Statements in
Part II, Item 8 of this report for further discussion.
2007 Compared to 2006
Net Sales. Net sales for the year ended December 31, 2007 increased 33% compared to the year ended December
31, 2006, in part, due to the acquisition of Software Spectrum in 2006. Our net sales by operating segment for the years
ended December 31, 2007 and 2006 were as follows (dollars in thousands):
42
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
North America .........................................
EMEA ......................................................
APAC ......................................................
Consolidated ............................................
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
3,367,998
1,329,682
107,794
4,805,474
$
$
18%
87%
260%
33%
2007
As Restated
(1)
% Change
2006
As Restated
(1)
$ 2,859,678
710,294
29,965
$ 3,599,937
The increase in North America’s net sales for the year ended December 31, 2007 was due primarily to the
acquisition of Software Spectrum, which contributed to 79% growth in our sales of software. We also experienced slight
organic growth in our hardware category and strong growth in our services category, which grew by 39% year over year.
North America had 1,349 account executives at December 31, 2007, an increase from 1,259 at December 31, 2006. Net
sales per average number of account executives in North America increased to $2.6 million for the year ended December
31, 2007 from $2.5 million for the year ended December 31, 2006. The average tenure of our account executives in
North America decreased slightly from 4.4 years at December 31, 2006 to 4.2 years at December 31, 2007.
The increase of $619.4 million or 87% in EMEA’s net sales for the year ended December 31, 2007 was due to
organic growth and the acquisition of Software Spectrum as well as favorable currency exchange rates. The effect of
currency exchange rates between the weakening U.S. dollar year over year as compared to the various European
currencies in which we do business accounted for approximately $92.6 million or 15% of this increase. Software sales in
the EMEA segment grew 183% year over year and we also saw a very strong performance in our EMEA hardware and
services categories, which grew 19% and 113%, respectively. EMEA had 571 account executives at December 31, 2007,
an increase from 499 at December 31, 2006 due to planned increases in an effort to grow the business. Net sales per
average number of account executives in EMEA increased to $2.5 million for the year ended December 31, 2007
compared to $1.9 million for the year ended December 31, 2006. The average tenure of our account executives in
EMEA increased from 2.7 years at December 31, 2006 to 3.0 years at December 31, 2007.
Our APAC segment recognized net sales of $107.8 million for the year ended December 31, 2007, its first full year
of operating results since our acquisition of Software Spectrum in September 2006.
Net sales by category for North America, EMEA and APAC were as follows for the years ended December 31, 2007
and 2006:
Sales Mix
Network and Connectivity ......
Notebooks and PDAs .............
Servers and Storage ................
Desktops .................................
Printers ...................................
Memory and Processors .........
Supplies and Accessories .......
Monitors and Video ................
Miscellaneous .........................
Hardware .............................
Software ..............................
Services ...............................
North America
Years Ended December 31,
2007
As Restated
(1)
11%
11%
10%
7%
5%
4%
4%
5%
8%
65%
32%
3%
100%
2006
As Restated
(1)
14%
12%
12%
8%
6%
5%
6%
5%
9%
77%
21%
2%
100%
EMEA
APAC
Years Ended December 31, Years Ended December 31,
2007
2006
2007
2006
4%
8%
7%
4%
3%
2%
3%
3%
3%
37%
62%
1%
100%
6%
12%
9%
6%
6%
3%
5%
6%
5%
58%
41%
1%
100%
-
-
-
-
-
-
-
-
-
-
100%
-
100%
-
-
-
-
-
-
-
-
-
-
100%
-
100%
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
With the acquisition of Software Spectrum, our product mix changed significantly, with software increasing from
26% of total company net sales in 2006 to 42% in 2007.
43
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Gross Profit. Gross profit increased 41% for the year ended December 31, 2007 compared to the year ended
December 31, 2006. The increase in sales of software licenses for which we receive only an agency fee, as well as sales
of software maintenance contracts and third-party warranties for which only the gross profit is recorded as net sales,
makes period-to-period comparability of net sales and costs of goods sold more difficult. As a result, we believe that
gross profit is a more reliable measure of business performance and is more useful in comparing period-to-period trends
than net sales. Our gross profit and gross profit as a percent of net sales by operating segment for the years ended
December 31, 2007 and 2006 were as follows (dollars in thousands):
North America ................................
EMEA .............................................
APAC .............................................
Consolidated ...................................
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
13.8%
13.1%
19.2%
13.7%
$
$
% of Net
Sales
2007
As Restated
(1)
463,163
174,766
20,697
658,626
$
$
2006
As Restated
(1)
362,481
98,805
4,900
466,186
% of Net
Sales
12.7%
13.9%
16.4%
12.9%
North America’s gross profit increased for the year ended December 31, 2007 by 28% compared to the year ended
December 31, 2006. Gross profit per account executive increased 14% to $355,000 for the year ended December 31,
2007 from $311,000 for the year ended December 31, 2006. As a percentage of net sales, gross profit increased by 110
basis points due primarily to an increase in agency fees for Microsoft enterprise software agreement renewals of 155
basis points and higher margins associated with our service business of 16 basis points. These increases were partially
offset by decreases in product margin, which includes vendor funding, of 57 basis points.
EMEA’s gross profit increased for the year ended December 31, 2007 by 77% compared to the year ended
December 31, 2006. Gross profit per account executive increased 27% to $327,000 for the year ended December 31,
2007 from $258,000 for the year ended December 31, 2006. As a percentage of net sales, gross profit decreased by
approximately 80 basis points from 2006 to 2007 due primarily to decreases in product margin of 155 basis points
resulting primarily from our acquisition of Software Spectrum, whose overall gross margins are generally lower than
those in our legacy business due to the sales mix of software only compared to hardware, software and services for our
legacy business. We also saw a 19 basis point decline related to decreases in supplier discounts due to a change in
supplier mix, resulting primarily from our acquisition of Software Spectrum. These decreases in gross margin were
offset partially by higher agency fees for Microsoft enterprise software agreement renewals which contributed 96 basis
points improvement.
APAC’s gross profit increased for the year ended December 31, 2007 by 322% compared to the year ended
December 31, 2006 due to the inclusion of a full year of APAC results in 2007.
Operating Expenses.
Selling and Administrative Expenses. Selling and administrative expenses increased in the year ended December
31, 2007 compared to the year ended December 31, 2006 due primarily to the acquisition of Software Spectrum. Selling
and administrative expenses increased 44% and increased as a percentage of net sales for the year ended December 31,
2007 compared to the year ended December 31, 2006. Selling and administrative expenses as a percent of net sales by
operating segment for the years ended December 31, 2007 and 2006 were as follows (dollars in thousands):
North America ................................
EMEA .............................................
APAC .............................................
Consolidated ...................................
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
11.4%
10.8%
14.2%
11.3%
$
$
$
$
% of Net
Sales
2006
% of Net
Sales
As Restated
(1)
289,788
83,111
3,823
376,722
10.1%
11.7%
12.8%
10.5%
2007
As Restated
(1)
383,390
143,611
15,321
542,322
44
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
North America’s selling and administrative expenses increased 32% for the year ended December 31, 2007
compared to the year ended December 31, 2006. The increase in selling and administrative expenses is primarily
attributable to:
• Salaries and wages, employee-related expenses and contract labor, which increased approximately $60.0
million due to increases in expenses related to the addition of Software Spectrum, increases in sales incentive
programs and increases in bonus expenses due to increased overall financial performance;
• Amortization of intangible assets acquired in the acquisition of Software Spectrum in September 2006, which
increased from $2.3 million in 2006 to $5.8 million in 2007;
• Professional fees associated with the review of our historical stock option practices, which increased from $1.6
million in 2006 to $12.5 million in 2007;
• Duplicative costs associated with our back-office operations tied to our IT systems upgrade; and
• Other integration-related expenses, such as travel, legal and accounting fees.
EMEA’s selling and administrative expenses increased 73% for the year ended December 31, 2007 compared to the
year ended December 31, 2006. The U.S. dollar increase in selling and administrative expenses is primarily attributable
to:
• Salaries and wages, employee-related expenses and contract labor, which increased approximately $42.9
million due to increases in expenses related to the addition of Software Spectrum, increases in stock-based
compensation expense, increases in sales incentive programs and increases in bonus expenses due to increased
overall financial performance;
• Amortization of intangible assets acquired with the acquisition of Software Spectrum in September 2006, which
increased from $1.3 million in 2006 to $3.5 million in 2007;
• Higher facilities expense, travel expense and professional fees related to the increased geographical coverage
and office locations resulting from our acquisition of Software Spectrum; and
• The effect of currency exchange rates between the weakening U.S. dollar year over year as compared to the
various European currencies in which we do business accounted for approximately $9.3 million or 12% of the
total increase.
APAC’s selling and administrative expenses increased for the year ended December 31, 2007 compared to the year
ended December 31, 2006 primarily due to the inclusion of Software Spectrum results for a full year in 2007.
Severance and Restructuring Expenses. During the year ended December 31, 2007, North America, EMEA and
APAC recorded severance expense of $3.0 million, $177,000, and $64,000, respectively, primarily associated with the
retirement of our former chief financial officer. Additionally, a $606,000 benefit related to a reduction in EMEA’s
restructuring liability for remaining lease obligations on a previously vacated legacy Insight office property following a
successful renegotiation of a portion of the long-term lease was recorded during 2007. During the year ended December
31, 2006, North America and EMEA recorded severance expense of $508,000 and $221,000. See Note 10 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, 2007 and 2006 was generated through short-
term investments. The decrease in interest income was due to a generally lower level of cash available to be invested in
short-term investments as we paid down debt balances and completed stock repurchases during 2007.
Interest Expense. Interest expense for the years ended December 31, 2007 and 2006 primarily relates to borrowings
under our financing facilities. The increase in interest expense was primarily due to higher weighted average borrowings
outstanding during the year ended December 31, 2007 compared to the year ended December 31, 2006 given the debt
incurred for the acquisition of Software Spectrum was only outstanding for a third of the year in 2006.
Net Foreign Currency Exchange Gains. These gains result from foreign currency transactions, including
intercompany balances that are not considered long-term in nature. The increase in the net foreign currency exchange
gain was due primarily to increases in the volume of business transacted outside of the U.S. and the decline in the value
of the U.S. dollar against currencies we transact business in, specifically the Canadian dollar, the Euro and the British
Pound Sterling.
45
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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, 2007 was
38.6% compared to 35.4% for the year ended December 31, 2006. The effective tax rate is higher in 2007 due primarily
to an increase in our tax reserves relating to uncertain tax positions. Further, our 2006 effective tax rate reflects the
reversal of accrued income taxes resulting from the determination that a reserve previously recorded for potential tax
exposures was no longer necessary.
Earnings from Discontinued Operations. On March 1, 2007, we completed the sale of PC Wholesale and on June
30, 2006, we completed the sale of Direct Alliance. Accordingly, the results of operations attributable to PC Wholesale
and Direct Alliance for all periods presented have been classified as discontinued operations. See Note 20 to the
Consolidated Financial Statements in Part II, Item 8 of this report for further discussion.
Liquidity and Capital Resources
The following table sets forth for the periods presented certain consolidated cash flow information for the years
ended December 31, 2008, 2007 and 2006 (dollars in thousands):
2008
2007
2006
$
Net cash provided by operating activities ....................
Net cash used in investing activities ............................
Net cash provided by (used in) financing activities .....
Net cash provided by a discontinued operation ...........
Foreign currency exchange effect on cash flow...........
(Decrease) increase in cash and cash equivalents ........
Cash and cash equivalents at beginning of year ..........
Cash and cash equivalents at end of year.....................
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
145,439
(153,813)
9,211
-
(8,380)
(7,543)
56,718
49,175
$
$
$
As Restated (1) As Restated (1)
83,487
$
(309,967)
242,787
105
3,140
19,552
35,145
54,697
100,004
(7,645)
(100,198)
-
9,860
2,021
54,697
56,718
$
Cash and Cash Flow
Our primary uses of cash in the past few years have been to fund acquisitions, working capital requirements and
capital expenditures and to repurchase our common stock. We generated very strong operating cash flows for the year
ended December 31, 2008. Operating activities provided $145.4 million in cash, a 45% increase over the year ended
December 31, 2007. Our strong operating cash flows enabled us to acquire Calence and MINX utilizing $137.2 million
for the acquisitions, including the repayment of $11.0 million of assumed debt, as well as to fund $50.0 million of
repurchases of our common stock during the year in addition to the $50.0 million that was repurchased in 2007. Even
with these significant cash outlays, we increased our debt position by only $25.8 million during 2008. Capital
expenditures were $26.6 million for the year, a 27% decrease from 2007 due primarily to the completion of our IT
systems upgrade project in late 2008. Additionally, 2008 included an $8.4 million negative effect of foreign currency
exchange rates on cash flow while 2007 benefited from a $9.9 million positive effect of foreign currency exchange rates
on cash flow.
We sold PC Wholesale in March 2007 and have presented it as a discontinued operation. Excluding net earnings,
amounts related to the discontinued operation have not been removed from the 2007 and 2006 cash flow statements
because the effect is immaterial.
We intend to use cash generated by our business in 2009 primarily to pay down outstanding debt.
Net cash provided by operating activities. Cash flows from operating activities for the year ended December 31,
2008 resulted primarily from net earnings from continuing operations 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 were decreases in accounts
46
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
receivable and other current assets, partially offset by decreases in accounts payable in the normal course of business.
Cash flows from operations for the year ended December 31, 2007 resulted primarily from net earnings from continuing
operations before depreciation and amortization and an increase in accounts payable. These increases in operating cash
flows were partially offset by an increase in accounts receivable. The increase in accounts payable can be primarily
attributed to an increase in net sales, and the related costs of goods sold. The higher accounts receivable balance at
December 31, 2007 compared to December 31, 2006 can be primarily attributed to an increase in net sales as well as to a
slow down in collections in our North American and EMEA operations due to internal collection productivity issues and
slower customer payments. Cash flows from operations for the year ended December 31, 2006 resulted primarily from
net earnings from continuing operations before depreciation and amortization and increases in accounts payable and
decreases in inventories. These increases in operating cash flows were partially offset by increases in accounts
receivable. The increased accounts payable and accounts receivable balances can be primarily attributed to the Software
Spectrum acquisition.
Our consolidated cash flow operating metrics as of December 31, 2008 and 2007 are as follows:
Days sales outstanding in ending accounts receivable (“DSOs”)(a) ............
Inventory turns (excluding inventories not available for sale) (b) ...............
Days purchases outstanding in ending accounts payable (“DPOs”) (c)........
2008
78
38
66
2007
As Restated (1)
75
39
57
(1) See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.
(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 annualized costs of goods sold divided by average inventories. Average inventories is calculated
as the sum of the balances of inventories at the beginning of the period plus ending inventories divided by two.
(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.
The increase in DSOs from December 31, 2007 resulted from the increase in the proportion of consolidated net sales
in our foreign operations, which have generally longer payment terms. Improving our cash conversion cycle will
continue to be an area of focus in 2009. The increase in DPOs from December 31, 2007 is driven primarily by enhanced
management of working capital, including the establishment of a new inventory financing facility, which provides for
interest free inventory purchases as long as the accounts payable are paid within extended stated vendor terms (ranging
from 30 to 60 days). These operating metrics include the effect of the Calence acquisition in higher accounts receivable
and accounts payable balances at December 31, 2008 compared to December 31, 2007.
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.
Net cash used in investing activities. During the year ended December 31, 2008, we used $124.7 million, net of
cash acquired of $7.7 million to acquire Calence and $1.5 million, net of cash acquired of $46,000, to acquire MINX.
Capital expenditures of $26.6 million and $36.3 million for the years ended December 31, 2008 and 2007, respectively,
primarily related to investments to upgrade our IT systems, including capitalized costs of software developed for internal
use, IT equipment and software licenses. We expect total capital expenditures in 2009 to be between $20.0 million and
$25.0 million, primarily for the IT systems upgrade in our EMEA operations and other facility and technology related
maintenance and upgrade projects. During the year ended December 31, 2007, we received net proceeds of $28.6
million from the sale of a discontinued operation. During the year ended December 31, 2008, we made a payment of
$900,000 to resolve certain post-closing contingencies related to that sale. During the year ended December 31, 2006,
we received $46.3 million for the sale of a discontinued operation and used $321.2 million, net of cash acquired of $30.3
million, to acquire Software Spectrum.
Net cash provided by (used in) financing activities. 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, which is included in accounts payable.
47
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
These positive cash flows 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. During the year
ended December 31, 2007, we reduced our outstanding debt by $52.0 million and funded repurchases of $50.0 million of
our common stock. These uses of cash were partially offset by $24.5 million of proceeds from sales of common stock
under employee stock plans. During the year ended December 31, 2006, the acquisition of Software Spectrum was
partially financed by new term loan borrowings of $75.0 million under our amended and restated credit facility and
$173.0 million under our amended accounts receivables securitization financing facility.
As of December 31, 2008, our long-term debt balance consisted of $228.0 million outstanding under our $300.0
million senior revolving credit facility. Our objective is to pay our debt balances down as quickly as possible while
retaining adequate cash balances to meet overall business objectives.
The one-year term of our $150.0 million accounts receivable securitization financing facility (“the ABS facility”)
expires on September 17, 2009. We currently anticipate that we will be able to renew the ABS facility, but at interest
rates higher than those in effect today. No amounts were outstanding under the ABS facility as of December 31, 2008,
and as such, we had no current debt on our balance sheet as of December 31, 2008. Our ability to borrow up to the full
$150.0 million under the ABS facility is based on specified formulae relating to the amount and quality of our accounts
receivable generated by our legacy business in the U.S. Subsequent to December 31, 2008, as a result of the decline in
overall sales volume in that legacy business in the first quarter of 2009, our availability under the ABS facility decreased
by $40.3 million as of March 31, 2009. Additionally, we further reduced our eligible receivables under this facility by
$45.9 million to reflect the U.S. legacy gross trade credit liabilities that were recorded as part of our financial statement
restatement described in Note 2 of our Notes to the Consolidated Financial Statements in Item 8 of this report. As a
result, total availability under our ABS facility at March 31, 2009 was $63.8 million. We plan to work with our lenders
to increase our total capacity under the ABS facility by adding receivables from our U.S.-based software business to the
facility as market and other conditions permit.
We utilize the ABS facility primarily to meet short-term, seasonal spikes in our working capital needs and expect
that we will continue using the facility to meet those needs in 2009. The most significant seasonal spike occurs in July
of each year as a result of payments due to our largest supplier for purchases occurring primarily in June. We believe
that the current availability under our ABS facility along with capacity under our senior revolving credit facility will be
sufficient to fund the anticipated seasonal spike in cash needs. As our operations generate cash, we are typically able to
begin paying down debt within a few days of the seasonal spike. If we were unable to renew our ABS facility in 2009,
we believe that cash flows from operations and extending payment terms with key partners by foregoing early pay
discounts, together with the funds available under our existing long-term senior revolving credit facility, will be adequate to
support our anticipated working capital requirements for operations over the next twelve months. Additionally, we may
be able to support our working capital needs by negotiating extended payment terms with our largest supplier and
exercising our option to expand the size of our senior revolving credit facility, however, this expansion would likely
result in significantly higher costs for the facility compared to the favorable rates in effect today.
Our borrowing capacity under our senior revolving credit facility and the 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 Company’s trailing twelve months EBITDA, as defined in the agreements. The maximum
leverage ratio permitted under the agreements is currently 3.0 times trailing twelve-month EBITDA and steps down to
2.75 times in October 2009. A significant drop in EBITDA would limit the amount of indebtedness that could be
outstanding at the end of any fiscal quarter, to a level that could be below the Company’s total debt capacity. As of
December 31, 2008, of the $450.0 million of total debt capacity available, the Company’s borrowing capacity was
limited to $402.1 million based on trailing twelve-month EBITDA of $134.0 million. Even with lower expected
EBITDA and the lower maximum leverage ratio covenant beginning in the fourth quarter of 2009, we anticipate that we
will meet our maximum leverage ratio requirements over the next four quarters.
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, 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. We do not currently anticipate any repurchases of our common
stock during 2009.
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
48
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
management, will continue to be reinvested indefinitely outside of the U.S. As of December 31, 2008, cash and cash
equivalents of $48.4 million were held by our foreign subsidiaries. As of December 31, 2008, a majority of Insight’s
foreign cash resides in Canada, Australia, the United Kingdom and the Netherlands. 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 Insight’s policy to indefinitely reinvest earnings of its foreign subsidiaries.
In the United Kingdom and the Netherlands, there are previously taxed balances, which could be remitted to the U.S.
The undistributed earnings of foreign subsidiaries that are deemed to be indefinitely invested outside of the U.S. were $23.5
million at December 31, 2008. During 2009 and 2010, we plan to begin to implement a new IT system in all European
entities. Undistributed earnings generated during 2008 and 2009 will be used to fund this IT system implementation. In
addition to funding the new IT system implementation, various entities are planning facility upgrades as well as other
technology related upgrades. Management is also looking to expand its presence overseas, particularly in EMEA and
APAC, which can be funded with these undistributed earnings without repatriation.
See Note 7 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, as defined by
the SEC’s Final Rule 67, “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements
and Aggregate Contractual Obligations.” 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 is 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.
Contractual Obligations for Continuing Operations
At December 31, 2008, our contractual obligations for continuing operations were as follows (in thousands):
Long-Term Debt (a) .......................................
Inventory Financing Facility (b) .....................
Operating lease obligations ...........................
Severance and restructuring obligations (c) ...
Other contractual obligations (d) ....................
Total ..............................................................
Total
$ 228,000
79,126
56,424
6,570
67,647
$ 437,767
Less than
1 Year
$
-
79,126
14,079
5,286
15,188
$ 113,679
1-3
Years
$
-
Payments due by period
3-5
Years
- $ 228,000
-
9,699
-
18,880
$ 49,823 $ 256,579
20,405
1,284
28,134
More than 5
Years
$
-
-
12,241
-
5,445
17,686
$
(a) Amounts included in our contractual obligations table above reflect the $228.0 million outstanding at December
31, 2008 under our senior revolving credit facility as due in April 2013, the date at which the facility matures. See
further discussion in Note 7 to the Consolidated Financial Statements in Part II, Item 8 of this report.
(b) On September 17, 2008, we entered into an agreement which provides for a new facility to purchase inventory
from a list of approved vendors. See further discussion in Note 7 to the Consolidated Financial Statements in
Part II, Item 8 of this report. As of December 31, 2008, $79.1 million 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 10 to the Consolidated Financial
Statements in Part II, Item 8 of this report.
(d) The table above includes:
I. Estimated interest payments of $10.9 million in each of the next four years and $2.7 million in the first
three months of 2013, based on the current debt balance of $228.0 million at December 31, 2008 under
the senior revolving credit facility, multiplied by the weighted average interest rate for the year ended
December 31, 2008 of 4.8% per annum.
II. Amounts totaling $7.1 million over the next five years to the Valley of the Sun Bowl Foundation for
sponsorship of the Insight Bowl and $7.7 million over the next seven years for advertising and marketing
49
INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
events with the Arizona Cardinals NFL team 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. During the year ended December 31, 2005, we adopted FIN 47, which states that companies must
recognize a liability for the fair value of a legal obligation to perform asset-retirement activities that are
conditional on a future event if the amount can be reasonably estimated. We estimate that we will owe
$3.2 million in future years in connection with these obligations.
IV. In July 2007, we signed a statement of work with a third party that was engaged to assist us in integrating
into our IT system our hardware, services and software distribution operations in the U.S., Canada,
EMEA and APAC. During the quarter ended March 31, 2008, we renegotiated the contract to include a
new scope of work, whereby we agreed to engage the third party on current and future IT related
projects. The remaining commitments approximate $3.1 million over approximately two years.
The table above excludes $4.3 million of liabilities under FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes,” as we are unable to reasonably estimate the ultimate amount or timing of settlement. See further
discussion in Note 11 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 includes 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.
On July 10, 2008, we acquired MINX Limited (“MINX”), a United Kingdom-based networking services company
with annual net sales of approximately $25.0 million, for an initial cash purchase price of approximately $1.5 million and
the assumption of approximately $3.9 million of existing debt. Up to an additional $550,000 may be due if MINX
achieves certain performance targets over a one-year period. Founded in 2002, MINX is a network integrator with Cisco
Gold Partner accreditation in the United Kingdom. We believe this acquisition will significantly enhance our capabilities
in the sale, implementation and management of network infrastructure services and solutions in our EMEA operating
segment and will compliment 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”), one of the nation’s largest
independent technology solutions providers specializing in Cisco networking solutions, advanced communications and
managed services, for a cash purchase price of $125.0 million plus a preliminary working capital adjustment of
approximately $4.0 million, offset by a final post-closing working capital adjustment of $383,000. Up to an additional
$35.0 million of purchase price consideration may be due if Calence achieves certain performance targets over the next
four years. During the year ended December 31, 2008, we accrued an additional $9.8 million of purchase price
consideration and accrued interest of $532,000 as a result of Calence achieving certain performance targets during the
year. Such amount was recorded as additional goodwill. We also assumed Calence’s existing debt totaling approximately
$7.4 million, of which $7.1 million was repaid by us at closing.
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.
50
INSIGHT ENTERPRISES, INC.
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.
2009 Perspective
We believe that with current demand levels and with the resource and other actions we have taken over the last
several quarters, diluted earnings per share will be between $0.80 and $0.87 for the full year of 2009 with more of the
earnings coming in the second half of the year compared to the first half. This outlook does not include the impact of
any severance and restructuring expenses, expenses associated with the restatement investigation and administration or
related litigation, or other one time charges. This estimated range does, however, include:
•
•
•
our expectation of a weak hardware demand environment;
the projected negative effect of known rebate program changes from our key software partner, which we now
project will result in a $20 - $25 million reduction to our gross profit in 2009, mostly in the second and fourth
quarters given our strong software mix in those quarters; and
the offsetting benefits of the aggressive cost reduction actions taken to date.
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 $228.0 million outstanding
under our senior revolving credit facility and no amounts outstanding under our accounts receivable securitization
financing facility at December 31, 2008. The interest rates attributable to the borrowings under out senior revolving
credit facility and the accounts receivable securitization financing facility were 1.61% and 3.13%, respectively, per
annum at December 31, 2008. 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 $0.7 million.
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.
51
INSIGHT ENTERPRISES, INC.
The Company generally enters into forward contracts with maturities of three months or less. The derivatives
entered into during 2008 were not designated as hedges under Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” The following derivative contracts were entered into
during the year ended December 31, 2008, and remained open and outstanding at December 31, 2008. All U.S. dollar
and foreign currency amounts are presented in thousands.
Foreign Currency
Foreign Amount
Exchange Rate
USD Equivalent
Maturity Date
Sell
GBP
5,000
0.6770
$7,386
January 7, 2009
Buy
EURO
7,149
0.7149
$10,000
January 7, 2009
The Company does not enter into derivative contracts for speculative or trading purposes. The fair value of all
forward contracts at December 31, 2008 was $228,000.
52
INSIGHT ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item 8. Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firm ................................................
Consolidated Balance Sheets – December 31, 2008 and 2007 .............................................
Consolidated Statements of Operations – For each of the years in the
three-year period ended December 31, 2008 ......................................................................
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
– For each of the years in the three-year period ended December 31, 2008 .......................
Consolidated Statements of Cash Flows – For each of the years in the
three-year period ended December 31, 2008 ......................................................................
Notes to Consolidated Financial Statements .........................................................................
Page
54
57
58
59
60
62
53
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, 2008 and 2007, 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, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We 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, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the consolidated financial statements as of December 31,
2007, and for each of the years in the two-year period ended December 31, 2007, have been restated to correct
misstatements.
As discussed in Note 3 to the consolidated financial statements, the Company adopted certain provisions of Statement of
Financial Accounting Standards No. 157, Fair Value Measurements, in 2008.
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, 2008, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated May 11, 2009, expressed an adverse opinion on the effectiveness of the
Company’s internal control over financial reporting.
/s/ KPMG LLP
Phoenix, Arizona
May 11, 2009
54
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, 2008, 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), Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit.
We 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 company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements
will not be prevented or detected on a timely basis. A material weakness related to the proper disposition, reconciliation
and monitoring of aged credits has been identified and included in management’s assessment. 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, 2008 and 2007, 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, 2008. This material weakness was considered in determining the
nature, timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements, and this report
does not affect our report dated May 11, 2009, which expressed an unqualified opinion on those consolidated financial
statements.
In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the
control criteria, Insight Enterprises, Inc. and subsidiaries has not maintained effective internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
55
Insight Enterprises, Inc. acquired Calence, LLC during 2008, and management excluded from its assessment of the
effectiveness of Insight Enterprises, Inc.’s internal control over financial reporting as of December 31, 2008, Calence,
LLC’s internal control over financial reporting associated with total assets of $120 million and total revenues of $258
million included in the consolidated financial statements of Insight Enterprises, Inc. and subsidiaries as of and for the
year ended December 31, 2008. Our audit of internal control over financial reporting of Insight Enterprises, Inc. also
excluded an evaluation of the internal control over financial reporting of Calence, LLC.
/s/ KPMG LLP
Phoenix, Arizona
May 11, 2009
56
INSIGHT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
December 31,
2008
Current assets:
Cash and cash equivalents .......................................................................................... $
Accounts receivable, net.............................................................................................
Inventories ..................................................................................................................
Inventories not available for sale ................................................................................
Deferred income taxes ................................................................................................
Other current assets ....................................................................................................
Total current assets ...............................................................................................
49,175
990,026
103,130
30,507
40,075
37,495
1,250,408
Property and equipment, net ..................................................................................................
Goodwill ..................................................................................................................................
Intangible assets, net ................................................................................................................
Deferred income taxes .............................................................................................................
Other assets ..............................................................................................................................
157,334
-
93,400
89,757
16,741
$1,607,640
LIABILITIES AND STOCKHOLDERS’ EQUITY
2007
As
Restated
(1)
$
56,718
1,061,179
109,557
21,450
42,252
38,916
1,330,072
159,740
304,573
80,922
3,717
10,076
$1,889,100
Current liabilities:
Accounts payable ............................................................................................................. $ 720,833
175,769
Accrued expenses and other current liabilities ..............................................................
Current portion of long-term debt ...................................................................................
-
36,339
Deferred revenue .............................................................................................................
932,941
Total current liabilities ...............................................................................................
$ 686,006
168,607
15,000
42,885
912,498
Long-term debt ........................................................................................................................
Deferred income taxes .............................................................................................................
Other liabilities ........................................................................................................................
228,000
2,291
22,440
1,185,672
187,250
27,539
20,075
1,147,362
Commitments and contingencies (Notes 9, 10, 11, 16)
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; 45,595 and 48,458
shares issued and outstanding in 2008 and 2007, respectively .................................
Additional paid-in capital ................................................................................................
Retained earnings ............................................................................................................
Accumulated other comprehensive income – foreign currency translation
adjustments .................................................................................................................
Total stockholders’ equity ....................................................................................
-
-
456
371,664
40,290
485
391,380
302,113
9,558
421,968
$1,607,640
47,760
741,738
$1,889,100
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
See accompanying notes to consolidated financial statements.
57
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
2008
Years Ended December 31,
2007
As
As
2006
Net sales ................................................................................................................
Costs of goods sold ...............................................................................................
Gross profit....................................................................................................
Operating expenses:
Selling and administrative expenses ................................................................
Goodwill impairment ........................................................................................
Severance and restructuring expenses ..............................................................
(Loss) earnings from operations ...................................................................
Non-operating (income) expense:
Interest income ..................................................................................................
Interest expense ................................................................................................
Net foreign currency exchange loss (gain).......................................................
Other expense, net ............................................................................................
(Loss) earnings from continuing operations before income taxes ...............
Income tax (benefit) expense ...............................................................................
Net (loss) earnings from continuing operations ...........................................
Earnings from discontinued operations, net of taxes of $1,719 and
Restated Restated
(1)
$ 4,825,489 $ 4,805,474 $ 3,599,937
4,161,906
3,133,751
4,146,848
466,186
658,626
663,583
(1)
561,987
397,247
8,595
(304,246)
542,322
-
2,595
113,709
376,722
-
729
88,735
(2,387)
13,479
9,629
1,107
(326,074)
(86,347)
(239,727)
(2,078)
12,852
(3,887)
1,531
105,291
40,686
64,605
(4,355)
5,985
(1,135)
901
87,339
30,882
56,457
$8,451, respectively, including gains on sales in 2007 and 2006 ..........
-
4,151
13,084
Net (loss) earnings ................................................................................................
$ (239,727) $
68,756 $
69,541
Net (loss) earnings per share - Basic:
Net (loss) earnings from continuing operations ..........................................
Net earnings from discontinued operations ..................................................
$
(5.15) $
-
1.32 $
0.08
1.17
0.27
Net (loss) earnings per share .........................................................................
$
(5.15) $
1.40 $
1.44
Net (loss) earnings per share - Diluted:
Net (loss) earnings from continuing operations ..........................................
Net earnings from discontinued operations ..................................................
Net (loss) earnings per share .........................................................................
$
(5.15) $
-
1.29 $
0.08
$ (5.15) $ 1.37 $
1.15
0.27
1.42
Shares used in per share calculations:
Basic ..............................................................................................................
Diluted ...........................................................................................................
46,573
46,573
49,055
50,120
48,373
49,006
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
See accompanying notes to consolidated financial statements.
58
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
Common Stock
Balances at December 31, 2005-As
Reported .......................................................
Cumulative effect of prior period
Shares Par Value
477
47,736 $
adjustments
-
-
Balances at December 31, 2005-As
Restated (1) ..................................................
47,736
477
Issuance of common stock under
employee stock plans .........................
Stock-based compensation expense .........
Tax benefit from employee gains on
stock-based compensation .................
Comprehensive income:
Foreign currency translation
adjustment, net of tax ...................
Net earnings.......................................
Total comprehensive income ...................
Balances at December 31, 2006-As
Restated (1) ..................................................
Issuance of common stock under
1,132
-
-
-
-
12
-
-
-
-
48,868
489
employee stock plans .........................
Stock-based compensation expense .........
1,546
-
15
-
Treasury Stock
Shares Par Value Capital
Additional
Paid-in
Comprehensive Retained
Income
Earnings Equity
Total
Stockholders’
Accumulated
Other
-
$
-
$334,404
$
14,186
$220,846 $ 569,913
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28
(22,212)
(22,184)
334,404
14,214
198,634
547,729
14,822
16,055
882
-
-
-
-
-
-
-
-
14,588
-
-
69,541
14,834
16,055
882
14,588
69,541
84,129
366,163
28,802
268,175
663,629
24,506
14,083
Tax benefit from employee gains on
stock-based compensation .................
Repurchase of treasury stock ...................
Retirement of treasury stock ....................
Comprehensive income:
-
-
(1,956)
-
-
(19)
-
(1,956)
1,956
-
(50,000)
50,000
1,791
-
(15,163)
-
-
-
-
18,958
-
-
68,756
-
391,380
47,760
302,113
741,738
-
-
-
-
48,458
485
631
-
6
-
-
-
-
-
-
-
-
2,905
7,985
-
-
(3,494)
-
-
(35)
-
(3,494)
3,494
-
(50,000)
50,000
(2,737)
-
(27,869)
-
-
-
-
45,595 $
456
-
-
-
$
-
-
-
-
-
(38,202)
-
-
(239,727)
$371,664
$
9,558
$ 40,290
$
-
-
-
-
-
-
-
-
-
(34,818)
-
-
-
-
-
-
-
-
-
(22,096)
24,521
14,083
1,791
(50,000)
-
18,958
68,756
87,714
2,911
7,985
(2,737)
(50,000)
-
(38,202)
(239,727)
(277,929)
421,968
Foreign currency translation
adjustment, net of tax ...................
Net earnings.......................................
Total comprehensive income ...................
Balances at December 31, 2007-As
Restated (1) ..................................................
Issuance of common stock under
employee stock plans, net of shares
withheld for payroll taxes ..................
Stock-based compensation expense .........
Tax shortfall from stock-based
compensation .....................................
Repurchase of treasury stock ...................
Retirement of treasury stock ....................
Comprehensive loss:
Foreign currency translation
adjustment, net of tax ...................
Net loss ..............................................
Total comprehensive loss.........................
Balances at December 31, 2008 ....................
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
See accompanying notes to consolidated financial statements.
59
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net (loss) earnings from continuing operations ...................................................
Plus: net earnings from discontinued operations .................................................
Net (loss) earnings ............................................................................................
Adjustments to reconcile net (loss) earnings to net cash provided by
operating activities:
Goodwill impairment ........................................................................................
Depreciation and amortization ..........................................................................
Provision for losses on accounts receivable .....................................................
Write-downs of inventories ..............................................................................
Non-cash stock-based compensation ................................................................
Gain on sale of discontinued operations ...........................................................
Excess tax benefit from employee gains on stock-based compensation .........
Deferred income taxes ......................................................................................
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ..................................................
(Increase) decrease in inventories .................................................................
Decrease in other current assets ....................................................................
Decrease (increase) in other assets ...............................................................
(Decrease) increase in accounts payable ......................................................
(Decrease) increase in deferred revenue .......................................................
Increase (decrease) in accrued expenses and other liabilities ......................
Net cash provided by operating activities .................................................
Cash flows from investing activities:
Acquisition of Calence, net of cash acquired ...................................................
Acquisition of MINX, net of cash acquired .....................................................
Proceeds from sale of discontinued operations, net of direct expenses ...........
Purchases of property and equipment ...............................................................
Acquisition of Software Spectrum, net of cash acquired .................................
Net cash used in investing activities .........................................................
Cash flows from financing activities:
Borrowings on senior revolving credit facility.................................................
Repayments on senior revolving credit facility ................................................
Borrowings on accounts receivable securitization financing facility ..............
Repayments on accounts receivable securitization financing facility ............
Borrowings on term loan ..................................................................................
Repayments on term loan .................................................................................
Net borrowings under inventory financing facility ..........................................
Borrowings on short-term financing facility ....................................................
Repayments on short-term financing facility ..................................................
Net repayments on line of credit .......................................................................
Repayments on debt assumed in Calence and MINX acquisitions ................
Payment of deferred financing fees .................................................................
Proceeds from sales of common stock under employee stock plans ...............
Excess tax benefit from employee gains on stock-based compensation .........
Payment of payroll taxes on stock-based compensation through shares
withheld .........................................................................................................
Repurchases of common stock .........................................................................
(Decrease) increase in book overdrafts ............................................................
Net cash provided by (used in) financing activities ..................................
Cash flows from discontinued operations:
Net cash used in operating activities ................................................................
Net cash provided by investing activities .........................................................
Net cash used in financing activities ...............................................................
Net cash provided by discontinued operations .........................................
60
Years Ended December 31,
2008
2007
As
Restated
(1)
$ 64,605
4,151
68,756
2006
As
Restated
(1)
$ 56,457
13,084
69,541
$ (239,727)
-
(239,727)
397,247
41,239
3,452
7,614
7,985
-
(111)
(108,088)
53,797
(11,901)
6,787
9,085
(27,941)
(3,538)
9,539
145,439
(124,671)
(1,595)
(900)
(26,647)
-
(153,813)
989,606
(761,606)
466,874
(612,874)
-
(56,250)
48,889
-
-
-
(10,978)
(3,779)
5,031
111
(2,120)
(50,000)
(3,693)
9,211
-
-
-
-
-
34,663
2,646
6,900
14,083
(8,287)
(497)
(4,224)
(69,586)
326
4,159
(454)
53,801
1,502
(3,784)
100,004
-
-
28,631
(36,276)
-
(7,645)
-
-
682,000
(704,000)
-
(15,000)
-
-
-
(15,000)
-
-
24,521
497
-
(50,000)
(23,216)
(100,198)
-
-
-
-
-
25,375
3,033
8,442
16,094
(14,872)
(1,123)
(582)
(297,294)
27,948
10,152
(8,370)
226,126
2,514
16,503
83,487
-
-
46,250
(35,050)
(321,167)
(309,967)
-
-
291,000
(123,000)
75,000
(3,750)
-
20,000
(65,000)
(6,309)
-
-
16,462
1,123
-
-
37,261
242,787
(8,909)
11,710
(2,696)
105
INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Years Ended December 31,
2007
2008
As
Restated
(1)
2006
As
Restated
(1)
Foreign currency exchange effect on cash flows .......................................................
(Decrease) increase in cash and cash equivalents......................................................
Cash and cash equivalents at beginning of year ........................................................
Cash and cash equivalents at end of year...................................................................
(8,380)
(7,543)
56,718
$ 49,175
9,860
2,021
54,697
$ 56,718
3,140
19,552
35,145
$ 54,697
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ...............................................................
Cash paid during the year for income taxes .....................................................
$ 12,328
$ 34,420
$ 12,834
$ 39,622
$ 5,814
$ 40,820
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
See accompanying notes to consolidated financial statements.
61
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 institutions 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
North America
Geography
United States and Canada
EMEA
APAC
Europe, Middle East and Africa
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. Up to an additional $550,000 may be due if MINX achieves certain performance targets over a one-year
period.
On April 1, 2008, we completed the acquisition of Calence, LLC (“Calence”), one of the nation’s largest
independent technology service providers 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. Up to an
additional $35,000,000 of purchase price consideration may be due if Calence achieves certain performance targets over
the next four years. During the year ended December 31, 2008, we accrued an additional $9,830,000 of purchase price
consideration and $532,000 of accrued interest thereon as a result of Calence achieving certain performance targets
during the year. Such amounts were recorded as additional goodwill (see Note 5). We also assumed Calence’s 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.
On March 1, 2007, we completed the sale of PC Wholesale, a division of our North America operating segment. As
a result of the disposition, PC Wholesale’s results of operations for 2007 and 2006 are classified as a discontinued
operation. See further information in Note 20.
On September 7, 2006, we completed our acquisition of Software Spectrum, a global technology solutions provider
with expertise in the selection, purchase and management of software, for a cash purchase price of $287,000,000 plus
working capital of $64,380,000, which included cash acquired of $30,285,000.
On June 30, 2006, we completed the sale of Direct Alliance Corporation (“Direct Alliance”), a business process
outsourcing provider in the U.S., for a cash purchase price of $46,250,000, subject to earn out and claw back provisions.
Accordingly, Direct Alliance’s results of operations for 2006 are classified as a discontinued operation. See further
information in Note 20.
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.
62
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Additionally, these
estimates and assumptions affect the reported amounts of 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.
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 client’s or vendor’s inability to meet its financial obligations,
such as in the case of bankruptcy filings, or deterioration in the client’s or vendor’s operating results or financial
position.
Inventories
We state inventories, principally purchased IT hardware, at the lower of weighted average cost (which approximates
cost under the first-in, first-out method) or 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 the
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 have not recorded 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:
Leasehold improvements ................................
Furniture and fixtures ......................................
Equipment .......................................................
Software ...........................................................
Buildings ..........................................................
Estimated Economic
Life
Shorter of underlying
lease term or asset life
2-7 years
3-5 years
3-10 years
29 years
Costs incurred to develop internal-use software during the application development stage, including capitalized
interest, are also recorded in property and equipment at cost. External direct costs of materials and services consumed in
63
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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 5.
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:
Customer relationships ...........................................
Acquired technology related assets ........................
Backlog ...................................................................
Non-compete agreements .......................................
Trade names ............................................................
Estimated Economic
Life
8 – 11 years
5 years
10 months – 5 years
1 – 2 years
< 1 year
We regularly perform reviews to determine if facts and circumstances exist which indicate that the useful life of our
long-lived assets is 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.
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, 2008, we
have $700,000 on deposit with our claims administrator which acts as security for our future payment obligations under
our workers’ compensation program.
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.
64
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and
Hedging Activities.” 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) and 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
We adhere to guidelines and principles of sales recognition described in Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue Recognition” (“SAB 104”), issued by the staff of the Securities and Exchange Commission (the “SEC”). Under
SAB 104, 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 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 limit 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.
We also adhere to the guidelines and principles of software revenue recognition described in Statement of Position 97-
2, “Software Revenue Recognition” (“SOP 97-2”). 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. 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 in accordance with SAB 104 and
Emerging Issues Task Force (“EITF”) Issue No. 00-21 “Accounting for Revenue Arrangements with Multiple
Deliverables.” Accordingly, we recognize sales for delivered items only when all of the following criteria are satisfied:
65
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
•
•
•
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 as defined in SAB 104 and EITF
Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (“EITF 99-19”), 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 in accordance with
the sales recognition criteria outlined in SAB 104 and EITF 99-19. 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 in accordance with statement of position (“SOP”) 81-1 “Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.” We recognize these services using the percentage of
completion method of accounting based on the ratio of costs incurred to total estimated costs.
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. Our policy for accounting for
these payments is in accordance with EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor.” Partner funding received pursuant to volume sales incentive programs
is recognized as a reduction to costs of goods sold. Partner funding received pursuant to volume purchase incentive
programs is allocated to inventories based on the applicable incentives 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 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 $21,523,000, $17,876,000 and $15,171,000 for the
years ended December 31, 2008, 2007 and 2006, respectively.
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, 2008. We monitor our clients’ financial condition and do not require collateral.
Historically, we have not experienced significant losses related to accounts receivable from any individual client or
similar groups of clients.
Supplier Risk
Purchases from Microsoft, a software publisher, Ingram Micro, a distributor, and HP, a manufacturer, accounted for
approximately 22%, 11%, and 11%, respectively, of our aggregate purchases in 2008. No other partner accounted for
more than 10% of purchases in 2008. Our top five partners as a group for 2008 were Microsoft, Ingram Micro, HP, Tech
Data (a distributor) and Cisco (a manufacturer). Approximately 60% of our total purchases during 2008 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.
66
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Advertising Costs
Advertising costs are expensed as they are incurred. Advertising expense of $26,447,000, $26,661,000 and
$23,950,000 was recorded for the years ended December 31, 2008, 2007 and 2006, respectively. These amounts were
partially offset by partner funding received pursuant to shared marketing expense programs recorded as a reduction of
selling and administrative expenses, as discussed above.
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.
Net (Loss) Earnings From Continuing Operations Per Share (“EPS”)
Basic EPS is computed by dividing net (loss) earnings 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
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,
2008
2007
2006
Numerator:
Net (loss) earnings from continuing operations ...................... $
(239,727) $
64,605 $
56,457
Denominator:
Weighted-average shares used to compute basic EPS ............
Potential dilutive common shares due to dilutive stock
options and restricted stock awards and units .....................
Weighted-average shares used to compute diluted EPS .........
46,573
-
46,573
49,055
1,065
50,120
48,373
633
49,006
Net (loss) earnings from continuing operations per share:
Basic ....................................................................................... $
Diluted .................................................................................... $
(5.15) $
(5.15) $
1.32 $
1.29 $
1.17
1.15
The following weighted-average outstanding stock options during the years ended December 31, 2008, 2007 and
2006 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):
Weighted-average outstanding stock options having no dilutive
effect .............................................................................................
-
615
3,293
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 per share amount.
Years Ended December 31,
2008
2007
2006
67
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Recently Issued Accounting Standards
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007),
“Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business combination. In addition, under SFAS 141R,
changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after
the measurement period will impact income tax expense. SFAS 141R is effective as of the beginning of the fiscal year
that begins after December 15, 2008, and early adoption is not permitted. We will adopt the provisions of SFAS 141R
for all prior business combinations as it relates to changes in income tax amounts and for all business combinations
consummated after January 1, 2009.
In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”
(“FSP 142-3”) which amends the factors that should be considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other
Intangible Assets” (“SFAS 142”). The intent of this FSP is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141R. FSP 142-3 is effective for the Company’s fiscal year beginning January 1, 2009.
In October 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the
application of SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a financial asset when the market for that
financial asset is not active. FSP FAS 157-3 is effective upon issuance, including prior periods for which financial
statements have not been issued. Revisions resulting from a change in the valuation technique or its application should
be accounted for as a change in accounting estimate following the guidance in SFAS No. 154, “Accounting Changes and
Error Corrections.” FSP FAS 157-3 is effective October 10, 2008, and the application of FSP FAS 157-3 had no impact
on the Company’s consolidated financial statements.
In April 2009, the FASB issued Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly” (“FSP FAS 157-4”), which provides additional guidance on determining fair value when the volume and level
of activity for an asset or liability have significantly decreased and includes guidance on identifying circumstances that
indicate when a transaction is not orderly. In April 2009, the FASB issued Staff Position No. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”), which: 1)
clarifies the interaction of the factors that should be considered when determining whether a debt security is other than
temporarily impaired; 2) provides guidance on the amount of an other-than-temporary impairment recognized in earnings
and Other Comprehensive Income; and 3) expands the disclosures required for other-than-temporary impairments for
debt and equity securities. Also in April 2009, the FASB issued Staff Position No. 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), which requires disclosures
about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in
annual financial statements. Adoption of these Staff Positions is required for the Company’s interim reporting period
beginning April 1, 2009 with early adoption permitted.
(2) Restatement of Consolidated Financial Statements
Background
On February 9, 2009, following an internal review we issued a press release announcing that our management had
identified errors in the Company’s accounting for trade credits in prior periods dating back to December 1996. The
internal review encompassed aged trade credits, including both aged accounts receivable credits and aged accounts
payable credits, arising in the ordinary course of business that were recognized in the Company’s statements of
operations prior to the legal discharge of the underlying liabilities under applicable domestic and foreign laws. In a Form
8-K filed on February 10, 2009, we reported that the Company’s financial statements, assessment of the effectiveness of
internal control over financial reporting and related audit reports thereon in our most recently filed Annual Report on
Form 10-K, for the year ended December 31, 2007, and the interim financial statements in our Quarterly Reports on
68
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Form 10-Q for the first three quarters of 2008, and all earnings press releases and similar communications issued by the
Company relating to such financial statements, should no longer be relied upon.
We informed the administrative agents and lenders under our senior revolving credit facility, our accounts
receivable securitization financing facility and our inventory financing facility of our intention to restate our financial
statements. The errors and restatement constitute a default under each of these facilities. Accordingly, we sought and
received waivers to resolve the defaults (see Note 7).
Following management’s identification of errors in the Company’s accounting for aged trade credits, the Company
retained outside legal counsel to conduct a factual investigation into the Company’s accounting practices pertaining to
aged trade credits. The Board of Directors and its Audit Committee separately retained counsel to oversee and
participate in the investigation, reach findings, and propose remedial measures to the Audit Committee. Company
counsel and board counsel jointly retained forensic accountants to assist in the investigation and to gather documents and
information from Company personnel. As part of this investigation and review process, outside counsel and forensic
accountants gathered and evaluated documents and interviewed current and former Company employees. The Audit
Committee was advised of the progress of the investigation and the internal review on a regular basis.
Outside counsel has informed the Audit Committee that the internal investigation is complete. Board counsel has
presented its findings to the Audit Committee. Interviews, document reviews and forensic analysis conducted during the
internal investigation did not indicate an intent to manipulate the Company’s accounting or financial results. The Audit
Committee has received these findings as well as the recommendations of management, board counsel and other advisors
concerning the proposed remedial actions to be taken with respect to the aged trade credit issue. The Audit Committee
has adopted these remedial measures and directed management to implement them under the supervision of the Audit
Committee.
Restatement Adjustments
We determined that corrections to our consolidated financial statements are required to reverse material prior period
reductions of costs of goods sold and the related income tax effects as a result of these incorrect releases of aged trade
credits. These trade credits arose from 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.
We recorded an aggregate gross charge of approximately $35,191,000 to our consolidated retained earnings as of
December 31, 2005 and established a related current liability. This amount represented approximately $33,021,000 of
costs of goods sold and $2,170,000 of selling and administrative expenses relating to the period from December 1, 1996
through December 31, 2005. The aggregate tax benefit related to these trade credit restatement adjustments is
$13,825,000, which benefit reduced the charge to retained earnings as of December 31, 2005 and established a related
deferred tax asset. In addition, our statements of operations for the years ended December 31, 2006 and 2007, and the
quarters ended March 31, June 30, and September 30, 2008 contained in this Annual Report have been restated to reflect
an aggregate of $9,458,000, $10,161,000, $2,837,000, $2,245,000 and $1,265,000, respectively, of increases in costs of
goods sold and to establish a related current liability relating to aged trade credits. As of December 31, 2008 the
reinstated trade credits liability included in accrued expenses and other current liabilities was $59,393,000.
Other Miscellaneous Accounting Adjustments
In addition to the restatements for aged trade credits, we also corrected previously reported financial statements for
the following other miscellaneous accounting adjustments as a result of a review of our critical accounting policies:
• An adjustment of $2,699,000 to allocate a portion of our North America goodwill not previously allocated
to the carrying amount of a division of our North America operating segment that we sold on March 1,
2007 in determining the gain on sale. This adjustment reduced the gain on sale of the discontinued
operation recorded in the three months ended March 31, 2007, which gain is included in earnings from
discontinued operations. The tax effect of this adjustment was $1,066,000.
• Adjustments to hardware net sales and costs of goods sold recognized in prior periods to recognize sales
based on a “de facto” passage of title at the time of delivery. Although 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, because we have
a general practice of covering customer losses while products are in transit despite our stated shipping
69
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
terms, delivery is not deemed to have occurred until the product is received by the client. The net increase
(decrease) in gross profit resulting from these adjustments was $20,000, $440,000 and ($522,000) for the
years ended December 31, 2006 and 2007 and the nine months ended September 30, 2008, respectively.
The tax expense (benefit) related to these adjustments was $8,000, $174,000 and ($201,000) for the years
ended December 31, 2006 and 2007 and the nine months ended September 30, 2008, respectively.
Adjustments related to periods prior to 2006 resulted in an $895,000 reduction of retained earnings as of
December 31, 2005.
• Adjustments to recognize stock based compensation expense related to performance-based restricted stock
units (“RSUs”) 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) instead of on a
straight-line basis over the requisite service period for the entire award. The net increase (decrease) in
operating expenses was $2,363,000, $2,543,000 and ($1,243,000) for the years ended December 31, 2006
and 2007 and the nine months ended September 30, 2008, respectively.
• Adjustments to capitalize interest on internal-use software development projects in prior periods and
record the related amortization expense thereon. The net increase (decrease) in pretax earnings resulting
from these adjustments was $805,000, $386,000 and ($4,000) for the years ended December 31, 2006 and
2007 and the nine months ended September 30, 2008, respectively. The tax expense (benefit) related to
these adjustments was $318,000, $152,000 and ($2,000) for the years ended December 31, 2006 and 2007
and the nine months ended September 30, 2008, respectively. Adjustments related to periods prior to 2006
resulted in a $50,000 increase in retained earnings as of December 31, 2005.
• Revisions in the classification of consideration that exceeded the specific, incremental identifiable costs of
shared marketing expense programs of $4,967,000, $7,259,000 and $4,554,000 for the years ended
December 31, 2006 and 2007 and the nine months ended September 30, 2008, respectively, to reflect such
excess consideration as a reduction of costs of goods sold instead of a reduction of the related selling
administration expenses. These revisions in classification related to our EMEA operating segment and had
no effect on reported net earnings in any period.
The following table summarizes the effect of the restatement and other miscellaneous accounting adjustments on
beginning retained earnings as of January 1, 2006, and net earnings for the years ended December 31, 2007 and 2006 (in
thousands):
As previously reported ........................................... $
Adjustments:
Trade credit adjustments ..................................
Other miscellaneous accounting
adjustments .....................................................
Income tax benefit ............................................
Total adjustments ..................................................
As restated ............................................................. $
Net Earnings
Years Ended December 31,
2006
2007
Retained Earnings
At December 31,
2005
77,795
$
76,818
$
220,846
(10,161)
(4,416)
5,538
(9,039)
68,756
$
(9,458)
(1,538)
3,719
(7,277)
69,541
$
(35,191)
(1,397)
14,376
(22,212)
198,634
70
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The table below presents the decrease in net earnings resulting from the individual restatement adjustments for each
respective period presented (in thousands):
Nine Months
Ended
September
30,
2008
(unaudited)
Year Ended December 31,
2007
2006
2005
(unaudited)
2004
(unaudited)
Increase (decrease) in net sales:
F.O.B. destination adjustments .........
$
(9,288)
$
5,043 $
6,681
$
(11,074)
$
18,061
Total adjustments to net sales .......
(9,288)
5,043
6,681
(11,074)
18,061
Increase (decrease) in costs of goods sold:
Trade credit adjustments ...................
F.O.B. destination adjustments .........
Reclassification of partner funding ...
Total adjustments to costs of goods
sold ...........................................
6,347
(8,766)
(4,554)
10,161
4,603
(7,259)
9,458
6,661
(4,967)
9,128
(10,939)
(2,770)
4,847
17,021
(925)
(6,973)
7,505
11,152
(4,581)
20,943
Net decrease in gross profit .....................
(2,315)
(2,462)
(4,471)
(6,493)
(2,882)
Increase (decrease) in operating expenses:
Stock-based compensation ................
Reclassification of partner funding ...
Amortization of capitalized interest ..
Goodwill impairment ........................
Total adjustments to operating
(1,243)
4,554
113
(181)
expenses ....................................
3,243
Net decrease in earnings (loss) from
2,543
7,259
129
-
9,931
2,363
4,967
3
-
7,333
-
2,770
3
-
2,773
-
925
1
-
926
operations ...........................................
(5,558)
(12,393)
(11,804)
(9,266)
(3,808)
Decrease in non-operating expenses:
Capitalized interest ............................
Total adjustments to non-operating
expenses ....................................
Total adjustments to earnings (loss) from
continuing operations before income
taxes ..................................................
Income tax benefit ..................................
Total adjustments to earnings (loss) from
continuing operations ........................
Decrease in gain on sale of a discontinued
operation ...........................................
Income tax benefit ..................................
Total adjustments to earnings from
discontinued operations, net of tax ....
(109)
(109)
(515)
(515)
(808)
(808)
(64)
(64)
(22)
(22)
(5,449)
2,187
(11,878)
4,472
(10,996)
3,719
(9,202)
3,582
(3,786)
1,473
(3,262)
(7,406)
(7,277)
(5,620)
(2,313)
-
-
-
(2,699)
1,066
(1,633)
-
-
-
-
-
-
-
-
-
Total decrease in net earnings .................
$
(3,262)
$
(9,039) $
(7,277) $
(5,620)
$
(2,313)
The decrease in net earnings resulting from the trade credit adjustments was $3,053,000, $4,462,000, $3,537,000,
$333,000, $762,000, $466,000, $224,000 and $0 for the years ended December 31, 2003, 2002, 2001, 2000, 1999, 1998,
1997 and 1996, respectively. The tax benefit related to these adjustments was $1,991,000, $2,914,000, $2,309,000,
$217,000, $498,000, $304,000, $146,000 and $0 for the years ended December 31, 2003, 2002, 2001, 2000, 1999, 1998,
1997 and 1996, respectively.
71
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Effects of the Restatement Adjustments on our Consolidated Financial Statements
The following tables present the effects of the financial statement restatement adjustments on the Company’s
previously reported consolidated statements of operations for the years ended December 31, 2007 and 2006 (in
thousands, except per share data):
Year Ended December 31, 2007
Year Ended December 31, 2006
As Reported Adjustments
Net sales ..................................................... $ 4,800,431 $
Costs of goods sold .....................................
Gross profit .........................................
4,139,343
661,088
Operating expenses:
Selling and administrative expenses .......
532,391
Severance and restructuring expenses ..... 2,595
126,102
Earnings (loss) from operations ..........
9,931
-
(12,393)
As Restated
4,805,474
4,146,848
658,626
5,043 $
7,505
(2,462)
Non-operating (income) expense:
Interest income ........................................
Interest expense .......................................
Net foreign currency exchange (gain)
loss ......................................................
Other expense, net ...................................
(2,078)
13,367
(3,887)
1,531
Earnings (loss) from continuing
operations before income taxes .........
117,169
Income tax expense (benefit) ...................... 45,158
As Reported Adjustments
6,681
$ 3,593,256 $
11,152
(4,471)
3,122,599
470,657
As Restated
$ 3,599,937
3,133,751
466,186
369,389
729
100,539
(4,355)
6,793
(1,135)
901
98,335
34,601
7,333
-
(11,804)
376,722
729
88,735
-
(808)
-
-
(10,996)
(3,719)
(4,355)
5,985
(1,135)
901
87,339
30,882
542,322
2,595
113,709
(2,078)
12,852
(3,887)
1,531
-
(515)
-
-
(11,878)
(4,472)
105,291
40,686
Earnings (loss) from continuing
operations .........................................
Earnings (loss) from discontinued
72,011
(7,406)
64,605
63,734
(7,277)
56,457
operations, net of taxes ....................
5,784
Net earnings (loss) ............................. $
77,795 $
(1,633)
(9,039) $
4,151
68,756
$
13,084
76,818 $
-
(7,277) $
13,084
69,541
Net earnings per share - Basic:
Net earnings (loss) from continuing
operations .........................................
Net earnings (loss) from discontinued
operation .........................................
Net earnings (loss) per share .............. $
$
Net earnings per share - Diluted:
Net earnings (loss) from continuing
operations ..........................................
Net earnings (loss) from discontinued
operation ...........................................
Net earnings (loss) per share .............. $
$
Shares used in per share calculations:
Basic
Diluted
1.47
$
(0.15)
$
1.32
$
1.32
$ (0.15)
$
0.12
1.59 $
(0.04)
(0.19) $
0.08
1.40
$
0.27
1.59 $
-
(0.15) $
1.44
$
(0.15)
$
1.29
$
1.31
$
(0.16)
$
0.12
1.56 $
(0.04)
(0.19) $
0.08
1.37
$
0.27
1.58 $
-
(0.16) $
1.17
0.27
1.44
1.15
0.27
1.42
49,055
49,760
-
360
49,055
50,120
48,373
48,564
-
442
48,373
49,006
72
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the effects of the restatement adjustments on the Company’s previously reported
consolidated balance sheet as of December 31, 2007 (in thousands):
As Reported
December 31, 2007
Adjustments As Restated
ASSETS
Current Assets:
$
$
$
Cash and cash equivalents ..................................
Accounts receivable, net ....................................
Inventories..........................................................
Inventories not available for sale .......................
Deferred income taxes .......................................
Other current assets ............................................
Total current assets ..................................
$
56,718
1,072,612
98,863
21,450
22,020
38,916
1,310,579
Property and equipment, net ......................................
158,467
306,742
Goodwill ....................................................................
Intangible assets, net………………………………..
80,922
Deferred income taxes……………………………… 392
10,076
Other assets ................................................................
1,867,178
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable ...............................................
Accrued expenses and other current liabilities...
Current portion of long-term debt……………...
Deferred revenue ................................................
Line of credit ......................................................
Total current liabilities .............................
Long-term debt ..........................................................
Deferred income taxes ...............................................
Other liabilities ..........................................................
Stockholders’ equity:
Preferred stock ...................................................
Common stock ...................................................
Additional paid in capital ...................................
Retained earnings ...............................................
Accumulated other comprehensive income-
foreign currency translation adjustment .........
Total stockholders’ equity ........................
$
685,578
113,891
15,000
42,885
-
857,354
187,250
27,305
20,075
1,091,984
-
485
386,139
340,641
47,929
775,194
- $
(11,433)
10,694
-
20,232
-
19,493
56,718
1,061,179
109,557
21,450
42,252
38,916
1,330,072
1,273
(2,169)
-
3,325
-
159,740
304,573
80,922
3,717
10,076
21,922 $ 1,889,100
428 $ 686,006
168,607
15,000
42,885
-
912,498
54,716
-
-
-
55,144
-
234
-
55,378
187,250
27,539
20,075
1,147,362
-
-
5,241
(38,528)
-
485
391,380
302,113
(169)
(33,456)
47,760
741,738
$
1,867,178
$
21,922 $ 1,889,100
73
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the effects of the restatement adjustments on the Company’s previously reported cash
flow amounts for the years ended December 31, 2007 and 2006 (in thousands):
Year Ended December 31, 2007
As Reported Adjustments As Restated
Year Ended December 31, 2006
As Reported Adjustments As Restated
Cash flows from operating activities
Net earnings from continuing operations ............... $
Plus: net earnings from discontinued operation .....
72,011 $
5,784
Net earnings ..........................................................
77,795
(7,406) $
(1,633)
(9,039)
64,605
4,151
68,756
$ 63,734 $
13,084
(7,277) $
-
76,818
(7,277)
56,457
13,084
69,541
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization ...............................
Provisions for losses on accounts receivable .........
Write-downs of inventories ....................................
Non-cash stock-based compensation expense .......
Gain on sale of discontinued operations .................
Excess tax benefit from employee gains on
stock-based compensation ...................................
Deferred income taxes ...........................................
Changes in assets and liabilities:
Increase in accounts receivable ..............................
(Increase) decrease in inventories ..........................
Decrease in other current assets .............................
Increase in other assets ...........................................
Increase in accounts payable ..................................
Increase in deferred revenue...................................
(Decrease) increase in accrued expenses and
34,533
2,646
6,900
11,540
(8,287)
130
-
-
2,543
-
34,663
2,646
6,900
14,083
(8,287)
25,372
3,033
8,442
13,731
(14,872)
(486)
1,072
(11)
(5,296)
(497)
(4,224)
(1,085)
2,744
(64,543)
(4,278)
4,159
(454)
53,596
1,502
(5,043)
4,604
-
-
205
-
(69,586)
326
4,159
(454)
53,801
1,502
(290,612)
21,287
10,152
(8,370)
226,196
2,514
other current liabilities .........................................
Net cash provided by operating activities ..............
(16,277)
99,418
12,493
586
(3,784)
100,004
7,252
82,602
3
-
-
2,363
-
(38)
(3,326)
(6,682)
6,661
-
-
(70)
-
9,251
885
25,375
3,033
8,442
16,094
(14,872)
(1,123)
(582)
(297,294)
27,948
10,152
(8,370)
226,126
2,514
16,503
83,487
Cash flows from investing activities
Cash receipt of underwriter receivable ...................
Purchases of property and equipment .....................
Acquisition of Software Spectrum, net of cash
acquired ...............................................................
Net cash used in investing activities ......................
28,631
(35,761)
-
(515)
28,631
(36,276)
46,250
(34,242)
-
(808)
46,250
(35,050)
-
(7,130)
-
(515)
-
(7,645)
(321,167)
(309,159)
-
(808)
(321,167)
(309,967)
Cash flows from financing activities
Borrowings on accounts receivable securitization
financing facility ..................................................
682,000
Repayments on accounts receivable
(704,000)
securitization financing facility ..........................
Borrowings on term loan .......................................
Repayments on term loan ...................................... (15,000)
Borrowings on short-term financing facility ..........
Repayments on short-term financing facility ........
Net repayment on line of credit ............................ (15,000)
Proceeds from sales of common stock under
-
-
-
employee stock plans ..........................................
Excess tax benefit from employee gains on stock-
based compensation .............................................
24,521
486
Repurchases of common stock .............................. (50,000)
(Decrease) increase in book overdrafts .................. (23,216)
Net cash (used in) provided by financing
activities...............................................................
(100,209)
74
-
-
-
-
-
-
-
-
11
-
-
11
682,000
291,000
(704,000)
(123,000)
-
(15,000)
-
-
(15,000)
24,521
497
(50,000)
(23,216)
75,000
(3,750)
20,000
(65,000)
(6,309)
16,462
1,085
-
37,261
(100,198)
242,749
-
-
-
-
-
-
-
-
38
-
-
38
291,000
(123,000)
75,000
(3,750)
20,000
(65,000)
(6,309)
16,462
1,123
-
37,261
242,787
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended December 31, 2007
Year Ended December 31, 2006
As Reported
Adjustments
As Restated
As Reported
Adjustments
As Restated
Cash flows from discontinued operations:
Net cash used in operating activities ......................$
Net cash provided by investing activities ..............
Net cash used in financing activities ......................
Net cash used in discontinued operation ................
Foreign currency exchange effect on cash flows ...
Increase in cash and cash equivalents ....................
Cash and cash equivalents at the beginning of the
year ............................................................................
Cash and cash equivalents at the end of the year .........$
Related Proceedings
- $
-
-
-
9,942
2,021
- $
-
-
-
(82)
-
-
-
-
-
9,860
2,021
$
(8,909) $
11,710
(2,696)
105
3,255
19,552
$
-
-
-
-
(115)
-
(8,909)
11,710
(2,696)
105
3,140
19,552
54,697
56,718 $
-
- $
54,697
56,718
35,145
54,697 $
$
-
- $
35,145
54,697
On March 19, 2009, we received a letter of informal inquiry from the Division of Enforcement of the Securities and
Exchange Commission (the “SEC”) requesting certain documents and information relating to the Company’s historical
accounting treatment of aged trade credits. We are cooperating with the SEC. We cannot predict the outcome of this
investigation.
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 period specified in the first complaint is January 30,
2007 to February 6, 2009). The complaints, which seek unspecified damages, assert claims under the federal securities
laws relating to our February 9, 2009 announcement that we expected to restate our financial statements for the year
ended December 31, 2007 and for the first three quarters of 2008 and that the restatement would include a material
reduction of retained earning as of December 31, 2004. The complaints also allege that we issued false and misleading
financial statements and issued misleading public statements about our results of operations. None of the defendants
have responded to the complaints at this time.
(3) Fair Value of Financial Instruments
In September 2006, the FASB issued SFAS 157, which provides guidance for determining fair value to measure
assets and liabilities. The standard also responds to investors’ requests for more information about (1) the extent to
which companies measure assets and liabilities at fair value, (2) the information used to measure fair value, and (3) the
effect that fair-value measurements have on earnings. SFAS 157 will apply whenever another standard requires (or
permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new
circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. On February 12, 2008, the FASB issued FSP FAS 157-2 (“FSP FAS 157-
2”), which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008 and interim periods within those fiscal years for items within the scope of the
FSP.
The Company adopted SFAS 157 on January 1, 2008, except as it applies to those nonfinancial assets and
nonfinancial liabilities noted in FSP FAS 157-2. There was no material impact to our results of operations, cash flows or
financial position for the year ended December 31, 2008. SFAS 157 applies to all assets and liabilities that are being
measured and reported on a fair value basis. SFAS 157 requires new disclosures that establish a framework for
measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 is designed to enable
the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy
for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets
and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
75
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the valuation of our financial instruments by the above SFAS 157 measurement
levels as of December 31, 2008 (in thousands):
Quoted
Market Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Value as of
December 31,
2008
Significant
Unobservable
Inputs
(Level 3)
Balance Sheet
Classification
Assets:
Foreign Exchange Derivatives
Total Assets at Fair Value
$
$
228 $
228 $
-
-
$
$
228 $
228 $
- Other Assets
-
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. SFAS 157
states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the
counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s
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.
As of December 31, 2008, we have no nonfinancial assets or liabilities that are measured 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.
(4) Property and Equipment
Property and equipment consist of the following (in thousands):
December 31,
2008
Software ....................................................................................................................... $ 114,221
69,381
Buildings ......................................................................................................................
48,935
Equipment ....................................................................................................................
31,836
Furniture and fixtures ...................................................................................................
17,036
Leasehold improvements .............................................................................................
7,558
Land ..............................................................................................................................
288,967
Accumulated depreciation and amortization ...............................................................
(131,633)
Property and equipment, net ........................................................................................ $ 157,334
2007
As
Restated
(1)
$ 101,432
70,269
41,483
29,258
17,289
7,722
267,453
(107,713)
$ 159,740
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
In conjunction with the impairment analysis of our goodwill discussed in Note 5, we assessed the recoverability of our
property and equipment 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 was based on the lowest
level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
For each of our property and equipment categories within each of our three operating segments, the estimated fair value of
those assets exceeded the carrying amount, and no impairment was indicated.
Depreciation and amortization expense related to property and equipment, including amounts recorded in discontinued
operations, was $26,122,000, $24,182,000 and $21,561,000 for the years ended December 31, 2008, 2007 and 2006,
76
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
respectively. Interest charges in the amount of $121,000, $515,000 and $808,000 were capitalized in connection with internal-
use software development projects in the years ended December 31, 2008, 2007 and 2006, respectively.
Change in Accounting Estimate
In 2006, we accelerated the depreciation of certain software assets due to our decision to implement a new IT
system. We determined that portions of the old IT system would no longer be used after March 31, 2007, which
shortened its estimated useful life and increased the depreciation for the year ended December 31, 2006 by
approximately $2,880,000.
(5) Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2007 and 2008 are as follows (in
thousands):
Balance at December 31, 2006-As
Restated (1) ........................................
Adjustments .......................................
Balance at December 31, 2007-As
Restated (1) ........................................
Goodwill recorded in connection
with the acquisition of Calence .....
Goodwill recorded in connection
with the acquisition of MINX .......
Impairment charge .............................
Other adjustments ..............................
Balance at December 31, 2008 ......... $
North America
$
221,051
EMEA
$
61,510
APAC
$
15,460
Consolidated
$
298,021
(720)
220,331
104,071
-
(323,422)
(980)
-
$
5,867
67,377
-
9,108
(59,852)
(16,633)
-
1,405
16,865
6,552
304,573
-
-
(13,973)
(2,892)
$
-
$
104,071
9,108
(397,247)
(20,505)
-
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
The other adjustments to goodwill 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 11).
SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), requires that goodwill 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 $305,316,000 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.
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 (see Note 19). The primary driver for these acquisitions was to enhance our technical
capabilities around networking, advanced communications and managed services and to help accelerate our
transformation to a broad-based technology solutions advisor and provider. 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 the respective periods. Such amounts were
77
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 the 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 Insight’s 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 in accordance with SFAS 142. 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 Insight’s 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
Insight’s 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 in
accordance with SFAS 142 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, $201,050,000 net of taxes, 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 (loss) earnings from continuing operations for the year ended December 31, 2008.
During the three months ended September 30, 2008, our overall market capitalization increased with increases in the
market price of Insight’s publicly traded common stock. 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 Insight’s 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. Based on the increase in the
market price of our common stock during the third quarter of 2008 as well as the decline in the carrying value due to the
write-off of goodwill during the second quarter of 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, $75,657,000 net of taxes, 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 (loss) earnings from continuing operations for the year ended December 31,
2008.
78
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The total non-cash charge of $397,247,000, $276,707,000 net of tax, for the year ended December 31, 2008 will not
affect our debt covenant compliance, cash flows or ongoing results of operations.
(6)
Intangible Assets
Intangible assets acquired in the acquisition of MINX, Calence and Software Spectrum consist of the following (in
thousands):
Customer relationships ................................................................................................ $ 109,576
7,446
Backlog ........................................................................................................................
1,700
Acquired technology related assets .............................................................................
191
Non-compete agreements ............................................................................................
150
Trade names .................................................................................................................
119,063
Accumulated amortization ...........................................................................................
(25,663)
Intangible assets, net .................................................................................................... $ 93,400
2008
2007
$ 91,484
-
1,700
-
-
93,184
(12,262)
$ 80,922
December 31,
In conjunction with the impairment analysis of our goodwill discussed in Note 5, we assessed the recoverability of
our acquired intangible 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 was based on
the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and
liabilities. For each of our intangible asset categories within each of our three operating segments, the estimated fair
value of those assets exceeded the carrying amount, and no impairment was indicated.
Amortization expense recognized for the years ended December 31, 2008, 2007 and 2006 was $13,868,000,
$9,749,000 and $3,811,000, respectively. Future amortization expense is estimated as follows (in thousands):
2009 .........................
2010 .........................
2011 .........................
2012 .........................
2013 .........................
Thereafter.....................
Total amortization expense ............................................................
Years Ending December 31, Amortization Expense
12,257
11,918
11,654
11,427
10,466
35,678
93,400
$
$
(7)
Debt and Inventory Financing Facility
Debt
Our long-term debt consists of the following (in thousands):
Senior revolving credit facility ............................................................................... $ 228,000
-
Accounts receivable securitization financing facility (the “ABS facility”)................
-
Term loan .....................................................................................................................
228,000
Total ...........................................................................................................................
Less: current portion of term loan ...............................................................................
-
Long-term debt ........................................................................................................... $ 228,000
2008
2007
-
$
146,000
56,250
202,250
(15,000)
$ 187,250
December 31,
On April 1, 2008, we entered into a new five-year $300,000,000 senior revolving credit facility, which replaced our
previous $75,000,000 five-year revolving credit facility and our $75,000,000 five-year term loan facility, which were
entered into in September 2006 to finance, in part, the acquisition of Software Spectrum and for general corporate
purposes. The Calence acquisition was funded, in part, using borrowings under the new facility. Amounts outstanding
under the new 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, was 4.8% during the year ended December 31, 2008.
79
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2008, $72,000,000 was available under the senior revolving credit facility. The senior revolving
credit facility matures on April 1, 2013.
In connection with the new inventory financing facility discussed below, on September 17, 2008, we amended
certain provisions in the senior revolving credit facility to, among other provisions, permit up to $100,000,000 in
outstanding indebtedness under the new inventory financing facility and the liens securing such indebtedness.
We have an agreement to 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 SPE’s assets are available first and foremost to satisfy the claims of the creditors of the
conduit. The sales to the conduit do not qualify for sale treatment under SFAS No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities” as we maintain effective control over the receivables
that are sold. Accordingly, the receivables remain recorded on our consolidated balance sheets. At December 31, 2008
and 2007, the SPE owned $346,235,000 and $396,126,000, respectively, of receivables recorded at fair value and
included in our consolidated balance sheets, of which $150,000,000 and $198,599,000, respectively, was eligible for
funding. The Company’s 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 Company’s legacy accounts receivable in the U.S. As a result of the decline in
overall sales volume in the legacy business in the U.S. in the first quarter of 2009, the availability under the ABS facility
has decreased by $40,300,000 as of March 31, 2009. Additionally, we further reduced our eligible receivables under this
facility by $45,900,000 to reflect the legacy business gross trade credit liabilities that were recorded as part of our
financial statement restatement described in Note 2. As a result, total availability under our ABS facility at March 31,
2009, after consideration of the restatement, was $63,800,000. We plan to work with our lenders to increase our total
capacity under the ABS facility by adding receivables from our U.S.-based software business to the facility as market
and other conditions permit.
On September 17, 2008, we amended certain provisions of our accounts receivable securitization facility, which was
to have expired on September 7, 2009, including, among other provisions, (i) a reduction in the facility amount effective
December 17, 2008 from $225,000,000 to $150,000,000, (ii) an increase in the permissible delinquency ratio, and
(iii) the creation of a new one-year term through September 17, 2009.
No amounts are outstanding under the accounts receivable securitization facility at December 31, 2008. Interest is
payable monthly, and the interest rate at December 31, 2008 applicable had there been outstanding balances was 3.13%
per annum, including the 1.5% usage fee on any drawn balances. During the years ended December 31, 2008 and 2007,
our weighted average interest rate per annum and weighted average borrowings under the facility were 4.30% and
$128,420,000 and 6.3% and $123,097,000, respectively.
Inventory Financing Facility
On September 17, 2008, we entered into an agreement which provides for a new facility to purchase inventory from
a list of approved vendors. The aggregate availability for vendor purchases under the inventory financing facility is
$90,000,000, and 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 on the average daily balance outstanding during these
stated vendor terms based on our blended borrowing rate during the period under our senior revolving credit facility and
our accounts receivable securitization financing facility. Imputed interest of $581,000 was recorded in 2008. 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 Company’s
domestic assets that is of equal priority to the liens securing borrowings under our senior revolving credit facility. The
facility replaced an existing agreement that the Company assumed in connection with the acquisition of Calence on
April 1, 2008. As of December 31, 2008, $80,904,000 was included in accounts payable related to this facility.
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 asset coverage ratio requirements and meet
80
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
Our borrowing capacity under our senior revolving credit facility and the 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 Company’s trailing twelve months EBITDA, as defined in the agreements. The maximum
leverage ratio permitted under the agreements is currently 3.0 times trailing twelve-month EBITDA and steps down to
2.75 times in October 2009. A significant drop in EBITDA would limit the amount of indebtedness that could be
outstanding at the end of any fiscal quarter, to a level that could be below the Company’s total debt capacity. As of
December 31, 2008, of the $450.0 million of total debt capacity available, the Company’s borrowing capacity was
limited to $402.1 million based on trailing twelve-month EBITDA of $134.0 million. Even with lower expected
EBITDA and the lower maximum leverage ratio covenant beginning in the fourth quarter of 2009, we anticipate that we
will meet our maximum leverage ratio requirements over the next four quarters.
As discussed above, our senior revolving credit facility and inventory financing facility both mature on April 1,
2013. The term of our accounts receivable securitization facility is scheduled to expire on September 17, 2009. If we
were unable to renew our ABS facility in 2009, we believe that cash flows from operations and extending payment terms
with key partners by foregoing early pay discounts, together with the funds available under our existing long-term senior
revolving credit facility, will be adequate to support our anticipated working capital requirements for operations over the
next twelve months.
In February 2009, we informed the administrative agents under our senior revolving credit facility, our accounts
receivable securitization financing facility and our inventory financing facility of our intention to restate our financial
statements and on February 6, 2009 obtained waivers from default with respect thereto from our administrative agents
under those facilities. Under the terms of those waivers, the Company has until May 15, 2009 to deliver our restated
consolidated financial statements for the fiscal year ended December 31, 2007, our restated selected quarterly financial
information for each of the three fiscal quarters ended March 31, 2008, June 30, 2008 and September 30, 2008, and our
consolidated financial statements for the fiscal year ended December 31, 2008. We will be current in our filings with the
filing of this report prior to May 15, 2009.
(8) 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 $228,000,000 outstanding
under our senior revolving credit facility and no amounts outstanding under our accounts receivable securitization
financing facility at December 31, 2008. The interest rates attributable to the borrowings under our senior revolving
credit facility and the accounts receivable securitization financing facility were 1.61% and 3.13%, respectively, per
annum at December 31, 2008. 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 $700,000.
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.
81
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 2008 were not designated as hedges under Statement of Financial Accounting Standards No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” The following derivative contracts were entered into
during the year ended December 31, 2008, and remained open and outstanding at December 31, 2008. All U.S. dollar
and foreign currency amounts are presented in thousands.
Foreign Currency
Foreign Amount
Exchange Rate
USD Equivalent
Maturity Date
Sell
GBP
5,000
0.6770
$7,386
January 7, 2009
Buy
EURO
7,149
0.7149
$10,000
January 7, 2009
The Company does not enter into derivative contracts for speculative or trading purposes. The fair value of all
forward contracts at December 31, 2008 was $228,000.
(9) 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 $16,132,000, $13,343,000 and $9,491,000 for the years ended December
31, 2008, 2007 and 2006, 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, 2008 are as follows (in thousands):
Years Ending December 31,
2009 .........................
2010 .........................
2011 .........................
2012 .........................
2013 .........................
Thereafter.....................
Total minimum lease payments .....................................................
$
$
14,079
11,340
9,065
6,380
3,319
12,241
56,424
(10) Severance, Restructuring and Acquisition Integration Activities
Severance Costs Expensed in 2008
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 on-going restructuring efforts to reduce operating expenses
related to support and management functions as well as certain sales functions. The following table details the changes in
these liabilities during the year ended December 31, 2008 (in thousands):
North America
EMEA
APAC
Severance costs ........................... $
Foreign currency translation
adjustments .................................
Cash payments ............................
Balance at December 31, 2008 ... $
4,633 $
3,923 $
(214)
(1,770)
1,939 $
-
(3,858)
775 $
82
Consolidated
$
8,595
(214)
(5,667)
2,714
$
39
-
(39)
-
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All remaining outstanding obligations are expected to be paid during 2009 and are therefore included in accrued
expenses and other current liabilities.
Severance Costs Expensed in 2007
During the year ended December 31, 2007, North America, EMEA and APAC recorded severance expense of
$2,960,000, $177,000 and $64,000, respectively, primarily associated with the retirement of our chief financial officer.
Of the severance amounts expensed in 2007, EMEA paid $177,000 during 2007. All other amounts were paid during
2008.
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 accounted for under EITF Issue No. 95-3,
“Recognition of Liabilities in Connection with Purchase Business Combinations,” and were based on the integration
plans that were committed to by management. Accordingly, 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 were terminated in connection with integration plans. The facilities based costs relate to future
lease payments or lease termination costs associated with vacating Software Spectrum facilities in EMEA.
The following table details the changes in these liabilities during the year ended December 31, 2008 (in thousands):
North America
EMEA
Balance at December 31, 2007 .................. $
Foreign currency translation adjustments ..
Adjustments ..............................................
Cash payments ..........................................
Balance at December 31, 2008 .................. $
543
-
-
(202)
341
$
$
4,395
(455)
(785)
(349)
2,806
$
Consolidated
$
4,938
(455)
(785)
(551)
3,147
In the accompanying consolidated balance sheet at December 31, 2008, $1,863,000 is expected to be paid in 2009
and is therefore included in accrued expenses and other current liabilities, and $1,284,000 is expected to be paid after
2009 and is therefore included in other liabilities (long-term). In 2008 an adjustment of $785,000 was recorded as a
reduction of the severance accrual in EMEA due to a change in estimate 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 following table details the changes in this liability during the year ended December 31, 2008 (in thousands):
Balance at December 31, 2007.................. $
Adjustments ..............................................
Cash payments ..........................................
Balance at December 31, 2008.................. $
2,425
(353)
(1,022)
1,050
EMEA
In 2007, an adjustment of $606,000 was recorded as a reduction in remaining lease obligations following a
successful renegotiation of a portion of the lease. The remaining accrual of $1,050,000 is expected to be paid in 2009
and is therefore included in accrued expenses and other current liabilities in the accompanying consolidated balance
sheet at December 31, 2008.
83
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11)
Income Taxes
The following table presents the U.S. and foreign components of (loss) earnings from continuing operations before
income taxes and the related income tax (benefit) expense (in thousands):
(Loss) earnings from continuing operations before income taxes:
2008
Years Ended December 31,
2007
As
Restated
(1)
2006
As
Restated
(1)
U.S. ................................................................................................................ $ (282,554)
Foreign ........................................................................................................... (43,520)
$ 56,728 $
48,563
$ (326,074) $ 105,291 $
59,364
27,975
87,339
Income tax (benefit) expense from continuing operations:
2008
Years Ended December 31,
2007
As
Restated
(1)
2006
As
Restated
(1)
Current:
$ 22,956 $
U.S. Federal ................................................................................................... $
2,170
U.S. State and local .......................................................................................
Foreign ..........................................................................................................
17,091
20,413 42,217
5,379
360
14,674
22,701
975
7,809
31,485
Deferred:
U.S. Federal ...................................................................................................
U.S. State and local .......................................................................................
Foreign ...........................................................................................................
(97,126)
(10,254)
620
(106,760)
$ (86,347) $
(774)
341
(1,098)
(1,531)
40,686 $
(3,058)
392
2,063
(603)
30,882
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
Income tax expense relating to discontinued operations is as follows:
2008
Years Ended December 31,
2007
As
Restated
(1)
2006
U.S. ................................................................................................................ $
$
-
-
$
$
1,719 $
1,719 $
8,451
8,451
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
84
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following schedule reconciles the differences between the U.S. federal income taxes at the U.S. statutory rate to
our income tax (benefit) expense (dollars in thousands):
Expected (benefit) expense at U.S. Statutory rate of 35% ................................... $ (114,126) $ 36,852 $
Change resulting from:
2008
Years Ended December 31,
2007
As
Restated
(1)
2006
As
Restated
(1)
30,569
State income tax (benefit) expense, net of federal income tax benefit ........
Audits and adjustments, net ..........................................................................
Change in valuation allowance .....................................................................
(9,227)
2,641
8,707
2,323
347
313
2,228
(2,519)
(134)
Foreign income taxed at different rates ........................................................
Non-deductible goodwill impairment charges .............................................
Other, net .......................................................................................................
Income tax (benefit) expense ................................................................................ $ (86,347) $
Effective tax rate ...................................................................................................
460
25,785
(587)
(834)
(170)
-
-
1,021
1,572
40,686 $ 30,882
26.5% 38.6% 35.4%
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
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 $23,530,000 at December 31, 2008. 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):
Deferred tax assets:
December 31,
2008
2007
As
Restated
(1)
$
Trade credits .................................................................................................. $ 18,920
14,096
Net operating loss carryforwards ..................................................................
12,886
Miscellaneous accruals ..................................................................................
8,107
Stock compensation .......................................................................................
6,918
Allowance for doubtful accounts and returns ...............................................
9,043
Foreign tax credit carryforwards ...................................................................
903
Other, net .......................................................................................................
3,458
Accrued vacation and other payroll liabilities ..............................................
1,711
Write-downs of inventories ...........................................................................
1,440
Depreciation allowance carryforwards .........................................................
92,116
Amortization of goodwill and other intangibles ...........................................
Gross deferred tax assets........................................................................
169,598
Valuation allowance ......................................................................................
Total deferred tax assets ........................................................................
147,710
(21,888)
Deferred tax liabilities:
Amortization of Goodwill and other intangibles ..........................................
-
Depreciation and amortization ......................................................................
(19,653)
Prepaid expenses ...........................................................................................
(516)
(20,169)
Total deferred tax liabilities ...................................................................
Net deferred tax assets ........................................................................... $ 127,541
$
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
85
19,802
18,179
10,506
10,013
5,609
5,081
3,864
3,297
2,154
1,760
-
80,265
(19,975)
60,290
(23,970)
(17,375)
(515)
(41,860)
18,430
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The net current and non-current portions of deferred tax assets and liabilities are as follows (in thousands):
December 31,
2008
2007
As
Restated
(1)
Net current deferred tax asset ............................................................................... $ 40,075
87,466
Net non-current deferred tax asset (liability) .......................................................
Net deferred tax asset (liability) .................................................................... $ 127,541
$
$
42,252
(23,822)
18,430
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
As of December 31, 2008, we have U.S. state net operating loss carryforwards (“NOLs”) of $720,000 that will
expire between 2009 and 2028. We also have NOLs from various non-U.S. jurisdictions of $52,012,000. While the
majority of the non-U.S. NOLs have no expiration date, $468,000 will fully expire in 2018.
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,
2008, our valuation allowances totaled $21,888,000, representing all of our U.S. state NOLs, a portion of our non-U.S.
NOLs, foreign depreciation allowances, foreign tax credits, and a U.S. deferred tax asset related to Software Spectrum
foreign branches. In the future, if we determine that additional realization of these deferred tax assets is more likely than
not, the reversal of the related valuation allowance will reduce income tax expense. Upon the January 1, 2009 adoption of
SFAS 141R, changes that occur after acquisition date in deferred tax asset valuation allowances and income tax
uncertainties resulting from a business combination, including those associated with acquisitions that closed prior to the
effective date of SFAS 141R, will generally affect income tax expense. At December 31, 2007, our valuation allowances
totaled $19,975,000, representing all of our U.S. state NOLs, a portion of our non-U.S. NOLs, foreign depreciation
allowances, and a U.S. deferred tax asset related to Software Spectrum foreign branches.
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
is not more likely than not, we will need to increase our valuation allowance and record additional income tax expense. As
a result of income generated through December 31, 2008 and near-term income forecasts, during 2008 we determined
that we had sufficient positive evidence to recognize our deferred tax asset related to our United Kingdom, France,
Austria, and Hong Kong net operating loss (“foreign NOL”) carryforwards. Therefore, the valuation allowance against
these foreign NOL deferred tax assets was released. Since the foreign NOLs were related to activity at Software
Spectrum prior to the acquisition, the reversal was recorded as a reduction of goodwill (see Note 5) and had no effect on
income tax (benefit) expense during the year ended December 31, 2008.
The following table summarizes the change in the valuation allowance (in thousands):
Valuation allowance at beginning of year ............................................................ $ 19,975
7,000
Increases in income tax expense ...........................................................................
(3,459)
Valuation allowances of Software Spectrum/MINX ...........................................
Foreign currency translation adjustments.............................................................
(1,628)
Valuation allowance at end of year ...................................................................... $ 21,888
2008
2007
$ 19,830
251
(1,623)
1,517
$ 19,975
December 31,
A tax shortfall of $2,737,000 related to the exercise of employee stock options and other employee stock programs
was applied to stockholders’ equity during the year ended December 31, 2008. Tax benefits of $1,791,000 and $882,000
related to the exercise of employee stock options and other employee stock programs were applied to stockholders’
equity in the years ended December 31, 2007 and 2006, respectively.
86
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Various taxing jurisdictions are examining our tax returns for various 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.
FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109” (“FIN 48”), requires that companies recognize the effect of a tax position in their consolidated financial
statements if there is a greater likelihood than not of the position being sustained upon audit based on the technical merits
of the position. We adopted the provisions of FIN 48 effective January 1, 2007. The adoption of FIN 48 resulted in no
cumulative effect adjustment to our retained earnings. However, in order to conform to the balance sheet presentation
requirements of FIN 48, we classified certain unrecognized tax benefits on our balance sheet from current assets to non-
current assets.
As of December 31, 2008 and 2007, we had approximately $4,300,000 and $13,500,000, respectively, of
unrecognized tax benefits. Of these amounts, approximately $400,000 and $2,600,000, respectively, relate to accrued
interest. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at December 31, 2007 ...................................................... $
Additions for tax positions in prior periods ...................................
Additions for tax positions in current period .................................
Subtractions due to foreign currency translation ...........................
Subtractions due to audit settlements .............................................
Balance at December 31, 2008 ...................................................... $
10,900
200
2,100
(300)
(9,000)
3,900
Our policy to classify interest and penalties relating to uncertain tax positions as a component of income tax
(benefit) expense in our consolidated statements of operations did not change as a result of implementing the provisions
of FIN 48.
As of December 31, 2008, if recognized, $3,700,000 of the liability associated with uncertain tax positions of
$4,300,000 would affect our effective tax rate. The remaining $600,000 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 the 2002 through 2007 tax years. It is reasonably possible
that the examination phase of these audits may conclude in the next twelve months and that the related unrecognized tax
benefits for uncertain tax positions will decrease. However, based on the status of the examinations, 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 2004 through 2007 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.
(12) Stock Based Compensation
On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share Based Payment” (“SFAS 123R”), which
requires stock-based compensation to be measured based on the fair value of the award on the date of grant and the
corresponding expense to be recognized over the period during which an employee is required to provide service in
exchange for the award. In March 2005, the SEC issued SAB No. 107 “Share Based Payment” (“SAB 107”), relating to
SFAS 123R. We have applied the provisions of SAB 107 in our adoption of SFAS 123R. Stock-based compensation
expense is classified in the same line item of the consolidated statements of operations as other payroll-related expenses
for the specific employee.
87
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recorded the following pre-tax amounts for stock-based compensation, by operating segment, in our consolidated
financial statements (in thousands):
North America (2) ................................................... $
EMEA(2) .................................................................
APAC(2) .................................................................
Total Continuing Operations ................................ $
Discontinued Operations ....................................... $
2008
Years Ended December 31,
2007
As Restated
(1)
2006
As Restated
(1)
5,794
1,985
206
7,985
-
$
$
$
11,576
2,704
305
14,585
-
$
$
$
13,439
1,594
44
15,077
978
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
(2) Recorded in selling and administrative expenses.
Company Plans
On October 1, 2007 Insight’s Board of Directors approved the 2007 Omnibus Plan (the “2007 Plan”), and the 2007
Plan became effective when it was approved by Insight’s 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
Insight’s 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 (the “Exchange Act”). 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 Company’s stock. The 2007 Plan allows for awards of options, stock
appreciation rights (SARs), 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, 2008, 3,002,635
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. Upon stockholder approval of the 2007 Plan in November 2007, as discussed above, there will
be no further grants under these plans.
Accounting for Stock Options
We had no grants of stock options during the year ended December 31, 2008, one grant in 2007 and no grants in
2006. In valuing the December 2007 award, we assumed a dividend yield of 0%, expected volatility of 36%, a risk-free
interest rate of 3.4% and an expected life of 3.5 years. Consistent with SFAS 123R and SAB 107, we considered the
historical volatility of our stock price in determining our expected volatility. The risk-free interest rate assumption is
based upon observed interest rates appropriate for the term of the stock options. The expected life of stock options
represents the weighted-average period the stock options are expected to remain outstanding calculated using the
simplified method as prescribed in SAB 107.
For the years ended December 31, 2008, 2007 and 2006, we recorded in continuing operations stock-based
compensation expense related to stock options, net of forfeitures, of $524,000, $3,249,000 and $8,166,000, respectively.
In 2006, we recorded $230,000 of stock-based compensation related to stock options in discontinued operations. As of
88
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2008, total compensation cost related to nonvested stock options not yet recognized is $842,000, which is
expected to be recognized over the next 1.26 years on a weighted-average basis.
Included in the amount for the year ended December 31, 2007 is $366,000 of cash payments made in May through
August 2007 to teammates whose stock options expired during the period that registration statements for our stock plans
were suspended as a result of the delay in the filing of our Annual Report on Form 10-K for the year ended December
31, 2006 and $136,000 of cash payments made to teammates pursuant to a formal tender offer (the “Tender Offer”)
which allowed teammates to amend certain options that had been retroactively priced. A total of 63 teammates
participated in the Tender Offer. Pursuant to the Tender Offer, the exercise price per share in effect for each tendered
option was amended to the fair market value per share of our common stock on the measurement date determined for that
option for financial accounting purposes. Each participant who had an option with an exercise price that was amended,
in late 2007, also became entitled to receive, in early 2008, a cash payment with respect to that option to compensate
them for the spread lost in the amendment. The amount of the cash payment for each eligible option was calculated by
multiplying (i) the amount by which the new exercise price of the option was higher than the exercise price per share
previously in effect for that option, by (ii) the number of shares of our common stock that the holder could acquire under
that option.
During 2007, we also recognized non-cash stock-based compensation expense for a 90-day extension of the post
termination exercise period for stock options related to the retirement of our former chief financial officer. The
modification expense of $186,000 was recorded in severance and restructuring expenses.
The following table summarizes our stock option activity during the year ended December 31, 2008:
Number
Outstanding
Weighted Average
Exercise Price
Aggregate
Intrinsic Value
(in-the-money options)
Remaining
Contractual
Life (in years)
Weighted
Average
$
Outstanding at the beginning of
year .................................................
Granted ............................................
Exercised .........................................
Forfeited or expired ........................
Outstanding at the end of year .......
Exercisable at the end of year .........
Vested and expected to vest ............
Weighted average grant date fair
value for options granted during
2007 ...............................................
3,621,130
-
(345,565)
(738,892)
2,536,673
2,402,590
2,513,520
$ 5.53
19.33
-
14.56 $
20.14
19.47 $
19.57 $
19.49 $
1,077,542
-
-
-
1.14
0.98
1.11
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing
stock price of $6.90 as of December 31, 2008, which would have been received by the option holders had all option holders
exercised options and sold the underlying shares on that date. The aggregate intrinsic value for options exercisable during
2007 and 2006 was $1,921,292 and $4,187,616, respectively.
89
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the status of outstanding stock options as of December 31, 2008:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
$13.00 - 18.53
18.54 - 19.72
19.79 - 19.90
20.00 - 21.25
21.30 – 41.00
Number of
Options
Outstanding
733,716
642,160
516,100
568,529
76,168
2,536,673
Weighted
Average
Remaining
Contractual
Life (in years)
1.91
0.98
0.87
0.51
1.45
1.14
Weighted
Average
Exercise
Price Per
Share
17.66
$
19.22
$
19.90
$
20.85
$
25.78
$
19.47
$
Number of
Options
Exercisable
599,633
642,160
516,100
568,529
76,168
2,402,590
Weighted
Average
Exercise
Price Per
Share
$
$
$
$
$
$
17.64
19.22
19.90
20.85
25.78
19.57
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. 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 restricted stock shares 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 have elected to primarily issue service-based and performance-based RSUs instead of stock
options and restricted stock shares. The number of RSUs ultimately awarded under the performance-based RSUs will
vary based on whether we achieve certain financial results. We will 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.
For the years ended December 31, 2008, 2007 and 2006, we recorded in continuing operations stock-based
compensation expense, net of estimated forfeitures, related to restricted stock shares and RSUs of $7,461,000,
$10,834,000 and $6,911,000, respectively. In 2006, we recorded $748,000 of stock-based compensation related to RSUs
in discontinued operations. As of December 31, 2008, total compensation cost related to nonvested restricted stock
shares and RSUs not yet recognized is $11,308,000, which is expected to be recognized over the next 1.65 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 Chief Executive Officer, the President of our North America/APAC operating segments and the
President of our EMEA operating segment. The approved grant level targets were as follows:
•
•
•
Richard A. Fennessy, President and Chief Executive Officer — 300,000 RSUs;
Mark T. McGrath, President, North America/APAC — 150,000 RSUs; and
Stuart A. Fenton, President, EMEA — 100,000 RSUs.
The plan provided for the award of RSUs that were to be issued based upon achievement of specific stock price
hurdles within specific timeframes (the 20-day average closing price of Insight stock must be at or above a stock price
hurdle and within the defined timeframes for any tranche to be awarded). 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 stock-based
compensation expense amount discussed above. As of December 31, 2008, total compensation cost not yet recognized
related to these RSUs was $5,478,000 of the $11,308,000 total discussed above. Due to the current economic climate
90
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and the decrease in Insight’s stock price, on February 19, 2009, Messrs. Fennessy, Fenton and McGrath 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 will be recognized in the first quarter of 2009 as a result of the cancellation of
these awards.
The following table summarizes our restricted stock activity, including restricted stock shares and RSUs, during the
year ended December 31, 2008:
Nonvested at the beginning of period ......
Granted .....................................................
Vested, including shares withheld to
cover taxes ............................................
Forfeited ...................................................
Nonvested at the end of period.................
Expected to vest ........................................
Number
1,108,857
1,029,865
Weighted Average
Grant Date Fair Value
20.29
$
10.43
$
Fair Value
(445,396)
$
(173,170) $
1,520,156
$
$
1,405,215
$
20.36
19.24
13.71 $
$
7,733,859(a)
10,489,076(b)
9,695,984(b)
(a) The fair value of vested restricted stock shares and 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 restricted stock shares
and RSUs had all such holders sold their underlying shares on that date. The aggregate intrinsic value for vested
restricted stock shares and RSUs during 2007 was $5,319,942.
(b) The aggregate fair value of the nonvested restricted stock shares and the RSUs expected to vest represents the
total pre-tax fair value, based on our closing stock price of $6.90 as of December 31, 2008, which would have
been received by holders of restricted stock shares and RSUs had all such holders sold their underlying shares on
that date.
During the year ended December 31, 2008, the restricted stock shares 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 cash to the
appropriate taxing authorities. The total shares withheld during the year ended December 31, 2008 of 120,492 was based
on the value of the restricted stock shares or RSUs on their vesting dates as determined by our closing stock price on
such dates. For the year ended December 31, 2008, total payments for the employees’ tax obligations to the taxing
authorities were $2,120,000 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 and retired the number of
shares that would have otherwise been issued as a result of the vesting and did not represent an expense to us.
(13)
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. In 2008, 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, including amounts recorded in discontinued operations, was $2,014,000, $1,691,000 and
$2,230,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
In November 2007, we established the Insight Nonqualified Deferred Compensation Plan (“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. We do not provide a guaranteed rate of return on these
deferred amounts nor do we make any contributions to the Deferred Compensation Plan. All recorded amounts were
immaterial as of and for the year ended December 31, 2008.
(14) Share Repurchase Program
On December 5, 2005, our Board of Directors authorized the repurchase of up to $50,000,000 of our common stock.
During the year ended December 31, 2007, we purchased 1,955,646 shares of our common stock on the open market at an
average price of $25.57 per share, which represented the full amount authorized under the repurchase program. All shares
repurchased were retired.
91
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
(15)
Stockholder Rights Agreement
On December 14, 2008, the stockholder rights plan expired in accordance with its terms.
(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 $7,050,000 through 2013 for sponsorship
arrangements, ticket purchases and miscellaneous expenses.
We have committed to pay the Arizona Cardinals an aggregate amount of approximately $7,700,000 through
February 2014 for advertising and marketing events at the University of Phoenix stadium.
In July 2007, we signed a statement of work with a third party that was engaged to assist us in a company-wide
integration of our hardware, services and software distribution operations into our IT systems. During the quarter ended
March 31, 2008, we renegotiated the contract to include a new scope of work, whereby we agreed to engage the third
party on current and future IT related projects. As a result of this renegotiation, previously reported commitments as of
December 31, 2007 totaling $14,400,000, to be paid in 2008 and 2009, were settled with a $3,100,000 payment made in
April 2008. The remaining commitments at December 31, 2008 approximate $3,139,000 to be incurred over 18 to 24
months.
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, 2008 and December 31, 2007, we had approximately $24,623,000 and
$794,000, respectively, 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
We have employment contracts with certain officers and management teammates under which severance payments
would become payable and accelerated vesting of stock-based compensation would occur 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 the teammate’s salary up to two times the teammate’s annual salary and bonus.
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
92
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
claims arising from their extension of credit to us. Such indemnification obligations may not be subject to maximum loss
clauses.
In connection with our sale of Direct Alliance in June 2006, the sale agreement contains certain indemnification
provisions pursuant to which we are required to indemnify the buyer for a limited period of time for liabilities, losses or
expenses arising out of breaches of covenants and certain breaches of representations and warranties relating to the
condition of the business prior to and at the time of sale.
Management believes that payments, if any, related to these indemnifications are not probable at December 31, 2008
and, if incurred, would not be material. Accordingly, we have not accrued any liabilities related to such indemnifications
in our consolidated financial statements.
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.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies”
(“SFAS 5”), we make a provision for a liability when it is both probable that a liability has been incurred and the amount
of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and are adjusted to reflect the
effects of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a
particular claim. Although litigation is inherently unpredictable, we believe that we have adequate provisions for any
probable and estimable losses. It is possible, nevertheless, that the results of our operations or cash flows could be
materially and adversely affected in any particular period by the resolution of a legal proceeding. Legal expenses related
to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
On March 10, 2008, TeleTech Holdings, Inc. (“Teletech”) sent us a demand for arbitration pursuant to the Stock
Purchase Agreement (“SPA”) pursuant to which TeleTech acquired Direct Alliance Corporation (“DAC”), a former
subsidiary of Insight, effective June 30, 2006. TeleTech claims that it is entitled to a $5,000,000 “clawback” under the
SPA relating to the non-renewal of an agreement between DAC and one of its clients. We disputed TeleTech’s
allegations and are defending this matter in arbitration. In recording the disposition of DAC on June 30, 2006, we
deferred $5,000,000 as a contingent gain on sale related to this clawback.
On April 1, 2008, we completed the acquisition of Calence pursuant to an agreement and plan of merger (the
“Merger Agreement”), a related support agreement (the “Support Agreement”) and other ancillary agreements. In
April 2008, 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”) requesting documents related to the award, by the Universal Service Administration Company (“USAC”), of
funds under the E-Rate program to a participating school district. The E-Rate program provides schools and libraries
with discounts to obtain affordable telecommunications and internet access. No allegations were made against Calence,
and we have responded to the subpoena. Pursuant to the Merger Agreement and the Support Agreement, the former
owners of Calence have agreed to indemnify us for certain losses and damages that may arise out of or result from this
matter, including our fees and expenses for responding to the subpoena.
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 period specified in the first complaint is January 30,
2007 to February 6, 2009). The complaints, which seek unspecified damages, assert claims under the federal securities
laws relating to our February 9, 2009 announcement that we expected to restate our financial statements for the year
ended December 31, 2007 and for the first three quarters of 2008 and that the restatement would include a material
reduction of retained earnings. The complaints also allege that we issued false and misleading financial statements and
issued misleading public statements about our results of operations. None of the defendants have responded to the
complaints at this time.
On March 19, 2009, we received a letter of informal inquiry from the Securities and Exchange Commission (the
“SEC”) requesting certain documents and information relating to the Company’s historical accounting treatment of aged
trade credits. We are cooperating with the SEC. We cannot predict the outcome of this investigation.
93
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Management believes that the ultimate outcome of these legal proceedings will not have a material effect on our
results of operations.
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 under the “probable and estimable” criteria of SFAS 5. 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.
(17)
Supplemental Financial Information
A summary of additions and deductions related to the allowances for doubtful accounts receivable for the years
ended December 31, 2008, 2007 and 2006 follows (in thousands):
Balance at
Beginning of
Year
Additions
Balance at
Deductions End of Year
Allowance for doubtful accounts receivable:
Year ended December 31, 2008 .......................
$ 22,831
$ 3,452
$ (6,127)
Year ended December 31, 2007 .......................
$ 23,211
$ 2,646
$ (3,026)
Year ended December 31, 2006 .......................
$ 15,892
$ 10,238*
$ (2,919)
$
$
$
20,156
22,831
23,211
* Includes $7,206,000 resulting from the Software Spectrum acquisition.
(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 currently only include software and select software-related services. We
have not disclosed net sales amounts by product or service type for the years ended December 31, 2008, 2007 and 2006,
as it is impracticable for us to do so.
SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information” (“SFAS 131”), requires
disclosures of certain information regarding operating segments, products and services, geographic areas of operation
and major clients. The method for determining what information to report under SFAS 131 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 and 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, 2008.
A portion of our operating segments’ selling and administrative expenses arise from shared services and
infrastructure that we have historically provided to them in order to realize economies of scale and to use resources
efficiently. These expenses, collectively identified as corporate charges, include senior management expenses, internal
audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses. Charges are allocated to our
operating segments, and the allocations have been determined on a basis that we considered to be a reasonable reflection
of the utilization of services provided to or benefits received by the operating segments.
The tables below present information about our reportable operating segments as of and for the years ended December
31, 2008, 2007 and 2006 (in thousands):
94
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
North
America
Net sales ................................................... $ 3,362,544
Costs of goods sold .................................. 2,913,358
449,186
Gross profit ........................................
Operating expenses:
Selling and administrative expenses ........
Goodwill impairment ...............................
Severance and restructuring expenses ......
391,629
323,422
4,633
(Loss) earnings from operations ........ $ (270,498)
Year Ended December 31, 2008
EMEA
$ 1,309,365
1,118,692
190,673
APAC
$ 153,580
129,856
23,724
152,617
59,852
3,923
(25,719)
$
17,741
13,973
39
(8,029)
$
Consolidated
$ 4,825,489
4,161,906
663,583
561,987
397,247
8,595
$ (304,246)
Total assets .............................................. $ 1,281,768
$ 446,929
$
49,422
$ 1,778,119*
Year Ended December 31, 2007 – As Restated (1)
North
America
Net sales ................................................... $ 3,367,998
Costs of goods sold .................................. 2,904,835
Gross profit ........................................
463,163
Operating expenses:
Selling and administrative expenses ........
Severance and restructuring expenses ......
383,390
2,960
Earnings from operations ................... $ 76,813
EMEA
$ 1,329,682
1,154,916
174,766
APAC
$ 107,794
87,097
20,697
143,611
(429)
31,584
$
15,321
64
5,312
$
Consolidated
$ 4,805,474
4,146,848
658,626
542,322
2,595
$ 113,709
Total assets .............................................. $ 2,387,773
$ 577,190
$
52,013
$ 3,016,976*
North
America
Net sales ................................................... $ 2,859,678
Costs of goods sold .................................. 2,497,197
Gross profit ........................................
362,481
Operating expenses:
Selling and administrative expenses ........
Severance and restructuring expenses ......
Earnings from operations ................... $
289,788
508
72,185
Year Ended December 31, 2006 – As Restated (1)
EMEA
$ 710,294
611,489
98,805
APAC
$
29,965
25,065
4,900
83,111
221
$
15,473
$
3,823
-
1,077
Consolidated
$ 3,599,937
3,133,751
466,186
376,722
729
$
88,735
Total assets .............................................. $ 2,107,207
$ 461,084
$
37,809
$ 2,606,100*
(2) See Note 2 “Restatement of Consolidated Financial Statements.”
* Consolidated total assets are shown net of intercompany eliminations and corporate assets of $170,479,
$1,127,414, and $805,637 at December 31, 2008, 2007 and 2006, respectively.
95
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 (in thousands):
2008
Net sales ........................................................
Total long-lived assets ...................................
2007
Net sales ........................................................
Total long-lived assets ...................................
2006
Net sales ........................................................
Total long-lived assets ...................................
United
States
Foreign
Total
$ 3,163,758
296,645
$
$ 1,661,731
60,587
$
$ 4,825,489
$ 357,232
$ 3,160,992
384,555
$
$ 1,644,482
$ 174,473
$ 4,805,474
$ 559,028
$ 2,706,970
376,625
$
$ 892,967
$ 175,582
$ 3,599,937
$ 552,207
Foreign net sales and total long-lived assets summarized above for 2008, 2007 and 2006 include net sales and long-
lived assets of $653,458,000 and $21,016,000; $718,286,000 and $38,738,000 and $526,673,000 and $39,681,000,
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,
2008
2007
2006
North America ....................................................... $
EMEA ....................................................................
APAC ..................................................................
Total Continuing Operations ................................. $
33,675
6,882
682
41,239
Discontinued Operations ....................................... $
-
$
$
$
26,992
6,954
717
34,663
-
$
$
$
19,529
3,861
252
23,642
1,733
(19) Acquisitions
MINX Limited
On July 10, 2008, we acquired MINX, a United Kingdom-based networking services company with annual net sales
of approximately $25,000,000, for an initial cash purchase price of approximately $1,500,000 and the assumption of
approximately $3,900,000 of existing debt. Up to an additional $550,000 may be due if MINX achieves certain
performance targets over a one-year period. Founded in 2002, MINX is a network integrator with Cisco Gold Partner
accreditation in the United Kingdom. We believe this acquisition will significantly enhance our capabilities in the sale,
implementation and management of network infrastructure services and solutions in our EMEA operating segment and
will compliment our April 1, 2008 acquisition of Calence in our North America operating segment, accelerating Insight’s
transformation to a broad-based global technology solutions advisor and provider.
96
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):
Purchase price paid as:
Cash
Assumed debt
Acquisition costs
Total purchase price
Fair value of net assets acquired:
Current assets
Identifiable intangible assets – see description below
Property and equipment
Current liabilities
Other liabilities
Total fair value of net assets acquired
Excess purchase price over fair value of net assets acquired (“goodwill”)
$ 1,497
3,895
141
5,533
$ 4,957
2,874
196
(11,602)
-
(3,575)
$ 9,108
Under the purchase method of accounting, the purchase price as shown in the table above is allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess
purchase price over fair value of net assets acquired was recorded as goodwill. The purchase price was allocated using
the information currently available, and we may adjust the purchase price allocation after obtaining more information
regarding, among other things, asset valuations, liabilities assumed, restructuring activities and revisions of preliminary
estimates.
The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition
due to their short-term nature. Property and equipment were also estimated based upon unamortized costs as they most
closely approximated fair value.
Identified intangible assets acquired in the acquisition of MINX totaled $2,874,000 and consist primarily of
customer relationships which are being amortized using the straight-line method over their estimated economic life of
8.5 years. Amortization expense recognized for the period from the acquisition date through December 31, 2008 was
$215,000. Amortization expense is estimated to be approximately $500,000 per year through 2010.
Goodwill of $9,108,000 represents the excess of the purchase price over the estimated fair value assigned to tangible
and identifiable intangible assets acquired and liabilities assumed from MINX. None of the goodwill is tax deductible.
We have consolidated the results of operations for MINX since its acquisition on July 10, 2008. Our historical results
would not have been materially affected by the acquisition of MINX and, accordingly, we have not presented pro forma
information as if the acquisition had been completed at the beginning of each period presented in our statements of
operations. As discussed in Note 5, we recorded non-cash goodwill impairment charges during 2008, which represented
the entire goodwill balance recorded in our EMEA operating segment, including the entire amount of the goodwill
recorded in connection with the MINX acquisition.
Calence, LLC
On April 1, 2008, we completed our acquisition of Calence for a cash purchase price of $125,000,000 plus a
preliminary working capital adjustment of $4,032,000, offset by a final post-closing working capital adjustment of
$383,000. Up to an additional $35,000,000 of purchase price consideration may be due if Calence achieves certain
performance targets over the next four years. Founded in 1993 and headquartered in Tempe, Arizona, Calence is a
leading provider of Cisco networking solutions in the United States, with strong regional presence in the Southwest,
Northwest and Midwest, as well as New York, North Carolina and Texas. We believe this acquisition significantly
enhances Insight’s technical capabilities around networking and communications, as well as managed services and
security, accelerating Insight’s transformation to a broad-based technology solutions advisor and provider.
97
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):
Purchase price paid as:
Cash and borrowings on senior revolving credit facility
Assumed debt
Acquisition costs
Total purchase price
Fair value of net assets acquired:
Current assets
Identifiable intangible assets – see description below
Property and equipment
Other assets
Current liabilities
Other liabilities
Total fair value of net assets acquired
Excess purchase price over fair value of net assets acquired (“goodwill”)
$ 128,649
7,311
3,679
139,639
$ 64,815
29,190
6,192
946
(54,499)
(714)
45,930
$ 93,709
Under the purchase method of accounting, the purchase price as shown in the table above is allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess
purchase price over fair value of net assets acquired was recorded as goodwill. During the year ended December 31,
2008, we accrued an additional $9,830,000 of purchase price consideration and $532,000 of accrued interest thereon as a
result of Calence achieving certain performance targets during the year. Such amounts were recorded as additional
goodwill (see Note 5).
The estimated values of current assets and liabilities were based upon their historical costs on the date of acquisition
due to their short-term nature. Property and equipment were also estimated based upon unamortized costs as they most
closely approximated fair value. The estimated value of deferred revenue, of which $3,359,000 is included in current
liabilities and $652,000 is included in other liabilities in the table above, was based upon the guidance in EITF Issue No.
01-03, “Accounting in a Business Combination for Deferred Revenue of an Acquiree,” and was calculated as the
estimated cost to fulfill the contractual obligations acquired under various customer contracts plus a fair value profit
margin.
Identified intangible assets acquired in the acquisition of Calence totaled $29,190,000 and consist of the following
(in thousands):
Customer relationships ................................................................................................ $ 21,800
4,500
Backlog – Managed services .......................................................................................
2,600
Backlog – Consulting...................................................................................................
150
Trade name ...................................................................................................................
140
Non-compete agreements ............................................................................................
29,190
Accumulated amortization ...........................................................................................
(4,759)
Intangible assets, net at December 31, 2008 ............................................................... $ 24,431
Amortization is provided 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 ...............................
Backlog – Managed services ......................
Backlog – Consulting ..................................
Trade name ................................................
Non-compete agreements ...........................
10.75 Years
4.75 Years
10 Months
10 Months
2 Years
98
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amortization expense recognized for the period from the acquisition date through December 31, 2008 was
$4,759,000. Future amortization expense is estimated to be as follows (in thousands):
Years Ending December 31,
2009 ...........................................................................................
2010 ............................................................................................
2011 ............................................................................................
2012 ............................................................................................
2013 ........................................................................................
Thereafter ................................................................................
Total estimated amortization expense ................................
$
$
3,320
2,993
2,975
2,975
2,028
10,140
24,431
Goodwill of $93,709,000 represents the excess of the purchase price over the estimated fair value assigned to
tangible and identifiable intangible assets acquired and liabilities assumed from Calence. During the year ended
December 31, 2008, we accrued an additional $9,830,000 of purchase price consideration and $532,000 of accrued
interest thereon as a result of Calence achieving certain performance targets during the year. Such amounts were
recorded as additional goodwill, and the entire amount is expected to be tax deductible. As discussed in Note 5, we
recorded non-cash goodwill impairment charges during 2008, which represented the entire goodwill balance recorded in
our North America operating segment, including the entire amount of the goodwill recorded in connection with the
Calence acquisition.
We have consolidated the results of operations for Calence since its acquisition on April 1, 2008. The following
table reports pro forma information as if the acquisition of Calence had been completed at the beginning of each period
presented (in thousands, except per share amounts):
Net sales ....................................... As reported ....... $
Pro forma .......... $
2008
4,825,489
4,897,514
2007
$ 4,805,474
$ 5,047,199
Net (loss) earnings from
continuing operations ................... As reported ....... $ (239,727)
Pro forma .......... $ (239,520)
$ 64,605
$ 58,987
Net (loss) earnings ........................ As reported ....... $ (239,727)
Pro forma .......... $ (239,520)
$ 68,756
$ 63,138
Diluted net (loss) earnings per
share ............................................. As reported ....... $
Pro forma .......... $
(5.15)
(5.14)
$
$
1.37
1.26
(20) Discontinued Operations
PC Wholesale
On March 1, 2007, we completed the sale of PC Wholesale, a division of our North America operating segment that
sells to other resellers. The sale of PC Wholesale is consistent with our strategic plan as we concluded that selling IT
products to other resellers is not a core element of our strategy. The transaction generated proceeds of $28,631,000. In
the fourth quarter of 2007, we resolved certain post-closing contingencies and recognized an additional gain on the sale
of PC Wholesale of $350,000, $264,000 net of taxes. This resolution required a cash payment of $900,000 that was
made in 2008.
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), we have reported the results of operations of PC Wholesale as a discontinued operation in the consolidated
statements of operations for all periods presented. We did not allocate interest, general corporate overhead expense or
non-specific partner funding to the discontinued operation.
99
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following amounts for the years ended December 31, 2007 and 2006, respectively, represent PC Wholesale’s
results of operations and have been segregated from continuing operations and reflected as a discontinued operation (in
thousands):
Years Ended December 31,
2007
As
2006
Restated
(1)
Net sales............................................................................. $
Costs of goods sold ............................................................
Gross profit .................................................................
Operating expenses:
Selling and administrative expenses ..............................
Earnings from discontinued operation ........................
Gain on sale....................................................................
Earnings from discontinued operation, including
gain on sale, before income tax expense ...................
Income tax expense ...........................................................
Net earnings from discontinued operation,
including gain on sale ................................................
$
30,142
29,092
1,050
768
282
5,587
5,869
2,267
$
223,829
215,423
8,406
5,134
3,272
-
3,272
1,298
3,602
$
1,974
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
Direct Alliance
On June 30, 2006, we completed the sale of 100% of the outstanding stock of Direct Alliance for a purchase price of
$46,500,000, subject to a working capital adjustment. In addition to payment of the purchase price, the buyer is
obligated to make a one-time bonus payment to us if Direct Alliance achieves certain gross profit levels for the year
ended December 31, 2006 (“Earn Out”). Additionally, the buyer is entitled to a claw back of the purchase price of up to
$5,000,000 if certain Direct Alliance client contracts are not renewed on terms prescribed in the sale agreement. The
Company is in the process of negotiating the final resolution of the Earn Out and the claw back, which may result in
additional gain recorded on the sale. See discussion of the related legal proceeding with Teletech in Note 16.
Additionally, on June 30, 2006, we paid $2,696,000 to the holders of 1,997,500 exercised Direct Alliance stock options.
If additional gain is recorded on the sale as a result of final resolution of the Earn Out and clawback, additional amounts
will also be paid to the holders of 1,997,500 exercised Direct Alliance stock options.
In accordance with SFAS 144, we have reported the results of operations of Direct Alliance as a discontinued
operation in the consolidated statements of operations for all periods presented. We did not allocate interest or general
corporate overhead expense to the discontinued operation.
On June 30, 2006, in connection with the sale of Direct Alliance, we entered into a lease agreement with Direct
Alliance pursuant to which Direct Alliance will lease from us the facilities it used prior to the sale. Lease income related
to these buildings was $1,594,000, $1,257,000 and $870,000 for the years ended December 31, 2008, 2007 and 2006,
respectively, and is classified as net sales. Depreciation expense related to the buildings was $687,000, $731,000 and
$368,000 for the years ended December 31, 2008, 2007 and 2006, respectively, and is classified as costs of goods sold.
100
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following amounts for the year ended December 31, 2006, represent Direct Alliance’s results of operations and
have been segregated from continuing operations and reflected as a discontinued operation (in thousands):
Net sales ............................................................................. $
Costs of goods sold ............................................................
Gross profit .................................................................
34,095
27,138
6,957
Operating expenses:
Selling and administrative expenses ...............................
Severance and restructuring expenses ............................
Earnings from discontinued operation ........................
Gain on sale ....................................................................
Earnings from discontinued operation, including
gain on sale, before income tax expense ....................
Income tax expense ............................................................
3,566
-
3,391
14,872
18,263
7,153
Net earnings from discontinued operation,
including gain on sale ................................................
$
11,110
A tax benefit of $548,000 was recorded in 2007 related to a reduction in state taxes in connection with sale of Direct
Alliance.
(21)
Selected Quarterly Financial Information (unaudited)
As required by Item 302 of Regulation S-K, the following tables set forth selected unaudited consolidated quarterly
financial information for our two most recent years. The quarters ended March 31, 2007 through September 30, 2008
have been restated from previously reported information filed in the Company’s Form 10-Qs and Form 10-K, as a result
of the restatement of its financial results discussed in Note 2 “Restatement of Consolidated Financial Statements” (in
thousands, except per share data):
101
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Quarters Ended
June 30, Mar. 31,
Dec. 31,
2008
(unaudited)
2008
(unaudited)
As
Restated
(1)
Net sales .................................................... $ 1,160,350 $ 1,165,056 $ 1,396,585 $ 1,103,498 $ 1,288,671 $ 1,110,048 $ 1,286,440 $ 1,120,315
Costs of goods sold ................................... 1,003,421
968,126
1,195,643
152,189
200,942
156,929
2007
(unaudited)
As
Restated
(1)
2008
(unaudited)
As
Restated
(1)
2007
(unaudited)
As
Restated
(1)
Gross profit .......................................
1,102,528
183,912
960,910
149,138
1,115,284
173,387
951,876
151,622
1,010,966
154,090
Dec. 31,
2007
(unaudited)
As
Restated
(1)
Sept. 30,
2007
(unaudited)
As
Restated
(1)
Sept. 30,
2008
(unaudited)
As
Restated
(1)
June 30, Mar. 31,
Operating expenses:
Selling and administrative expenses ......
Goodwill Impairment ............................
Severance and restructuring
expenses .............................................
Earnings(loss) from operations ..........
Non-operating (income) expense:
Interest income ......................................
Interest expense .....................................
Net foreign currency exchange loss
134,511
83,471
139,137
-
152,878
313,776
135,461
-
135,774
-
133,167
-
140,867
-
132,514
-
3,187
(64,240)
-
14,953
3,508
(269,220)
1,900
14,261
(246)
37,859
-
15,971
2,841
40,204
-
19,675
(646)
3,839
(440)
3,062
(700)
3,912
(601)
2,666
(592)
3,144
(432)
2,773
(396)
2,907
(658)
4,028
(gain) .................................................
Other expense, net .................................
6,204
320
3,307
297
1,055
171
(937)
319
(1,080)
390
849
428
Earnings from continuing
operations before income taxes .......
Income tax expense (benefit).....................
Net earnings from continuing
operations .......................................
Net (loss) earnings from a
discontinued operation ...................
(73,957)
5,465
8,727
2,130
(273,658)
(98,583)
12,814
4,641
35,997
13,568
12,353
4,935
(79,422)
6,597
(175,075)
8,173
22,429
7,418
24,826
9,932
-
-
-
-
812
-
-
3,339
(3,002)
496
40,199
15,373
(654)
217
16,742
6,810
Net earnings (loss) ............................. $ (79,422) $
6,597 $ (175,075) $
8,173 $
23,241 $
7,418 $
24,826 $
13,271
Net earnings per share - Basic:
Net earnings from continuing
operations .......................................
$
(1.71)
$
0.14
$
(3.76)
$
0.17
$
0.46
$
0. 15
$
0. 51
$
0.20
Net (loss) earnings from a
discontinued operation ..................
Net earnings (loss) per share ............ $
-
(1.71) $
-
0.14 $
-
(3.76) $
-
0.17 $
0.02
0.48 $
-
0. 15 $
-
0. 51 $
0.07
0. 27
Net earnings per share - Diluted:
Net earnings from continuing
operations ........................................
$
(1.71)
$
0.14
$
(3.76)
$
0.17
$
0.45
$
0.15
$
0.50
$
0.20
Net (loss) earnings from a
discontinued operation ....................
Net earnings (loss) per share ............ $
-
(1.71) $
-
0.14 $
-
(3.76) $
-
0.17 $
0.02
0.47 $
-
0.15 $
-
0.50 $
0.07
0.27
(1) See Note 2 “Restatement of Consolidated Financial Statements.”
102
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables present the effect of the financial statement restatement adjustments on the Company’s
previously reported consolidated statements of operations for the three months ended September 30, June 30, and March
31, 2008, respectively, and December 31, September 30, June 30, and March 31, 2007, respectively, (in thousands,
except per share data):
Three Months Ended September 30, 2008
As Reported
(unaudited)
Adjustments
Three Months Ended June 30, 2008
(unaudited)
Adjustments
As Restated
(3,860) $ 1,165,056
1,010,966
(3,878)
154,090
18
As Reported
$
1,397,722 $
1,195,980
201,742
As Restated
1,396,585
1,195,643
200,942
(1,137) $
(337)
(800)
(61)
-
139,137
-
151,909
313,949
152,878
969
(173) 313,776
-
79
-
(23)
-
-
102
218
(116)
-
14,953
3,508
(267,624)
-
(1,596)
3,508
(269,220)
(440)
3,062
3,307
297
8,727
2,130
6,597
-
6,597
(700)
3,948
1,055
171
-
(36)
-
-
(700)
3,912
1,055
171
(272,098)
(97,821)
(1,560)
(762)
(273,658)
(98,583)
(174,277)
(798)
(175,075)
-
$
(174,277) $
-
(798) $
-
(175,075)
-
6,713 $
-
(116) $
Net sales .................................................. $
Costs of goods sold .................................
Gross profit .....................................
1,168,916 $
1,014,844
154,072
Operating expenses:
Selling and administrative expenses ....
Goodwill impairment………………
Severance and restructuring
Expenses ..........................................
139,198
-
-
14,874
Earnings (loss) from operations ......
Non-operating (income) expense:
Interest income ....................................
Interest expense ...................................
Net foreign currency exchange loss
(gain) ...............................................
Other expense, net ...............................
Earnings (loss) from continuing
operations before income taxes .....
Income tax expense (benefit) ..................
Net earnings (loss) from
continuing operations ..................
Net earnings from a
discontinued operation .................
Net earnings (loss) .......................... $
Net earnings (loss) per share - Basic:
Net earnings (loss) from
(440)
3,085
3,307
297
8,625
1,912
6,713
continuing operations ..................
$
0.15
$
(0.01)
$
0.14
$
(3.74)
$
(0.02)
$
(3.76)
Net earnings from a discontinued
operation .....................................
Net earnings (loss) per share .......... $
Net earnings (loss) per share - Diluted:
Net earnings (loss) from
-
0.15 $
-
(0.01) $
-
0.14
$
-
(3.74) $
-
(0.02) $
-
(3.76)
continuing operations ..................
$
0.15
$
(0.01)
$
0.14
$
(3.74)
$
(0.02)
$
(3.76)
Net earnings from a discontinued
operation .......................................
Net earnings (loss) per share .......... $
Shares used in per share calculations:
Basic
Diluted
-
0.15 $
-
(0.01) $
-
0.14
$
-
(3.74) $
-
(0.02) $
-
(3.76)
45,569
45,719
-
210
45,569
45,929
46,594
46,594
-
-
46,594
46,594
103
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended March 31, 2008
As Reported
(unaudited)
Adjustments
As Restated
(4,291) $ 1,103,498
951,876
(2,758)
151,622
(1,533)
As Reported
$
Three Months Ended December 31, 2007
(unaudited)
Adjustments
5,369
5,236
133
As Restated
$ 1,288,671
1,115,284
173,387
1,283,302 $
1,110,048
173,254
Net sales .................................................. $
Costs of goods sold .................................
Gross profit .....................................
1,107,789 $
954,634
153,155
Operating expenses:
Selling and administrative expenses ....
Goodwill impairment………………
Severance and restructuring
Expenses........................................... 1,900
18,301
Earnings (loss) from operations ......
132,954
-
Non-operating (income) expense:
Interest income ....................................
Interest expense ...................................
Net foreign currency exchange
(gain) loss ........................................
Other expense, net ...............................
(601)
2,716
(937)
319
Earnings from continuing
operations before income taxes .....
16,804
Income tax expense (benefit) .................. 6,284
Net earnings (loss) from
2,507
-
-
(4,040)
-
(50)
-
-
(3,990)
(1,643)
continuing operations...................
10,520
(2,347)
Net earnings from a
discontinued operation .................
Net earnings (loss) .......................... $
-
10,520 $
-
(2,347) $
Net earnings (loss) per share - Basic:
Net earnings (loss) from
135,461
-
1,900
14,261
(601)
2,666
(937)
319
12,814
4,641
8,173
-
8,173
133,490
-
(246)
40,010
(592)
3,221
(1,080)
390
38,071
14,261
2,284
-
-
(2,151)
-
(77)
-
-
(2,074)
(693)
135,774
-
(246)
37,859
(592)
3,144
(1,080)
390
35,997
13,568
23,810
(1,381)
22,429
812
24,622 $
-
(1,381) $
812
23,241
$
continuing operations ..................
$
0.22
$
(0.05)
$
0.17
$
0.49
$ (0.03)
$
0.46
Net earnings from a discontinued
operation .....................................
Net earnings (loss) per share .......... $
Net earnings (loss) per share - Diluted:
Net earnings (loss) from
-
0.22 $
-
(0.05) $
-
0.17
$
0.02
0.51 $
-
(0.03) $
0.02
0.48
continuing operations ....................
$
0.22
$
(0.05)
$
0.17
$
0.48
$
(0.03)
$
0.45
Net earnings from a discontinued
operation .......................................
Net earnings per share .................... $
Shares used in per share calculations:
Basic
Diluted
-
0.22 $
-
(0.05) $
-
0.17
$
0.02
0.50 $
-
(0.03) $
0.02
0.47
48,540
48,905
-
190
48,540
49,095
48,582
49,635
-
164
48,582
49,799
104
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended September 30, 2007
Three Months Ended June 30, 2007
As Reported
(unaudited)
Adjustments
As Restated
343 $ 1,110,048
960,910
149,138
1,051
(708)
2,347
-
-
(3,055)
133,167
-
-
15,971
Net sales .................................................. $
Costs of goods sold .................................
Gross profit .....................................
1,109,705 $
959,859
149,846
Operating expenses:
Selling and administrative expenses ....
Goodwill impairment………………
Severance and restructuring
Expenses...........................................
130,820
-
-
19,026
Earnings (loss) from operations ......
Non-operating (income) expense:
Interest income ....................................
Interest expense ...................................
Net foreign currency exchange loss
(432)
2,860
-
(87)
(432)
2,773
(gain) ...............................................
Other expense, net ...............................
Earnings (loss) from continuing
operations before income taxes .....
Income tax expense (benefit) ..................
849
428
15,321
6,225
Net earnings (loss) from
-
-
(2,968)
(1,290)
continuing operations...................
9,096
(1,678)
Net earnings from a
discontinued operation .................
Net earnings (loss) .......................... $
-
9,096 $
-
(1,678) $
849
428
12,353
4,935
7,418
-
7,418
Net earnings (loss) per share - Basic:
Net earnings (loss) from
As Reported
$
1,283,449 $
1,098,636
184,813
(unaudited)
Adjustments
2,991
3,892
(901)
138,323
-
2,841
43,649
(396)
2,981
(3,002)
496
43,570
16,761
2,544
-
-
(3,445)
-
(74)
-
-
(3,371)
(1,388)
As Restated
$ 1,286,440
1,102,528
183,912
140,867
-
2,841
40,204
(396)
2,907
(3,002)
496
40,199
15,373
26,809
(1,983)
24,826
-
26,809 $
-
(1,983) $
-
24,826
$
continuing operations ..................
$
0.18
$
(0.03)
$
0.15
$
0.55
$
(0.04)
$
0.51
Net earnings from a discontinued
operation .....................................
Net earnings (loss) per share .......... $
Net earnings (loss) per share - Diluted:
Net earnings (loss) from
-
0.18 $
-
(0.03) $
-
0.15
$
-
0.55 $
-
(0.04) $
-
0.51
continuing operations ..................
$
0.18
$
(0.03)
$
0.15
$
0.54
$
(0.04)
$
0.50
Net earnings from a discontinued
operation .......................................
Net earnings per share .................... $
Shares used in per share calculations:
Basic
Diluted
-
0.18 $
-
(0.03) $
-
0.15
$
-
0.54 $
-
(0.04) $
-
0.50
49,530
50,711
-
323
49,530
51,034
49,099
49,402
-
631
49,099
50,033
105
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months Ended March 31, 2007
As Reported
(unaudited)
Adjustments
Net sales ................................................. $
Costs of goods sold ................................
Gross profit .....................................
1,123,975 $
970,800
153,175
Operating expenses:
Selling and administrative expenses ...
Goodwill impairment………………
Severance and restructuring
expenses ..........................................
129,758
-
-
23,417
Earnings (loss) from operations ......
Non-operating (income) expense:
Interest income ...................................
Interest expense ..................................
Net foreign currency exchange
(gain) loss .......................................
Other expense, net ..............................
Earnings from continuing
operations before income taxes ....
Income tax expense (benefit) ..................
Net earnings (loss) from
(658)
4,305
(654)
217
20,207
7,911
As Restated
(3,660) $ 1,120,315
968,126
(2,674)
152,189
(986)
2,756
-
-
(3,742)
-
(277)
-
-
132,514
-
-
19,675
(658)
4,028
(654)
217
(3,465)
(1,101)
16,742
6,810
continuing operations ..................
12,296
(2,364)
9,932
Net earnings from a
discontinued operation .................
Net earnings (loss) .......................... $
4,972
17,268 $
(1,633)
(3,997) $
3,339
13,271
Net earnings (loss) per share - Basic:
Net earnings (loss) from
continuing operations .................
$
0.25
$
(0.05)
$
Net earnings from a discontinued
operation ....................................
Net earnings (loss) per share ......... $
0.10
0.35 $
(0.03)
(0.08) $
0.20
0.07
0.27
Net earnings (loss) per share - Diluted:
Net earnings (loss) from
continuing operations .................
$
0.25
$
(0.05)
$
0.20
Net earnings from a discontinued
operation.......................................
Net earnings per share ................... $
0.10
0.35 $
(0.03)
(0.08) $
0.07
0.27
Shares used in per share calculations:
Basic
Diluted
49,010
49,291
-
323
49,010
49,614
106
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents balance sheet information as of September 30, June 30, and March 31, 2008,
respectively, and December 31, September 30, June 30, and March 31, 2007, respectively, as restated from previously
reported information filed in the Company’s Form 10-Qs, as a result of the restatement of our financial results discussed
in Note 2 “Restatement of Consolidated Financial Statements” (in thousands):
September 30, 2008
As Reported
(unaudited)
Adjustments
As Restated
As Reported
June 30, 2008
(unaudited)
Adjustments
As Restated
ASSETS
Current Assets:
Cash and cash equivalents .......................... $
Accounts receivable, net ............................
Inventories .................................................
Inventories not available for sale ................
Deferred income taxes ................................
Other current assets ....................................
Total current assets ........................
Property and equipment ......................................
Buildings held for lease .......................................
Goodwill .............................................................
Intangible assets ..................................................
Deferred income taxes.........................................
Other assets .........................................................
$
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts payable ....................................... $
Accrued expenses and other current
liabilities ...................................................
Current portion of long-term debt ..............
Deferred revenue ........................................
Line of credit .............................................
Total current liabilities ....................
Long-term debt....................................................
Deferred income taxes.........................................
Other liabilities....................................................
Stockholders’ equity:
Preferred stock ...........................................
Common stock ...........................................
Additional paid in capital ...........................
Retained earnings .......................................
Accumulated other comprehensive
income- foreign currency translation
adjustment ................................................
Total stockholders’ equity ..............
72,451 $
892,910
89,374
18,411
23,344
28,166
1,124,656
165,883
-
86,760
100,123
109,825
18,346
1,605,593 $
- $
(21,002)
19,461
-
19,965
-
18,424
72,451
871,908
108,835
18,411
43,309
28,166
1,143,080
(2,487)
1,268
-
167,151
-
84,273
100,123
112,746
18,346
20,126 $ 1,625,719
-
2,921
-
$
109,563 $
1,222,860
98,924
31,379
21,905
33,499
1,518,130
166,864
-
91,640
104,750
111,319
19,344
$ 2,012,047 $
- $
(17,139)
15,720
-
20,107
-
18,688
109,563
1,205,721
114,644
31,379
42,012
33,499
1,536,818
(2,794)
1,284
-
168,148
-
88,846
104,750
115,081
19,344
20,940 $ 2,032,987
-
3,762
-
517,185 $
1,400 $
518,585
$
873,551 $
1,177 $
874,728
113,393
168,374
25,652
-
824,604
162,653
29,807
24,988
1,042,052
-
456
368,394
161,501
56,283
-
-
-
57,683
169,676
168,374
25,652
-
882,287
-
187
-
57,870
162,653
29,994
24,988
1,099,922
114,660
-
54,376
-
1,042,587
339,000
28,455
24,259
1,434,301
55,832
-
-
-
57,009
-
208
-
57,217
170,492
-
54,376
-
1,099,596
339,000
28,663
24,259
1,491,518
-
-
3,950
(41,789)
-
456
372,344
119,712
-
456
366,663
154,788
-
-
5,624
(41,674)
-
456
372,287
113,114
33,190
563,541
95
(37,744)
33,285
525,797
55,839
577,746
(227)
(36,277)
55,612
541,469
$
1,605,593
$
20,126
$ 1,625,719
$ 2,012,047
$
20,940
$ 2,032,987
107
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2008
(unaudited)
Adjustments
As Reported
As Restated
As Reported
December 31, 2007
(unaudited)
Adjustments
As Restated
ASSETS
Current Assets:
Cash and cash equivalents .......................... $
Accounts receivable, net ............................
Inventories .................................................
Inventories not available for sale ................
Deferred income taxes ................................
Other current assets ....................................
Total current assets ........................
Property and equipment ......................................
Buildings held for lease .......................................
Goodwill .............................................................
Intangible assets ..................................................
Deferred income taxes.........................................
Other assets .........................................................
$
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts payable ....................................... $
Accrued expenses and other current
liabilities ...................................................
Current portion of long-term debt ..............
Deferred revenue ........................................
Line of credit .............................................
Total current liabilities ....................
Long-term debt....................................................
Deferred income taxes.........................................
Other liabilities....................................................
Stockholders’ equity:
Preferred stock ...........................................
Common stock ...........................................
Additional paid in capital ...........................
Retained earnings .......................................
Accumulated other comprehensive
income- foreign currency translation
adjustment ................................................
Total stockholders’ equity ..............
105,696 $
812,371
88,869
27,251
21,792
36,975
1,092,954
158,541
-
311,995
79,329
181
13,189
1,656,189 $
- $
(15,901)
14,574
-
20,279
-
18,952
105,696
796,470
103,443
27,251
42,071
36,975
1,111,906
1,286
-
159,827
-
(2,806)
309,189
79,329
4,182
13,189
21,433 $ 1,677,622
-
4,001
-
$
56,718 $
1,072,612
98,863
21,450
22,020
38,916
1,310,579
158,467
-
306,742
80,922
392
10,076
$ 1,867,178 $
- $
(11,433)
10,694
-
20,232
-
19,493
56,718
1,061,179
109,557
21,450
42,252
38,916
1,330,072
(2,169)
1,273
-
159,740
-
304,573
80,922
3,717
10,076
21,922 $ 1,889,100
-
3,325
-
465,736 $
489 $
466,225
$
685,578 $
428 $
686,006
113,057
-
40,004
-
618,797
203,500
31,272
20,339
873,908
-
482
384,386
343,086
55,564
-
-
-
56,053
-
224
-
56,277
168,621
-
40,004
-
674,850
203,500
31,496
20,339
930,185
113,891
15,000
42,885
-
857,354
187,250
27,305
20,075
1,091,984
54,716
-
-
-
55,144
-
234
-
55,378
168,607
15,000
42,885
-
912,498
187,250
27,539
20,075
1,147,362
-
-
6,247
(40,876)
-
482
390,633
302,210
-
485
386,139
340,641
-
-
5,241
(38,528)
-
485
391,380
302,113
54,327
782,281
(215)
(34,844)
54,112
747,437
47,929
775,194
(169)
(33,456)
47,760
741,738
$
1,656,189
$
21,433
$ 1,677,622
$ 1,867,178
$
21,922
$ 1,889,100
108
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
September 30, 2007
(unaudited)
Adjustments
As Reported
As Restated
As Reported
June 30, 2007
(unaudited)
Adjustments
As Restated
ASSETS
Current Assets:
Cash and cash equivalents .......................... $
Accounts receivable, net ............................
Inventories .................................................
Inventories not available for sale ................
Deferred income taxes ................................
Other current assets ....................................
Total current assets ........................
Property and equipment ......................................
Buildings held for lease .......................................
Goodwill .............................................................
Intangible assets ..................................................
Deferred income taxes.........................................
Other assets .........................................................
$
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts payable ....................................... $
Accrued expenses and other current
liabilities ...................................................
Current portion of long-term debt ..............
Deferred revenue ........................................
Line of credit .............................................
Total current liabilities ....................
Long-term debt....................................................
Deferred income taxes.........................................
Other liabilities....................................................
Stockholders’ equity:
Preferred stock ...........................................
Common stock ...........................................
Additional paid in capital ...........................
Retained earnings .......................................
Accumulated other comprehensive
income- foreign currency translation
adjustment ................................................
Total stockholders’ equity ..............
53,086 $
814,444
102,232
17,414
19,550
20,508
1,027,234
156,893
-
305,006
82,276
396
18,832
1,590,637 $
- $
(16,818)
15,162
-
19,868
-
18,212
53,086
797,626
117,394
17,414
39,418
20,508
1,045,446
(1,658)
1,231
-
158,124
-
303,348
82,276
3,457
18,832
20,846 $ 1,611,483
-
3,061
-
$
46,144 $
1,029,215
98,419
20,040
13,812
20,923
1,228,553
137,546
16,139
300,133
82,834
2,908
18,618
$ 1,786,731 $
- $
(17,068)
15,544
-
18,930
-
17,406
46,144
1,012,147
113,963
20,040
32,742
20,923
1,245,959
(1,552)
1,177
-
138,723
16,139
298,581
82,834
6,262
18,618
20,385 $ 1,807,116
-
3,354
-
477,322 $
364 $
477,686
$
708,542 $
375 $
708,917
93,385
15,000
25,697
-
611,404
152,000
26,121
28,911
818,436
-
495
391,571
335,219
52,961
-
-
-
53,325
-
232
-
53,557
146,346
15,000
25,697
-
664,729
152,000
26,353
28,911
871,993
116,797
15,000
27,618
42,000
909,957
84,500
17,787
25,574
1,037,818
50,638
-
-
-
51,013
-
227
-
51,240
167,435
15,000
27,618
42,000
960,970
84,500
18,014
25,574
1,089,058
-
-
4,609
(37,147)
-
495
396,180
298,072
-
491
371,424
341,741
-
-
4,739
(35,469)
-
491
376,163
306,272
44,916
772,201
(173)
(32,711)
44,743
739,490
35,257
748,913
(125)
(30,855)
35,132
718,058
$
1,590,637
$
20,846
$ 1,611,483
$ 1,786,731
$
20,385
$ 1,807,116
109
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2007
(unaudited)
Adjustments
As Restated
As Reported
ASSETS
Current Assets:
Cash and cash equivalents .......................... $
Accounts receivable, net.............................
Inventories ..................................................
Inventories not available for sale ................
Deferred income taxes ................................
Other current assets ....................................
Total current assets.........................
Property and equipment ......................................
Buildings held for lease .......................................
Goodwill Intangible assets ..................................
Intangible assets ..................................................
Deferred income taxes .........................................
Other assets .........................................................
$
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Accounts payable ....................................... $
Accrued expenses and other current
liabilities ...................................................
Current Portion of long-term debt ..............
Deferred revenue ........................................
Line of credit ..............................................
Total current liabilities ....................
Long-term debt ....................................................
Deferred income taxes .........................................
Other liabilities ....................................................
Stockholders’ equity:
Preferred stock ...........................................
Common stock ...........................................
Additional paid in capital ...........................
Retained earnings .......................................
Accumulated other comprehensive
income- foreign currency translation
adjustment ................................................
Total stockholders’ equity ..............
32,160 $
798,779
96,439
28,132
15,908
30,261
1,001,679
132,830
16,326
297,906
84,354
2,789
19,079
1,554,963 $
- $
(19,615)
18,579
-
18,039
-
17,003
32,160
779,164
115,018
28,132
33,947
30,261
1,018,682
(1,496)
1,134
-
133,964
16,326
296,410
84,354
5,944
19,079
19,796 $ 1,574,759
-
3,155
-
456,249 $
267 $
456,516
108,503
15,000
27,688
8,000
615,440
178,500
20,448
21,913
836,301
-
491
367,914
314,932
48,511
-
-
-
48,778
-
225
-
49,003
157,014
15,000
27,688
8,000
664,218
178,500
20,673
21,913
885,304
-
-
4,374
(33,486)
-
491
372,288
281,446
35,325
718,662
(95)
(29,207)
35,230
689,455
$
1,554,963
$
19,796
$ 1,574,759
110
INSIGHT ENTERPRISES, INC.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Management’s 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, 2008. 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.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial
statements will not be prevented or detected on a timely basis. Management identified a material weakness in our
internal control over financial reporting related to the proper disposition, reconciliation, monitoring and consequent
accounting of aged trade credits. Inadequate understanding of the Company’s unclaimed property obligations and
unsupported assumptions regarding trade credits resulted in the following control deficiencies which, when considered
in the aggregate, resulted in a material weakness in our internal control over financial reporting:
•
•
•
•
•
Inadequate policies and procedures to timely determine the proper disposition of all overpayments and
duplicate payments received from clients;
Inadequate policies and procedures to timely reconcile and determine the proper disposition of all credit
memos issued to clients in exchange for returned products, billing errors and other customer service reasons;
Inadequate policies and procedures to timely determine the proper disposition of all goods received/accepted
by the Company for which no invoice has been received;
Inadequate policies and procedures to timely reconcile and determine the proper disposition of all open
purchase orders; and
Ineffective monitoring of the effectiveness of our policies and procedures relating to aged trade credits.
The material weakness resulted in errors in the accounting for certain aged trade credits and in the restatement of
our historical consolidated financial statements. As a result of the material weakness described above, management has
concluded that the Company did not maintain effective internal control over financial reporting as of December 31,
2008.
The Company acquired Calence, LLC during 2008, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, Calence, LLC’s
internal control over financial reporting associated with total assets of $120 million and total net sales of $258 million
included in the consolidated financial statements of the Company as of and for the year ended December 31, 2008.
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 Company’s internal control over financial reporting as
of December 31, 2008.
(b) Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as such term is defined under
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2008 that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Subsequent to December 31, 2008, we have begun taking steps to remediate the material weakness described in (a)
above. We have implemented or are in the process of implementing internal control improvements in several areas.
Some of these improvements will require systems enhancements that will take some time to implement. In the interim,
111
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the Company intends to use improved manual controls to ensure that the aged trade credits are accounted for
appropriately in compliance with all legal and accounting requirements. The improvements are in the following areas:
•
•
•
Immediately discontinuing the practice of taking certain aged trade credits into the income statement as a
reduction to costs of goods sold unless we are legally released from our obligation or it is determined to be an
error such that no credit or other obligation in fact exists;
Implementing and documenting policies and procedures to research and properly dispose of customer credits
and outstanding purchase orders, including an escalation procedure if a credit remains unresolved for an
extended period;
Identifying and implementing system enhancements to strengthen control procedures, reduce the volume of
manual processes and increase the automated tools available to accounting personnel including, (i) automating
the issuance of credit memos to clients, (ii) automating the matching of credit memos against
related/applicable debits, (iii) increasing communication and workflow between the operations group and the
collections department related to returned goods and (iv) streamlining and conforming policies and procedures
across all business units;
• Developing a training program to ensure appropriate personnel understand the systems enhancements and the
•
new policies, procedures and controls related to aged trade credits;
Implementing a robust and comprehensive unclaimed property reporting methodology to timely and accurately
comply with all applicable state laws; and
• Enhancing our monitoring controls to more promptly identify and adequately respond to changes in the
Company’s operations and business processes resulting from systems improvements and/or upgrades,
acquisitions or business mix.
We believe that the foregoing actions will significantly improve our internal control over financial reporting, as well
as our disclosure controls and procedures. However, certain of the actions that we expect to complete will require
additional time to be implemented fully or to take full effect. Accordingly, the remediation of the identified material
weakness was not complete as of the date of this report. There can be no assurance that the material weakness described
above will be remediated by December 31, 2009, the date as of which we will next report on management’s evaluation of
the effectiveness of our internal control over financial reporting. Prior to the remediation of our material weakness, there
is a risk that material misstatements in our interim or annual financial statements may occur. If the remedial measures
described above are insufficient to address our material weakness, or any additional deficiency that may arise in the future,
material misstatements in our interim or annual financial statements may occur in the future.
Further, any system of controls, no matter how well designed and operated, cannot provide absolute assurance that the
objectives of the system of controls are or will be met, and no evaluation of controls can provide absolute assurance that all
control issues within a company have been detected or will be detected under all potential future conditions.
(c) Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed in our
reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our management, including our principal
executive officer and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding
required disclosure.
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 a result of the material weakness in internal control over financial reporting
described above, as of December 31, 2008 our disclosure controls and procedures are not 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 SEC’s rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to
allow timely decisions regarding required disclosure.
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(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
Item 5.02. Departure of Officers; Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
As previously reported by the Company on Form 8-K, filed on March 3, 2009, our Chief Accounting Officer resigned
effective March 31, 2009. Glynis A. Bryan, the Company’s current Chief Financial Officer, has assumed the duties of
principal accounting officer.
Information about Ms. Bryan’s business experience, compensation and employment agreement is set forth elsewhere
in this Annual Report on Form 10-K and is incorporated by reference herein.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information Concerning Directors and Executive Officers
Our Board currently consists of nine persons, divided into three classes serving staggered terms of three years. The
terms of three Class III directors will expire at the 2009 annual meeting to be held on June 23, 2009. The terms of the
Class I and Class II directors will expire at the 2010 and 2011 annual meetings, respectively. The names of our
directors and executive officers, and information about them, are set forth below.
Timothy A. Crown
(Age 45)
• Chair of the Board
• Class III Director
• Chair of the Executive
Committee
Bennett Dorrance
(Age 63)
• Class I Director
• Member of the
Compensation and
Nominating and
Governance Committees
Richard A. Fennessy
(Age 44)
• President and Chief
Executive Officer
• Class II Director
• Member of the Executive
Committee
Mr. Crown has been a director since 1994 and assumed the position of Chair of the
Board in November 2004. Mr. Crown has been a non-employee director since
2004. Mr. Crown, a co-founder of the Company, stepped down from the position
of President and Chief Executive Officer in November 2004, positions he had held
since January 2000 and October 2003, respectively.
Mr. Dorrance has been a director since 2004. Mr. Dorrance has been a Managing
Director of DMB Associates, a real estate service company based in Scottsdale,
Arizona, since 1984. Mr. Dorrance has served on the Board of Directors of
Campbell Soup Company since 1989.
Mr. Fennessy was elected President and Chief Executive Officer effective
November 2004 and was appointed director in September 2005. From 1987 to
2004, Mr. Fennessy worked for International Business Machines Corporation
(“IBM”), where he held numerous domestic and international executive positions.
His most recent positions included: General Manager, Worldwide, ibm.com; Vice
President, Worldwide Marketing – Personal Computer Division; and General
Manager, Worldwide PC Direct organization.
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Michael M. Fisher
(Age 63)
• Class I Director
• Chair of the Audit
Committee
• Member of the Executive
Committee
Mr. Fisher has been a director since 2001 and is the Audit Committee’s designated
financial expert. Mr. Fisher served as President of Power Quality Engineering,
Inc., a manufacturer of specialty filters, from 1995 to 2007. Since 2007, Mr. Fisher
has also served as a Director of Open Tech Alliance, Inc., a private company
engaged in the development of kiosks for the self-storage industry.
Larry A. Gunning
(Age 65)
• Class II Director
• Member of the Nominating
and Governance Committee
Mr. Gunning has been a director since 1995. Mr. Gunning has been Manager and
Director of 3D Petroleum LLC, a petroleum company, since 2001. From 1988 to
2001, Mr. Gunning was President and a Director of Pasco Petroleum Corp., a
petroleum marketing company that merged with 3D Petroleum LLC in 2001. Mr.
Gunning is also a member and Director of Cobblestone AutoSpa, which owns and
operates several full-service carwashes.
Anthony A. Ibargüen
(Age 50)
• Class III Director
• Member of the Audit and
Compensation Committees
Robertson C. Jones
(Age 64)
• Class II Director
• Chair of the Nominating and
Governance Committee
• Member of the Audit
Committee
Kathleen S. Pushor
(Age 51)
• Class III Director
• Member of the Audit and
Compensation Committees
David J. Robino
(Age 49)
• Class I Director
• Chair of the Compensation
Committee
• Member of the Nominating
and Governance Committee
Mr. Ibargüen was appointed a director in July 2008. He is Chairman of the Board
of Alliance Global Services and Alliance Life Sciences Consulting, privately-held
IT consulting firms which were previously part of Alliance Consulting Group,
where Mr. Ibargüen was President and CEO from 2004 to 2008. From 2000 to
2004, he was a Managing Director at Internet Capital Group and then (from 2002)
Safeguard Scientifics, both publicly-held investment holding companies. From
1996 to 2000, Mr. Ibargüen was President, Chief Operating Officer and a director
of Tech Data Corporation, a Fortune 500 global technology distribution company.
Mr. Jones has been a director since 1995. From 1992 through 2001, Mr. Jones was
Senior Vice President and General Counsel of Del Webb Corporation, a developer
of master-planned residential communities.
Ms. Pushor has been a director since September 2005. Since January 2006, Ms.
Pushor has served as President and Chief Executive Officer of the Greater Phoenix
Chamber of Commerce. She has resigned that position effective June 2009. From
2003 to 2005, Ms. Pushor served as Chief Executive Officer of the Arizona
Lottery. From 1999 to 2002, Ms. Pushor operated an independent consulting
practice in the technology distribution sector, and from 1998 to 2005 Ms. Pushor
was a member of the Board of Directors of Zones, Inc., a direct marketer of IT
products.
Mr. Robino has been a director since May 2007. Mr. Robino served as a Non-
Executive Director of Memec Group Holdings Limited, a global distributor of
specialty semiconductors, from 2001 until the sale of that business to Avnet, Inc. in
2005. Mr. Robino served Gateway, Inc. first as Executive Vice President and
Chief Administrative Officer and later as Vice Chairman from 1998 to 2001.
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INSIGHT ENTERPRISES, INC.
Steven R. Andrews
(Age 56)
• General Counsel, Chief
Administrative Officer and
Secretary
Mr. Andrews joined Insight in September 2007 as our General Counsel and was
appointed Secretary in November 2007. In February 2009, in conjunction with a
corporate reorganization, Mr. Andrews was also appointed our Chief
Administrative Officer. Prior to joining Insight, Mr. Andrews was Senior Vice
President, Law and Human Resources of ShopKo Stores, Inc. from 2002 to 2006.
Prior to joining ShopKo, Mr. Andrews served as Senior Vice President, General
Counsel and Secretary of PepsiAmericas, Inc. from 1999 through 2001.
Glynis A. Bryan
(Age 50)
• Chief Financial Officer
Stuart A. Fenton
(Age 40)
• President – EMEA/APAC
Ms. Bryan joined Insight in December 2007 as our Chief Financial Officer. Prior
to joining Insight, Ms. Bryan served as Executive Vice President and Chief
Financial Officer at Swift Transportation Co., Inc. from April 2005 to May 2007.
Prior to joining Swift, Ms. Bryan served as Chief Financial Officer at APL
Logistics in Oakland, Calif. and in various finance roles at Ryder System, Inc.,
including Chief Financial Officer of Ryder's largest business unit, Ryder
Transportation Services. Ms. Bryan is a member of the Board of Directors and the
Governance and Compensation Committees of Pentair, Inc., a diversified industrial
manufacturing company.
Mr. Fenton joined Insight in October of 2002 as Managing Director of Insight
Direct UK Ltd. and was promoted to President of our EMEA operating segment in
November 2006. In February 2009, in conjunction with a corporate reorganization,
Mr. Fenton also assumed oversight responsibility for our Asia-Pacific operating
segment. From 1995 to 2002, Mr. Fenton held various positions at Micro
Warehouse Inc., serving most recently as the General Manager of Micro
Warehouse Canada.
Helen K. Johnson
(Age 40)
• Senior Vice President –
Treasurer and Investor
Relations
Ms. Johnson joined Insight in October 2007 as Senior Vice President, Treasurer
and Investor Relations. Prior to joining Insight, Ms. Johnson served from 2000 to
2007 at eFunds Corporation, a publicly held technology solutions provider to the
financial institutions market, most recently as Senior Vice President, Treasurer and
Investor Relations.
Stephen A. Speidel
(Age 44)
• Chief Operating Officer and
Chief Information Officer
Mr. Speidel has served as Chief Information Officer since November 2007. In
February 2009, in conjunction with a corporate reorganization, Mr. Speidel was
also appointed our Chief Operating Officer. From June 2004 to November 2007,
Mr. Speidel served as Senior Vice President, Operations of our North America
segment. Mr. Speidel has been employed in management positions with Insight or
one of its acquired entities since November 1996. Prior to joining Insight, Mr.
Speidel spent 12 years at IBM working in IBM’s Services business.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, our directors, executive officers, and any persons holding more than
10% of our common stock are required to report their initial ownership of our common stock and any subsequent
changes in that ownership to the SEC. Specific due dates for these reports have been established, and we are required
to disclose any known failure to file by these dates. A total of twenty-three of seventy-four filings made during 2008
were considered late, primarily as a result of turnover in Company personnel responsible for assisting our officers and
directors with their filings during the first half of 2008, as follows: (i) six late filings were made on February 19, 2008
(Ms. Eckstein, Mr. Fennessy, Mr. Fenton, Mr. Glandon, Karen McGinnis and Mr. McGrath) with respect to
withholding of shares to satisfy tax obligations; (ii) four late filings were made on February 22, 2008 (Dave Rice) with
respect to sales of shares; (iii) ten late filings were made on February 25, 2008 (Mr. Andrews, Ms. Bryan, Ms. Eckstein,
Mr. Fennessy, Mr. Fenton, Mr. Glandon, Helen Johnson, Ms. McGinnis, Mr. McGrath and Steve Speidel) with respect
to RSU grants on February 20, 2008; (iv) two late filings were made on February 4, 2008 and February 20, 2008 (both,
Mr. Speidel) with respect to an initial report on Form 3 and to withholding of shares to satisfy tax obligations; and (v)
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one late filing was made on May 6, 2008 (Mr. Fennessy) with respect to withholding of shares to satisfy tax obligations
in January 2008.
Code of Ethics
We have adopted a Code of Ethics that applies to directors and all employees, including our Chief Executive
Officer and our senior financial executives. The Code of Ethics may be viewed online on our website at
www.insight.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any
amendments to, or waivers from, a provision of our Code of Ethics by posting such information on our website at the
location specified above, unless otherwise required by Nasdaq Rules to disclose any such waiver on Form 8-K.
Policy on Stockholder Recommendations of Director Nominees
The Nominating and Governance Committee will consider and evaluate nominees recommended by stockholders.
Stockholders may propose director candidates for consideration by sending the name of any recommended candidate,
together with pertinent biographical information, a document indicating the candidate’s willingness to serve if elected,
and evidence of the nominating stockholder’s ownership of our common stock to our Corporate Secretary at 6820 South
Harl Avenue, Tempe, Arizona 85283 See further information on this process in our Proxy Statement for our annual
meeting to be held on June 23, 2009.
Audit Committee
The Audit Committee consists of Mr. Fisher, Chair, Mr. Ibargüen, Mr. Jones and Ms. Pushor. The Audit
Committee met 13 times in 2008. Mr. Ibargüen joined the Audit Committee upon his appointment to the Board on July
1, 2008. The Audit Committee assists the Board in fulfilling its responsibilities for generally overseeing our financial
reporting processes and the audit of Insight’s consolidated financial statements, including the integrity of the
consolidated financial statements and the system of internal control over financial reporting established by
management, our compliance with legal and regulatory requirements, the qualifications and independence of our
independent registered public accounting firm, the performance of our internal audit function and our independent
registered public accounting firm, our financial risk assessment and financial risk management, and our finance and
investment functions. The Vice President of Internal Audit reports directly to the Chair of the Audit Committee. In
addition, the Audit Committee reviews and discusses with the Chief Executive Officer and the Chief Financial Officer
the procedures undertaken in connection with their certifications included in the Company’s annual and quarterly
reports filed with the Securities and Exchange Commission (“SEC”). The Audit Committee has the authority to obtain
advice and assistance from, and receive appropriate funding from us for, outside legal, accounting or other advisors as
the Audit Committee deems necessary to carry out its duties. The Audit Committee operates pursuant to a written
charter, reviewed annually, adopted by the Audit Committee and approved by the Board. The charter may be viewed
online on our website at www.insight.com.
The Board has determined that the responsibilities of the Audit Committee, as reflected in its charter, are in
accordance with applicable SEC rules and NASDAQ Marketplace Rule(s) for audit committees. Further, the
composition and attributes of its members meets the requirements of NASDAQ Marketplace Rule(s), including, without
limitation, the independence requirements of NASDAQ Marketplace Rule 5605(c)(2)(A). All Audit Committee
members possess the required level of financial literacy, at least one member of the Audit Committee meets the current
standard of requisite financial management expertise and our Board has determined that Mr. Fisher, the Chair of the
Audit Committee, is an “audit committee financial expert” as defined in Regulation S-K. Our policy is to discourage
related party transactions, and prior approval of the Audit Committee is necessary for an officer or director to enter into
a related party transaction.
Item 11. Executive Compensation
Compensation Discussion and Analysis
The purpose of this Compensation Discussion and Analysis (“CD&A”) is to provide information about each
material element of compensation that we pay or award to, or that is earned by, our named executive officers. For
2008, our named executive officers were:
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• Richard A. Fennessy, President and Chief Executive Officer;
• Glynis A. Bryan, Chief Financial Officer;
• Stuart A. Fenton, President, EMEA/APAC;
• Mark T. McGrath, President, North America/APAC (resigned effective March 1, 2009);
• Gary M. Glandon, Chief People Officer (resigned effective April 2, 2009); and
• Catherine W. Eckstein, former Chief Marketing Officer (resigned effective July 18, 2008).
This CD&A addresses and explains the numerical and related information contained in the summary compensation
tables and includes a discussion of actions regarding executive compensation that occurred after the end of 2008,
including the award of bonuses related to 2008 performance, and the adoption of our 2009 compensation programs.
Executive Compensation Philosophy and Objectives
Our long-term success depends on our ability to attract and retain individuals who are committed to the Company’s
strategy and core values of client service, respect and integrity. Our general philosophy of executive compensation is
to offer competitive base salaries and emphasize cash and equity-based incentive compensation which:
•
•
•
•
•
is competitive in the marketplace;
permits us to attract and retain highly qualified executives;
encourages extraordinary effort on behalf of the Company;
rewards the achievement of specific financial, strategic and tactical goals by the Company and the
individual executive that aligns the interests of management with the interests of our stockholders;
and
is financially sound.
While the foregoing philosophy still guides the Committee’s actions, during 2008 the Company’s stockholders
experienced a significant decline in the price for the Company’s common stock. Consistent with our results and the
above philosophy, the Company’s named executive officers, on average, earned less than 40% of their total potential
compensation for 2008. Moreover, the Company’s named executive officers, on average, earned less than 20% of their
potential incentive compensation for 2008, which consists of the cash incentive plans and the equity incentive plans.
These percentages (40% and 20%) were computed assuming 100% of target Restricted Stock Units (“RSUs”) were
awarded as a component of the potential incentive compensation for 2008 and valuing those shares at the stock price of
the Company’s common stock on the grant date ($18.87).
Against the backdrop of the global recession that began in 2008, the Compensation Committee went to great
lengths to develop an executive compensation program for 2009 that is fair and motivating to our executives, while at
the same time being mindful of stockholder interests and expectations. Given the unpredictable economic environment
and the difficulty of defining appropriate performance standards at both the Company and the individual executive
level in 2009, the 2009 compensation program described in this CD&A is based in large part on (1) expectations for the
Company’s performance in 2009 under challenging conditions, (2) an effort to continue to align management’s
interests with those of our stockholders, and (3) the need to attract and retain qualified individuals. For 2009,
substantially less reliance was placed on historical Insight and peer group results and metrics. Instead, the
Compensation Committee approved a compensation program that places more emphasis on individual actions and
performance that guide or benefit the Company’s performance.
Compensation Consultants and Benchmarking
The Compensation Committee utilizes internal resources, including our People and Development Group, to help it
carry out its responsibilities, consults with other members of the Board in connection with its decision making, as
appropriate, and has consistently over time engaged independent consultants to assist it in fulfilling its responsibilities.
The Compensation Committee has the authority to obtain advice and assistance from, and receives appropriate funding
from the Company for, outside advisors as the Compensation Committee deems necessary to carry out its duties. As
was done in 2006 and 2007, in 2008 the Compensation Committee retained Towers Perrin, a global human resources
consulting firm, as its independent compensation consultant to advise the Compensation Committee on all matters
related to executive compensation. In contrast to prior years, however, in 2008 Towers Perrin did not provide an
updated competitive analysis of the compensation for the Company’s most senior executives, including its named
executive officers. Looking forward, the Compensation Committee plans to obtain competitive analyses at least every
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other year.
The Compensation Committee began its process of setting executive compensation for 2009 in August of 2008.
While Towers Perrin advised the Compensation Committee on various issues, the Compensation Committee’s
conclusions and actions were not made in response to or in reference to specific competitive market data because the
Company’s past performance and the performance of its peers was deemed by the Compensation Committee to not be
as relevant as in past years. This determination was based in part on the significant economic events of 2008, which the
Compensation Committee believes makes the historical results and metrics less relevant benchmarks.
Towers Perrin’s 2007 study, which was used to set 2008 executive compensation levels, measured the
competitiveness of the Company’s compensation relative to two groups of companies (the “comparison groups”). The
comparison groups were chosen by Towers Perrin and approved by the Compensation Committee based upon primary
characteristics such as similar business focus, labor market and size. Comparison Group One, which was considered to
be the primary peer group, included 19 publicly-traded product and service competitors and suppliers and other
enterprises which may compete with the Company for executive talent. Comparison Group Two included 14 publicly-
traded technology companies, many of which are significantly larger than Insight. Because of the large variance in size
among the companies in Comparison Group Two, Towers Perrin adjusted the compensation data for Comparison
Group Two to reflect the revenue size of the Company. This size-adjusted data was used as a basis of comparison of
compensation between Insight and the companies in Comparison Group Two. As neither group was limited to
companies that are merely competitors or to those that are close comparisons in terms of sales and market
capitalization, the Company does not consider these groups to be peer groups for other purposes. In 2007, the specific
companies included in Comparison Group One, which represented the same peers used in the 2006 comparison, were
as follows:
Comparison Group One (the primary peer group)
Affiliated Computer Services, Inc.
Amazon.com, Inc.
Avnet Inc.
BearingPoint, Inc.
Bell Microproducts, Inc.
CACI International, Inc.
CDW Corp.
CGI Group, Inc.
IKON Office Solutions, Inc.
Ingram Micro, Inc.
Lexmark International, Inc.
Office Depot, Inc.
PC Connection, Inc.
Perot Systems Corp.
PetSmart, Inc.
SYNNEX Corp.
Tech Data Corp.
Tellabs, Inc.
Unisys Corp.
In 2007, the specific companies included in Comparison Group Two, which represented the same peers used in the
2006 comparison (except for the exclusion of Dendrite International, Inc., Electronic Data Systems Corp., HLTH
Corp., Microsoft Corp., The Reynolds and Reynolds Co. and Sabre Holdings Corp. in the 2007 comparison because
these six companies did not participate in Towers Perrin’s annual survey) were as follows:
Comparison Group Two
Apple, Inc.
Ceridian Corp.
Dell Inc.
EMC Corp. (Mass)
Hewlett-Packard Co.
International Business Machines Corp.
IKON Office Solutions, Inc.
Intel Corp.
Lexmark International, Inc.
National Semiconductor Corp.
Seagate Technology
Sun Microsystems, Inc.
Unisys Corp.
Xerox Corp.
The 2007 Towers Perrin study provided the Compensation Committee with compensation data for base salary,
annual cash incentives and long-term equity-based incentive compensation for each comparison group. The study
generally concluded that, with respect to total compensation, the Company was positioned below the median of each of
the comparison groups. With respect to total cash compensation, which includes base salaries and incentive
compensation, the Towers Perrin study generally concluded that the Company was competitive based on comparison
group analyses. However, this conclusion was driven primarily by the Company’s above target performance in 2007
and resulting above target incentive compensation, while base salaries were noted to be below market. With respect to
long-term equity-based incentive compensation, Towers Perrin generally concluded that the Company’s equity-based
incentive compensation plan, including the use of performance-based RSUs and the target level of grants to each
executive, was competitive with market practices.
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The Compensation Committee used these past studies in addition to other relevant sources of information, such as
existing pay levels and other publicly available information about trends in executive compensation, in setting
compensation for executives for 2009. Additionally, Towers Perrin advised the Compensation Committee and the
Company regarding executive compensation programs generally and provided advice on trends in compensation. The
Committee anticipates that it will undertake similar competitive reviews in the future and that it will use the services of
outside consultants for similar services in the future.
Compensation Programs Design
The principal components of compensation for the Company’s named executive officers are:
•
•
•
base salary and benefits;
short-term cash incentive compensation; and
long-term equity-based incentive compensation.
As a result of our executive compensation philosophy, a significant percentage of total compensation is allocated
to incentive compensation. There is no pre-established policy or target for the allocation between either cash or equity
or short-term or long-term incentive compensation. Rather, the different elements of compensation are designed to
support and encourage varying behaviors that the Compensation Committee believes will contribute favorably to
Company performance.
As discussed in more detail below, the performance measures for the quarterly earnings from operations (“EFO”)
component of the 2008 cash incentive plan in the Company and in North America were not met, although they were
met to varying degrees in the first three quarters of 2008 in EMEA. Similarly, the performance measures for the 2008
equity-based incentive plan were not met, and, therefore, no performance-based RSUs were earned under the plan in
2008. In light of the low actual performance levels compared to the performance targets set for the 2008 plan, and in
light of the decrease in the Company’s stock price and the ongoing general economic decline, the Compensation
Committee determined that comparisons to other companies in its peer groups were of less value with respect to
establishing the 2009 compensation program than might normally be the case. The Compensation Committee
considered prior year results of the Company and worked with management and with its consultant to develop a
compensation program suitable for the unpredictable environment facing the Company in 2009. As a result, base
salaries remained the same for senior executives in 2009, the value of equity awards was reduced, and the target cash
incentive compensation for the Company’s Section 16 officers was reduced by 25%.
Base Salary and Benefits
Base salary and benefits are designed to attract and retain executives by providing a fixed compensation based on
competitive market practices. This component of compensation is designed to reward an executive’s core competency
in his or her position relative to skills, experience and expected contributions to the Company and to provide the
executive with a predictable and reliable component of compensation for his or her services.
The Compensation Committee reviews base salaries annually and in 2008 and prior years generally targeted base
pay for executive officers at or nearly at the median of the comparison groups, with adjustments, as appropriate, for
tenure, performance and variations in actual position responsibilities from position descriptions in the comparison
groups. The 2007 Towers Perrin study concluded that 2007 base salary levels for the Company’s executive officers
were generally below the median levels of both comparison groups, and, based on this finding, the Compensation
Committee approved certain increases in executive base salaries for 2008. Because of the difficult and continuing
global economic conditions facing the Company, management recommended, and the Compensation Committee
agreed, that there would be no increases in base salary for 2009 above 2008 levels. Those levels are as follows:
• Richard A. Fennessy, President and Chief Executive Officer – $750,000 (2009 and 2008);
• Glynis A. Bryan, Chief Financial Officer – $400,000 (2009 and 2008);
• Stuart A. Fenton, President, EMEA/APAC – $405,0001 (2008 – $450,0002);
• Mark T. McGrath, President, North America/APAC – $425,000 (2009 and 2008; Resigned effective
March 1, 2009);
• Gary M. Glandon, Chief People Officer – $275,000 (2009 and 2008; Resigned effective April 2,
2009); and
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• Catherine Eckstein, former Chief Marketing Officer – $295,000 (2008; Resigned effective July 18,
2008).
1 Mr. Fenton’s 2009 salary was translated into U.S. dollars using the British Pound Sterling average exchange
rate for the year ended December 31, 2008 of $1.80.
2 Mr. Fenton’s 2008 salary was translated into U.S. dollars using the British Pound Sterling exchange rate in
effect on December 18, 2007 of $2.02.
Our named executive officers participate in benefit plans generally available to all of our teammates, including
medical, health, life insurance and disability plans. Our named executive officers are also eligible to participate in the
Company’s 401(k) plan, and receive Company matching contributions, to the extent made by the Company, which are
generally available to our teammates. Beginning January 1, 2008, our named executive officers are also eligible to
participate in the Company’s Nonqualified Deferred Compensation Plan, which is available to a select group of
“management or highly compensated employees” as defined by the Employee Retirement Income Security Act of
1974, as amended. Currently, the Company does not make any contributions to the Nonqualified Deferred
Compensation Plan. Mr. Fenton also receives an automobile allowance, which is a benefit generally available to
executives in the United Kingdom, where Mr. Fenton resides. These benefits are part of our broad-based total
compensation programs offered in the geography in which each of the executives resides.
Short-Term Cash Incentive Compensation
The Compensation Committee views cash incentive compensation as a means of closely tying a significant portion
of the total potential annual cash compensation for executives to the financial and operational performance of the
Company or the portion of the Company for which the executive has management responsibility. Our cash incentive
compensation plans are designed to reward individuals for the achievement of certain defined financial objectives of
the Company, as well as annual individual or Company financial, strategic and tactical objectives. All officers subject
to Section 16(a) of the Exchange Act, including our named executive officers, have an annual cash incentive plan. The
financial objectives and performance goals are approved by the Compensation Committee and are set at the beginning
of the year. These objectives and goals are integrated into the management cash incentive plans throughout the
organization to foster a team environment where the entire Company is focused on the same set of objectives and goals.
The Compensation Committee annually reviews financial objectives, performance goals and target cash incentive
compensation. In 2008 and prior years, the Compensation Committee generally targeted cash incentive compensation
for executive officers at or near the median of the comparison groups and adjusted, as appropriate, for tenure,
performance and variations in actual position responsibilities from position descriptions in the comparison groups. The
2007 Towers Perrin study utilized to set 2008 cash incentive targets generally concluded that the Company’s cash
incentive compensation was competitive based on its comparison group analysis. For 2009, however, as described
more fully below, the Compensation Committee developed a program that focuses on Company performance and
individual executive performance in what the Compensation Committee believes will be an unusually unpredictable
year.
2008 Cash Incentive Plan
Under the 2008 cash incentive plan, the named executive officers earned cash incentive compensation based on
achievement of financial objectives against targeted amounts for the Company or their respective business units, with
payouts varying with financial performance levels below and above target levels (awards were discretionary and
outside of the plan over or below specified levels). Annual and quarterly financial performance targets were set in
conjunction with the 2008 annual budget process at the beginning of 2008 and were considered to be challenging but
achievable given the tactical and strategic plans that were in place at the time. The total target cash incentive
compensation for 2008 was based 60% on non-GAAP EFO (defined under the plan as the actual 2008 EFO excluding
charges for goodwill impairment and costs associated with the stock option review, if any) of the Company, or the
executives’ respective business units. For this 60% component, performance was measured and paid quarterly on a
sliding scale, with a minimum payout of zero and a maximum payout of 175% of the EFO cash incentive target. The
quarterly EFO cash incentive was designed to pay out at 100% upon the achievement of consolidated EFO for 2008 of
$167.7 million. The remaining 40% of the target cash incentive compensation was based on achievement of annual
individual performance goals, with the Compensation Committee determining the actual amounts to be paid to the
Chief Executive Officer and the other executive officers of the Company.
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As previously noted, none of the EFO targets were met by the Company or its North America operations in 2008.
The EFO targets for EMEA were met to varying degrees and, accordingly, Mr. Fenton was paid quarterly bonuses in
each of the first three quarters of 2008. Cash incentive awards were made by the Compensation Committee under the
annual individual performance component of the plan on February 17, 2009. The actual 2008 cash incentive
compensation, as compared to 2008 targets, for the named executive officers was awarded as follows:
Name
Richard A. Fennessy $
Target
Actual
Target
Actual
Target
Actual
900,000
$
- $
600,000 $
450,000 $
1,500,000 $
450,000
Based on EFO
Goals
Based on Individual
Performance Goals
Total
Glynis A. Bryan
Stuart A. Fenton1
Mark T. McGrath2
Gary M. Glandon2
Catherine W. Eckstein2
255,000
174,600
300,000
93,000
123,000
-
170,000
170,000
425,000
170,000
154,787
116,400
99,524
291,000
254,311
-
-
-
200,000
100,000
500,000
100,000
62,000
82,000
58,900
155,000
58,900
-
205,000
-
1 Mr. Fenton’s 2008 target incentive compensation was translated into U.S. dollars using the British
Pound Sterling exchange rate in effect on December 18, 2007 of $2.02, and actual incentive compensation was
translated into U.S. dollars using the British Pound Sterling average exchange rate for the year ended
December 31, 2008 of $1.80.
2 Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective March 1, 2009, April 2,
2009 and July 18, 2008, respectively.
The Compensation Committee also had the authority to approve discretionary awards outside of the plan; however,
no discretionary cash bonuses were approved by the Compensation Committee for the named executive officers during
2008.
2009 Cash Incentive Plan
For 2009, the Compensation Committee continued its emphasis on cash incentive compensation by setting cash
incentive plans for executive officers so that a significant portion of total compensation will be awarded through cash
incentives if performance measures are met, although, as previously noted, the target cash incentive levels for executive
officers have been reduced by 25% for 2009.
The 2009 cash incentive plan (the “2009 Plan”) provides incentive award opportunities for select employees,
including executive officers. The 2009 Plan was adopted pursuant to the Company’s 2007 Omnibus Plan, which was
approved by the Company’s stockholders at the Company’s 2007 annual meeting of stockholders, and is intended to
permit the Company to deduct annual incentive payments under Section 162(m) of the Code (“Section 162(m)”).
Under the 2009 Plan, the Company established for each executive officer a performance goal (the “162(m) performance
goal”) for the 2009 Plan. The 162(m) performance goal is based on actual diluted earnings per share (“EPS”) for 2009,
on a consolidated non-GAAP basis, with non-GAAP EPS being defined as the actual 2009 EPS from continuing
operations excluding certain items, specified in advance and approved in advance by the Compensation Committee,
that are not considered to be part of ongoing business, such as goodwill impairment charges. The 162(m) performance
goal for 2009 requires that the Company achieve a certain percentage of its budgeted 2009 EPS. The budgeted 2009
EPS was set in conjunction with the Company’s overall annual budget process and is considered to be challenging, but
achievable, given the uncertain economic environment and the tactical and strategic plans that have been developed for
2009. In order for the 2009 Plan to be funded so that an executive can receive up to the maximum payment of his or
her cash incentive award (200% of his or her annual cash incentive target), the Company must achieve at least 80% of
its budgeted EPS for 2009. If the Company achieves less than 80% but at least 50% of its budgeted 2009 EPS, the
2009 Plan will be funded so that an executive can receive up to a maximum of 100% of his or her annual cash incentive
target. If the Company does not achieve at least 50% of its budgeted 2009 EPS, the 2009 Plan will not be funded and
executive officers will not be eligible for any cash incentive payments.
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The Compensation Committee will determine the actual bonus award paid to each executive officer by reducing or
eliminating (but not increasing) the maximum cash incentive award based on the Compensation Committee’s
evaluation of the executive’s performance against individual performance goals. The individual performance goals,
which were established by the Compensation Committee in early 2009, are based 50% on EFO performance for the
Company or the executive officer’s operating segment(s) and 50% on a variety of qualitative/subjective performance
goals and quantitative/objective performance goals. The Compensation Committee reserves the right to establish the
actual cash incentive award for each executive officer at the level it deems appropriate based on the performance of the
Company, the performance of the executive officer’s operating segment(s), and the performance of the individual
executive officer (but not greater than the maximum). Although the performance goals are tailored for each executive
officer, the goals are generally designed to reward individuals for the achievement of defined financial, strategic and
tactical objectives, including: operational metrics, such as profitability, stockholder value, liquidity and return on
invested capital; building stronger client relationships and differentiation within the Company’s value proposition to
clients; establishing and maintaining effective internal controls, risk management and corporate governance;
developing and retaining key employees and executives; and building and maintaining strong stockholder relationships.
Given the overall economic environment in 2009, management recommended, and the Compensation Committee
approved, a 25% reduction in the target and maximum cash incentive payments for the Company’s executive officers.
The approved 2009 target and maximum cash incentive compensation for each of our current named executive officers1
are as follows:
• Richard A. Fennessy, President and Chief Executive Officer – Target $1,125,000; Maximum
$2,250,000;
• Glynis A. Bryan, Chief Financial Officer – Target $318,750; Maximum $637,500; and
• Stuart A. Fenton, President, EMEA/APAC – Target $196,4292; Maximum $392,8582.
1 As discussed elsewhere, Messrs. McGrath and Glandon resigned effective March 1, 2009 and April 2,
2009, respectively.
2 Mr. Fenton’s 2009 target and maximum cash incentive compensation were translated into U.S. dollars at
the British Pound Sterling average exchange rate for the year ended December 31, 2008 of $1.80.
Long-Term Equity-Based Incentive Compensation
The Compensation Committee views long-term equity-based compensation as a critical component of the overall
executive compensation program. The principal objectives for long-term equity-based compensation are to:
•
•
•
•
enhance the link among Company performance, the creation of stockholder value and long-term
incentive compensation;
facilitate increased equity ownership by executives;
encourage executive retention through use of multiple-year vesting periods; and
provide competitive levels of total compensation to executive officers if expected levels of
performance are achieved.
Long-term equity-based incentives are currently issued in the form of service and performance-based RSUs.
Performance-based RSUs are issued only if predetermined annual financial performance goals (diluted EPS for 2008
and 2009) are achieved and are subject to a three-year vesting period. To encourage overachievement of targets,
significant upside potential exists related to the number of RSUs ultimately issued. The three-year vesting period is
designed to encourage continued employment with the Company and enhancement of stockholder investments in the
Company. The number of performance-based RSUs ultimately issued varies based on the achievement of threshold
levels of financial performance, with greater numbers of shares awarded for higher levels of financial performance. If
the Company’s financial performance does not meet or exceed a set performance threshold, no performance-based
RSUs are issued. All grants of equity-based compensation are currently made under the Company’s 2007 Omnibus
Plan, as amended.
For 2008 and prior years, the Compensation Committee reviewed target equity-based incentive compensation
annually and targeted equity-based incentive compensation for executive officers at or near the median of the
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comparison groups. In 2008, with respect to long-term incentive compensation, Towers Perrin generally concluded
that our equity-based incentive compensation plan, including the use of performance-based RSUs and the target level of
grants to each executive, was competitive with market practices. As explained above, none of the performance
measures under the 2008 equity-based incentive compensation plan were met due to the Company’s decline in EPS in
the difficult market we encountered in 2008. For 2009, the Compensation Committee did not believe the performance
of the Company’s peer groups was as important of a factor to consider for 2009.
In order to link equity-based incentive compensation more closely to annual performance and to continue to align
the interests of management and stockholders and, in part, in light of changing stockholder expectations, in December
2005 the Compensation Committee adopted a practice of initiating annual grants of equity-based incentive
compensation awards to executives early in the year (as opposed to later in the year or periodically throughout the year)
in connection with the annual budgeting process. Also, early in the year, the Compensation Committee will approve
the annual RSU program grants as well as a pool of shares from which the Chief Executive Officer may make
discretionary or new hire RSU grants throughout the year, or both, to individuals other than individuals who are subject
to the reporting requirements of Section 16(a) of the Exchange Act. The pool of RSUs is based on the recommendation
of management and review of the overall equity compensation expense expected to be recorded in current and future
years in the consolidated financial statements.
2008 Equity-Based Incentive Plan
For 2008, RSUs granted to executive officers were 100% performance-based. The number of RSUs to be issued
under these performance-based grants was designed to increase or decrease depending on whether actual EPS for the
fiscal year ended December 31, 2008, on a consolidated non-GAAP diluted basis, with non-GAAP EPS being defined
under the plan as the actual 2008 EPS from continuing operations excluding charges for goodwill impairment and costs
associated with the stock option review (if any), was greater or less than target EPS. The minimum number of RSUs
that could be issued was zero, and the maximum number was 130% of the target award. The annual financial
performance targets were set in conjunction with the annual budget process and were considered to be challenging, but
achievable, given the tactical and strategic plans that were in place at the time. The target EPS range approved by the
Compensation Committee for equity-based incentive compensation for 2008 was $1.70 to $2.26 with 100% of target
RSUs awarded for actual 2008 EPS of $2.00 – $2.12.
As previously noted, the minimum EPS goals for 2008 were not met, and none of the 2008 performance-based
RSUs were earned by the named executive officers or by any plan participants.
The Compensation Committee also has the ability to make discretionary awards outside of the plan; however, no
discretionary awards were made to the named executive officers during 2008.
2009 Equity-Based Incentive Plan
The 2009 pool of RSUs, which are 40% service-based and 60% performance-based, was established for executive
officers on February 20, 2009 and will vest in three equal installments beginning on February 20, 2010. The number of
RSUs to be issued under the performance-based grants will increase or decrease depending on the Company’s actual
diluted EPS for the fiscal year ending December 31, 2009, on a consolidated non-GAAP diluted basis, with non-GAAP
EPS being defined as actual 2009 EPS from continuing operations, excluding certain items not considered to be part of
the ongoing business, such as goodwill impairment charges, as approved in advance by the Compensation Committee.
For the performance-based RSUs: if the Company achieves less than 50% of its budgeted 2009 EPS, no RSUs will be
issued; if the Company achieves at least 50% of its 2009 budgeted EPS, 25% of the target number of RSUs will be
issued; if the Company achieves 68% of its 2009 budgeted EPS, 50% of the target number of RSUs will be issued; if
the Company achieves 100% of its 2009 budgeted EPS, 100% of the target number of RSUs will be issued; and if the
Company achieves 138% or greater of its 2009 budgeted EPS goal, 200% of the target number of RSUs will be issued
(without duplication). The budgeted EPS target was set in conjunction with the Company’s overall annual budget
process and is considered to be challenging, but achievable, given the tactical and strategic plans that have been
developed for 2009.
In determining the amount of equity-based incentive compensation for 2009, the Compensation Committee
considered the fact that no awards were ultimately made under the 2008 equity-based incentive plan because the
performance measures were not met. Moreover, the Compensation Committee considered that even though the number
of RSUs granted to senior executives under the 2009 plan was greater than the target number granted under the 2008
plan, the value of the award, at date of grant, was substantially lower (roughly 30% of the value of the 2008 target
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awards) because of the significant decrease in the Company’s stock price. One of the Compensation Committee’s
goals in setting higher target awards for senior executives under the 2009 plan is to provide retention value for senior
executives through stock price improvement, which the Compensation Committee believes aligns the interests of
management and the stockholders. The 2009 total service-based and performance-based RSUs, granted on February
20, 2009, included the following target awards for our current named executive officers:
• Richard A. Fennessy, President and Chief Executive Officer – 131,004;
• Glynis A. Bryan, Chief Financial Officer – 89,766; and
• Stuart A. Fenton, President, EMEA/APAC – 74,151.
2008 Performance-Awarded RSU Retention Plan
In 2008, in order to provide a long-term incentive and retention mechanism for our Chief Executive Officer and the
Presidents of our operating segments, and to provide an incentive tied to stockholder value, the Chair of the Board of
Directors and the Chair of the Compensation Committee worked with Towers Perrin to develop an additional long-term
incentive plan based upon specific levels of stock price improvement.
The plan provided for the award of RSUs based upon achievement of specific stock price hurdles within specific
timeframes over a three-year period from 2009 – 2011. If all or some hurdles were not achieved, 33% of the remaining
award (i.e., any shares not issued for achievement of the specific stock price hurdles in the specific timeframes) would
have been made on February 15, 2013, assuming continued employment. However, due to the current economic
climate and the decrease in Insight’s stock price, on February 19, 2009, Messrs. Fennessy, Fenton and McGrath agreed
to forfeit the awards, resulting in the termination of the plan. Accordingly, no shares were, or will be, issued under
these awards.
Nonqualified Deferred Compensation Plan
Named executive officers (as well as other eligible employees) may participate in the Insight Nonqualified
Deferred Compensation Plan (“Deferred Compensation Plan”), a nonqualified deferred compensation plan adopted and
approved by the Compensation Committee and ratified by the Board of Directors. The Deferred Compensation Plan
permits participants to voluntarily defer receipt of compensation, and participants earn a rate of return on their deferred
amounts based on their selection from a variety of independently managed funds. The Company does not provide a
guaranteed rate of return on these deferred amounts, and the rate of return realized depends on the participant’s fund
selections and market performance of these funds. The Company does not currently make any contributions to the
Deferred Compensation Plan.
Severance and Change in Control Plans
Severance and change in control plans are designed to facilitate the Company’s ability to attract and retain
executives as the Company competes for talented employees in a marketplace where such protections are commonly
offered. Severance benefits are designed to provide benefits to ease an executive’s transition due to an unexpected
employment termination by the Company due to changes in the Company’s employment needs. Change in control
benefits are intended to encourage executives to remain focused on the Company’s business in the event of rumored or
actual fundamental corporate changes. See further detail under the section entitled “Employment Agreements,
Severance and Change in Control Plans.”
Perquisites
We provide our executive officers with relatively limited perquisites that we believe are reasonable and in the best
interests of the Company. In 2008, Mr. Fenton was provided with an automobile allowance, which is a benefit
generally available to management in the United Kingdom, where Mr. Fenton resides. These benefits are part of our
broad-based total compensation programs offered in the geography in which each of the executives resides. The value
of aggregate perquisites to named executive officers did not exceed $10,000 for any individual named officer, except
Mr. Fenton.
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Stock Ownership Guidelines
On February 15, 2007, the Board, upon the recommendation of the Compensation Committee, adopted stock
ownership guidelines that:
•
•
•
are designed to align the interests of key executives, Board members and stockholders;
provide a five-year transition period for each new executive and each new Board member to reach
ownership guidelines; and
define which ownership interests will count towards the guidelines.
The guidelines specify that, subsequent to the five-year transition period, as of each January 1, each executive and
each Board member is expected to hold Insight shares at least equal to a specified multiple of his or her annual base
salary or retainer. For the President and Chief Executive Officer, two times annual base salary is required, for all other
Executives, one times annual base salary is required, and for Board members, two times the annual base retainer is
required. Failure to meet or to show sustained progress toward meeting the Stock Ownership Guidelines may result in
a reduction in future long-term incentive grants and also may result in a requirement to retain some or all stock attained
through Company grants of equity until the Stock Ownership Guidelines are attained.
Role of Executives in the Compensation Setting Process
The Compensation Committee has the overall responsibility for approving the cash-based incentive compensation
for the officers that are subject to the reporting requirements of Section 16(a) of the Exchange Act. To facilitate this
process, the Chief Executive Officer and People and Development Group prepare and present information and
recommendations to the Compensation Committee for review, consideration and approval, but they do not recommend
their own cash-based incentive compensation.
With respect to compensation of all other teammates, the Compensation Committee functions in an oversight role
as these decisions are considered the responsibility of management. With respect to equity-based compensation, the
Compensation Committee approves the annual RSU program grants as well as the pool of available shares from which
the Chief Executive Officer may make discretionary or new hire RSU grants throughout the year, or both, to
individuals other than individuals who are subject to the reporting requirements of Section 16(a) of the Exchange Act.
Similar to cash-based incentive compensation, for all officers subject to the reporting requirements of Section 16(a) of
the Exchange Act, the Chief Executive Officer and People and Development Group prepare and present information
and recommendations to the Compensation Committee for review, consideration and approval of the equity-based
awards by the Compensation Committee. For all other teammates, management is responsible for recommending to the
Compensation Committee the teammates to receive grants and the nature and size of the proposed equity-based awards.
The Chief Executive Officer does not have the ability to call Compensation Committee meetings and does not
attend those portions of the Compensation Committee meetings when his compensation is discussed. During 2008, the
Chief Executive Officer did not meet with Towers Perrin outside of Compensation Committee meetings or retain any
other compensation consultant.
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Chief Executive Officer Compensation
The Compensation Committee determines compensation for the Chief Executive Officer using the same criteria it
uses for other executives, placing relatively less emphasis on base salary and, instead, creating greater performance-
based opportunities for short-term and long-term incentive compensation (cash and equity, respectively). The
Compensation Committee met in executive session to evaluate the performance of the Chief Executive Officer in 2008,
and the Compensation Committee set the compensation of the Chief Executive Officer in conjunction with the
performance review process.
Executive Compensation Recovery
We have an incentive compensation recovery policy that applies to our executive officers. Under this policy, in the
event of a material restatement of our financial results, we may recover from an executive officer any incentive
compensation that was based on having met or exceeded performance targets if an executive officer engaged in fraud or
intentional misconduct that resulted in an increase in his or her incentive compensation.
Tax and Accounting Considerations
Deductibility of Executive Compensation
Code Section 162(m) generally prohibits a public company from taking an income tax deduction for compensation
over $1 million paid to the Chief Executive Officer and its four other highest paid executive officers unless certain
conditions are met. While the anticipated tax treatment of compensation is given some weight in making compensation
decisions, the Compensation Committee has not adopted a policy of limiting awards of compensation to amounts that
would be deductible under Section 162(m) because the Compensation Committee believes that awards of compensation
which would not comply with the Section 162(m) requirements may at times further the long-term interests of the
Company and its stockholders. The Compensation Committee believes that it is important to maximize the corporate
tax deductibility of executive compensation. Therefore, to help maximize the deductibility of payments made
beginning in 2008, the Company sought and received stockholder approval of its 2007 Omnibus Plan.
Accounting for Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting
Standards No. 123R, “Share-Based Payment” (“SFAS No. 123R”). Under the fair value recognition provisions of
SFAS No. 123R, we recognize stock-based compensation based on the fair value at the grant date 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.
Compensation Committee Report
Based on the Compensation Committee’s review of the above Compensation Discussion and Analysis and
discussions with management, the Compensation Committee recommended to the Board that the Compensation
Discussion and Analysis be included in this annual report.
COMPENSATION COMMITTEE:
David J. Robino, Chair
Bennett Dorrance Kathleen S. Pushor
Anthony A. Ibargüen
Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933,
as amended, or the Exchange Act, as amended, that incorporate future filings, including this annual report, in whole or
in part, the foregoing Compensation Committee Report does not constitute soliciting material and shall not be deemed
filed or incorporated by reference into any such filings.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was at any time during 2008 or at any other time an officer or
employee of Insight, and no member had any relationship with Insight requiring disclosure under Item 404 of
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INSIGHT ENTERPRISES, INC.
Regulation S-K. No executive officer of Insight has served on the Board or Compensation Committee of any other
entity that has or has had one or more executive officers who served as a member of the Board or the Compensation
Committee of Insight during 2008.
Summary Compensation Table
The table below sets forth the total compensation for services rendered to us by our principal executive officer, our
principal financial officer and our four other most highly compensated executive officers. We refer to these persons as
named executive officers. The amounts shown include both amounts paid and amounts deferred.
Name and Principal
Position
Year
Salary ($)
($)(1)
Bonus
Stock Awards
($)(2)
Option Awards
($)(2)
Non-Equity
Incentive Plan
Compensation
($)(3)
All Other
Compensation
($)(4)
Total ($)
Richard A. Fennessy
President and
Chief Executive Officer
2008
2007
2006
-
750,000
700,000
-
695,000 150,000
1,073,931
1,404,708
962,790
40,378
988,560
2,313,872
450,000
1,209,180
1,397,553
-
-
78,151
-
369,607
14,138
Glynis A. Bryan (5)
Chief Financial Officer
Stuart A. Fenton (6)
President – EMEA/APAC
Mark T. McGrath (5)
President – North
America/APAC
Gary M. Glandon (5)
Chief People Officer
Catherine W. Eckstein (5)
Chief Marketing Officer
2008
2007
2008
2007
2006
2008
2007
2006
2008
2007
2006
2008
2007
2006
400,000
16,667
417,318
423,809
370,430
- 475,582
492,501
-
248,024
78,341
425,000
375,000
325,000
-
26,250
50,000
710,154
770,287
438,852
275,000
255,000
235,000
163,006
285,000
275,000
- 204,624
335,889
-
170,171
15,000
-
-
20,000
217,809
368,625
202,908
22,717
173,031
360,340
91,373
349,783
723,222
30,579
160,058
340,953
-
66,496
134,135
5,639 2,319,948
4,586 4,307,034
4,812 5,524,027
3,593 1,021,351
35,620
-
41,072 1,211,000
64,743 1,507,804
55,361 1,292,376
2,189 1,328,716
1,482 1,912,997
1,512 2,067,004
5,837
574,940
3,720 891,641
928,146
3,476
170,000
4,815
254,311
353,720
179,880
100,000
390,195
528,418
58,900
136,974
163,546
- 526,543
177,059 30,139
2,620
214,805
907,358
927,319
849,468
(1) On February 13, 2008 and February 15, 2007, the Compensation Committee approved discretionary cash bonuses for 2007 and
2006, respectively, for the named executive officers.
(2) These amounts reflect the dollar amount of compensation expense recognized in accordance with SFAS No. 123R for financial
statement purposes for the years ended December 31, 2008, 2007 and 2006, respectively. These amounts include awards
pursuant to the 2007 Plan and the 1998 LTIP and thus may include amounts from awards granted in and prior to the respective
years presented. Assumptions used in the calculations of these amounts are included in the footnotes to our audited
consolidated financial statements for the fiscal years ended December 31, 2008, 2007 and 2006, which are included in Item 8 of
this report. No estimate of forfeitures is included in these amounts, nor were any actual forfeitures included in these amounts.
The amounts for the years ended December 31, 2007 and 2006 have been adjusted as a result of the restatement of our
consolidated financial statements included in this report. The restatements reflect adjustments to recognize stock based
compensation expense related to performance-based RSUs 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) instead of
on a straight-line basis over the requisite service period for the entire award.
(3) Non-Equity Incentive Plan Compensation represents bonuses earned by executives under the 2008 and 2007 cash incentive
plans, respectively, as described in the Compensation Discussion and Analysis section of Part III, Item 11 of this report. The
incentive plan compensation for 2008 was paid to the named executive officers prior to March 15, 2009.
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(4) All Other Compensation represents payments to:
• Mr. Fennessy for matching contributions to his 401(k) and value received related to an annual sales incentive trip of $3,450
and $2,189, respectively in 2008.
• Ms. Bryan for matching contributions to her 401(k) and value received related to an annual sales incentive trip of $3,450
and $143, respectively in 2008.
• Mr. Fenton for auto allowances and retirement plan contribution of $34,279 and $6,793, respectively, in 2008. We
consider the cost of the auto allowance for Mr. Fenton a perquisite.
• Mr. McGrath for value received related to an annual sales incentive trip of $2,189 in 2008.
• Mr. Glandon for matching contributions to his 401(k), value received related to an annual sales incentive trip and health
club dues of $3,450, $2,189 and $198, respectively in 2008.
• Ms. Eckstein for severance, payout of accrued vacation, matching contributions to her 401(k) and value received related to
an annual sales incentive trip of $500,000, $21,558, $2,796 and $2,189, respectively in 2008. Ms. Eckstein's employment
with the Company ended on July 18, 2008, with Ms. Eckstein receiving severance equal to one year of base salary
($295,000) and one times her annual target incentive compensation ($205,000).
(5) Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective March 1, 2009, April 2, 2009 and July 18,
2008, respectively. Ms. Bryan was appointed Chief Financial Officer effective December 16, 2007.
(6) Mr. Fenton is a resident of the United Kingdom. He is paid in British Pounds Sterling. The 2008 amounts above were
determined by multiplying the average quarterly exchange rates applicable at March 31, June 30, September 30, and December
31, of 2008 by the compensation earned during the quarter. The 2007 amounts above were determined by multiplying the
average annual exchange rate by the compensation earned during the year.
Except for the car allowance provided to Mr. Fenton, the cost of certain perquisites and other personal benefits are not included
because in the aggregate they did not exceed, in the case of any named executive officer, $10,000.
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Grants of Plan-Based Awards
The following table sets forth information regarding grants of plan-based awards made during the year ended
December 31, 2008 to the named executive officers.
Estimated Future Payouts Under Non-
Equity Incentive Plan Awards (1)
Estimated Future Payouts Under Equity
Incentive Plan Awards (2)
Grant
Date
Approval
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Grant Date
Fair Value
of Stock
and Option
Awards
($)(3)
Name
Richard A. Fennessy
Glynis A. Bryan
2/20/2008 2/13/2008
1/23/2008 1/23/2008
2/20/2008 2/13/2008
1/10/2008 11/12/2007
Stuart A. Fenton (4)
2/20/2008 2/13/2008
1/23/2008 1/23/2008
Mark T. McGrath (5)
2/20/2008 2/13/2008
1/23/2008 1/23/2008
Gary M. Glandon (5)
2/20/2008 2/13/2008
Catherine W. Eckstein (5) 2/20/2008 2/13/2008
-
-
-
-
-
-
-
-
-
-
1,500,000
-
2,175,000
-
-
-
65,502
300,000
85,153
300,000
1,236,024
3,512,064
425,000
-
291,000
-
500,000
-
616,250
-
421,950
-
725,000
-
155,000
224,750
205,000
297,250
-
44,883
15,000
58,348
15,000
846,942
240,600
-
-
-
-
-
-
32,956
100,000
42,843
100,000
621,880
1,170,688
44,883
150,000
58,348
150,000
846,942
1,756,032
22,284
28,969
420,499
22,284
28,969
420,499
(1)
(2)
(3)
(4)
(5)
Represents awards under the 2008 cash incentive plan discussed under the heading “2008 Cash Incentive Plan” of the
Compensation Discussion and Analysis section of Part III, Item 11 of this report. The maximum estimated future payouts
under non-equity incentive plan awards was computed as 175% of the target cash incentive compensation component that
was based on non-GAAP earnings from operations goals (60%) and 100% of the target cash incentive compensation
component that was based on individual performance goals (40%), although the Compensation Committee could award
greater than 100% of target for individual performance goals under the plan, with no defined maximum. Actual amounts
are reflected in the Summary Compensation Table, and there are no future payouts related to these awards.
Pursuant to the 2008 performance-based equity-based incentive compensation program, grants of performance-based RSUs
to our named executive officers were made on February 20, 2008. The number of actual RSUs ultimately awarded was
zero, determined by non-achievement of minimum targeted consolidated non-GAAP diluted EPS of the Company for the
fiscal year ending December 31, 2008. Pursuant to the 2008 Performance-Awarded RSU Retention Plan, Messrs.
Fennessy, Fenton and McGrath received an award of 300,000, 100,000 and 150,000 RSUs, respectively, to be issued based
upon achievement of specific stock price hurdles within specific timeframes. No shares were issued under this plan in
2008 and on February 19, 2009, Messrs Fennessy, McGrath and Fenton forfeited these awards. Pursuant to her
employment agreement effective December 16, 2007, Ms Bryan received an award of 15,000 serviced-based RSUs on
January 10, 2008.
The grant date fair value of the stock awards granted to our named executive officers was calculated based on the closing
price of the Company’s stock on February 20, 2008 of $18.87 multiplied by the target number of equity awards. The grant
date fair value of the stock award that Ms. Bryan received in connection with the commencement of her employment was
calculated based on the closing price of the Company’s stock on January 10, 2008 of $16.04. Because the performance-
awarded RSUs to Messrs. Fennessy, Fenton and McGrath have a market condition, a custom Monte Carlo simulation
model was used to estimate the award’s fair value at the grant date.
Mr. Fenton’s cash incentive threshold, target and maximum amounts for the 2008 cash incentive plan were translated into
U.S. dollars using the average British Pound Sterling exchange rate in effect on December 18, 2007 ($2.02).
Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective March 1, 2009, April 2, 2009 and July
18, 2008, respectively.
Employment Agreements, Severance and Change in Control Plans
Our employment agreements with executives and our incentive compensation plans reflect our compensation
philosophy. The employment agreements for Mr. Fennessy, Ms. Bryan, and Mr. Fenton provide for continually
129
INSIGHT ENTERPRISES, INC.
renewing terms (two years for Mr. Fennessy and Ms. Bryan and until terminated for Mr. Fenton). Under our 1998
LTIP, all outstanding options and other awards become fully exercisable and all restrictions on outstanding awards
shall lapse upon a change in control. Under the 2007 Plan, upon a change in control:
•
•
•
any options and SARs become fully exercisable and vested to the full extent of the original grant;
all performance shares, performance units and deferred amounts will be earned and payable in full at
target levels and any restrictions shall lapse; and
other conditions applicable to any other awards lapse, and such other awards become free of all
restrictions, limitations or conditions and become fully vested and transferable to the full extent of the
original grant.
All other change in control benefits are “double trigger” (which means that they are triggered by two events: a
change in control; plus a triggering termination under the change of control agreement), rather than “single trigger”
(triggered only by a change in control).
In 2008, the Company and its executives (other than Mr. Fenton, who resides in the United Kingdom) entered into
Amended and Restated Employment Agreements to comply with the final regulations issued under Section 409A of the
Code. Certain other changes were made to provide more consistency in language in the Company’s employment
agreements, but the economic terms of the agreements remain consistent with the previous agreements, such that there
are not any new or materially amended arrangements for the payment of tax gross-ups. The material terms of the
employment agreements with our current named executive officers are as follows:
Richard A. Fennessy
(i)
(ii)
(iii)
(iv)
(v)
(vi)
effective as of January 1, 2009;
a severance payment upon termination “without cause” or termination by Mr. Fennessy for “good reason,”
as those terms are defined in the agreement, payable upon termination, equal to two times Mr. Fennessy’s
annual base salary, plus two times the annual bonus during the one of the two immediately preceding
fiscal years that would produce the higher award, plus a prorated portion of any current quarterly or annual
bonus, plus benefits (life, disability, accident, group health and dental) continuation for 24 months;
a severance payment following a “change in control” of the Company if Mr. Fennessy terminates his
employment for “good reason” or the Company terminates his employment “without cause,” as those
terms are defined in the agreement, prior to the expiration of 24 months after the change in control occurs,
equal to two times his highest annual base salary in effect during the term of the agreement and two times
the higher annual bonus during the one of the two immediately preceding fiscal years which would
produce the higher award, plus a prorated portion of any current quarterly or annual bonus, plus benefits
continuation through the earlier of 42 months following termination or eligibility for new benefits. As
was provided in Mr. Fennessy’s previous Employment Agreement, all payments made following a
“change in control” are to be grossed-up for Mr. Fennessy’s excise taxes if the payment exceeds
prescribed limits;
in the event of Mr. Fennessy’s death, his estate will be entitled to his annual base salary due through the
date of his death and a prorated portion of any incentive compensation to which he would have been
entitled for the year had he not died. Mr. Fennessy’s agreement also provides for a life insurance policy in
an amount equal to two times his annual base salary;
Mr. Fennessy’s agreement also provides a disability insurance benefit; and
the agreement also provides for non-disclosure by Mr. Fennessy of our confidential information and
includes covenants by Mr. Fennessy not to compete with the Company for a period of two years following
termination of employment and not to solicit the employees, suppliers and customers for two years
following termination of employment.
130
INSIGHT ENTERPRISES, INC.
The table below outlines the potential payments to Mr. Fennessy upon the occurrence of certain termination
triggering events assuming a hypothetical effective date of termination of December 31, 2008:
Triggering Event
Severance
Stock Based
Compensation
Awards(1)
Benefits
Total
Termination Without Cause or for Good
Reason as defined in the employment
agreement
$ 5,045,106
$
-
$ 32,059
$ 5,077,165
Involuntary Termination - Change in Control
5,045,106
177,846
56,104
5,279,056
Disability
Death
-
-
450,000
177,846
-
-
-
627,846
(1) Represents the unamortized expense related to outstanding RSUs at December 31, 2008. Assuming a hypothetical date of
termination of December 31, 2008, the intrinsic value of the stock awards available to Mr. Fennessy is $360,636, which
represents the value based on the closing price of the Company’s common stock on December 31, 2008 of $6.90 per share.
Glynis A. Bryan
(i)
(ii)
(iii)
(iv)
(v)
(vi)
effective as of January 1, 2009;
a severance payment upon termination “without cause” or termination by Ms. Bryan for “good reason,” as
those terms are defined in the agreement, payable upon termination, equal to two times Ms. Bryan’s
annual base salary, plus one times the annual bonus during the one of the two immediately preceding
fiscal years that would produce the higher award, plus a prorated portion of any current quarterly or annual
bonus, plus benefits continuation for 24 months;
a severance payment following a “change in control” of the Company if Ms. Bryan terminates her
employment for “good reason,” or the Company terminates her employment “without cause,” as those
terms are defined in the agreement, prior to the expiration of 24 months after the change in control occurs,
equal to two times her highest annual base salary in effect during the term of the agreement and two times
the higher annual bonus during the one of the two immediately preceding fiscal years which would
produce the higher award, plus a prorated portion of any current quarterly or annual bonus, plus benefits
continuation through the earlier of 42 months following termination or eligibility for new benefits. As with
her previous agreement, all payments made following a “change in control” are to be grossed-up for Ms.
Bryan’s excise taxes if the payment exceeds prescribed limits;
in the event of Ms. Bryan’s death, her estate will be entitled to her base salary for a period of ninety days
following the date of her death and a prorated portion of any incentive compensation earned for the
quarter in which her death occurred, plus a prorated bonus for the year in which her death occurs for any
incentive compensation plan with annual objectives;
in the event of Ms. Bryan’s “Disability” as such term is defined in the Agreement, Ms. Bryan shall receive
base salary for a period of ninety days following the date the agreement is terminated due to Disability and
a prorated portion of any incentive compensation earned for the quarter in which the agreement is
terminated due to Disability, plus a prorated bonus for the year in which the termination takes place for
any incentive compensation plan with annual objectives; and
the agreement also provides for non-disclosure by Ms. Bryan of our confidential information and includes
covenants by Ms. Bryan not to compete with Insight or solicit its employees, suppliers or customers for a
period of two years following termination of employment.
The table below outlines the potential payments to Ms. Bryan upon the occurrence of certain termination triggering
events assuming a hypothetical effective date of termination of December 31, 2008:
131
INSIGHT ENTERPRISES, INC.
Triggering Event
Severance
Stock Based
Compensation
Awards(1)
Benefits(2)
Total
Termination Without Cause or for Good
Reason as defined in the employment
agreement
$ 1,201,120
$
-
$ 10,178
$ 1,211,298
Involuntary Termination - Change in Control
1,201,120
885,504
52,636
2,139,260
Disability
Death
270,000
270,000
-
-
-
270,000
-
270,000
(1) Represents the unamortized expense related to outstanding options and the unamortized expense related to RSUs at
December 31, 2008. Assuming a hypothetical date of termination of December 31, 2008, the intrinsic value of the option
awards and stock awards available to Ms. Bryan is $0 and $103,500, respectively, which represents the value based on the
closing price of the Company’s common stock on December 31, 2008 of $6.90 per share.
(2) Includes $34,825 related to a Section 280 tax gross-up in the event of an Involuntary Termination following a Change in
Control.
Stuart A. Fenton
(i)
(ii)
(iii)
effective date as of September 12, 2002, amended effective as of July 1, 2004;
upon termination of employment for reasons other than those specifically defined in the agreement, a
lump-sum payment in an amount equal to 165,000 British Pounds Sterling, less the amount paid in salary
during the required statutory notice period; and
the agreement also provides for non-disclosure by Mr. Fenton of our confidential information and includes
covenants by Mr. Fenton not to compete with the Company for a period of twelve months following
termination of employment and not to solicit the employees, suppliers and customers for a period of
eighteen months following termination of employment.
The table below outlines the potential payments to Mr. Fenton upon the occurrence of certain termination
triggering events assuming a hypothetical effective date of termination of December 31, 2008:
Triggering Event
Severance(1)
Total
Stock Based
Compensation
Awards(2)
Termination
$ 239,250
$
-
$ 239,250
Termination Following a Change in
Control
239,250
97,887
337,137
Death
-
97,887
97,887
(1) Severance payment translated into U.S. dollars using the British Pound Sterling exchange rate in effect on December 31,
2008 of $1.45.
(2) Represents the unamortized expense related to outstanding options and the unamortized expense related to RSUs at
December 31, 2008. Assuming a hypothetical date of termination of December 31, 2008, the intrinsic value of the option
awards and stock awards available to Mr. Fenton is $0 and $198,258, respectively, which represents the value based upon
the closing price of the Company’s common stock on December 31, 2008 of $6.90 per share.
132
INSIGHT ENTERPRISES, INC.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding equity awards at December 31, 2008 for the
named executive officers.
Option Awards
Stock Awards
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(3)
-
-
-
-
-
-
2,070,000
-
-
-
-
-
-
-
690,000
-
-
-
-
1,035,000
-
-
-
-
-
-
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)(4)
-
-
-
-
-
-
300,000
-
-
-
-
-
-
-
100,000
-
-
-
-
150,000
-
-
-
-
-
-
Name
Richard A. Fennessy
Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable
500,000
250,000
100,000
-
-
-
-
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1)
-
-
-
-
-
-
-
Option
Exercise Price
($)
19.90
20.36
18.53
-
-
-
-
Option
Expiration
Date
11/15/2009
1/3/2010
5/6/2010
-
-
-
-
Glynis A. Bryan
66,667
-
133,333
-
17.77
-
12/17/2012
-
Stuart A. Fenton
Mark T. McGrath(5)
Gary M. Glandon(5)
Catherine W.
Eckstein(5)
20,000
46,500
-
-
-
-
200,000
-
-
-
-
50,000
60,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18.53
21.25
-
-
-
-
19.72
-
-
-
-
18.35
18.53
-
-
-
5/6/2010
2/4/2009
-
-
-
-
5/23/2010
-
-
-
-
2/21/2010
5/6/2010
-
-
-
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(3)
Number of
Shares or
Units of Stock
That Have Not
Vested
(#)(2)
-
-
-
5,333
9,600
37,333
-
-
15,000
-
-
3,000
5,200
20,533
-
-
4,000
7,200
28,000
-
-
-
2,000
3,600
14,000
-
-
-
36,798
66,240
257,598
-
-
103,500
-
-
20,700
35,880
141,678
-
-
27,600
49,680
193,200
-
-
-
13,800
24,840
96,600
-
-
-
-
133
INSIGHT ENTERPRISES, INC.
(1)
(2)
(3)
(4)
(5)
Unvested options vest ratably over three years.
Under various service-based equity incentive compensation programs, our named executive officers have received varying
levels of grants of service-based RSUs and restricted stock awards that vest ratably over three years. The awards to Ms.
Bryan were made under the 2007 Plan.
In addition, pursuant to the 2007 and 2006 performance-based equity incentive compensation programs, grants of RSUs to
our named executive officers were made in February 2007 and January 2006, respectively, and the number of actual RSUs
ultimately awarded was determined by actual achievement of consolidated non-GAAP diluted EPS of the Company for the
fiscal years ending December 31, 2007 and 2006 against target consolidated non-GAAP diluted EPS. On the vest date, the
RSUs converted to service-based RSUs and one-third of the RSUs vested, with the remainder vesting ratably over the
following two years. All of these grants of RSUs were made under the 1998 Plan.
Pursuant to the 2008 performance-based equity-based incentive compensation program, grants of performance-based RSUs
to our named executive officers were made in February 2008. The number of actual RSUs ultimately awarded was zero,
determined by non-achievement of minimum targeted consolidated non-GAAP diluted EPS of the Company for the fiscal
year ending December 31, 2008.
Represents the value based upon the number of shares awarded multiplied by the closing price on December 31, 2008
($6.90).
Pursuant to the 2008 Performance-Awarded RSU Retention Plan, Messrs. Fennessy, Fenton and McGrath received an
award of 300,000, 100,000 and 150,000 RSUs, respectively, to be issued based upon achievement of specific stock price
hurdles within specific timeframes. No shares were issued under this plan in 2008, and no shares will be issued under this
plan or in the future.
Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective March 1, 2009, April 2, 2009 and July
18, 2008, respectively.
Option Exercises and Stock Vested Table
The following table sets forth information with respect to shares of Insight Enterprises, Inc. common stock
acquired through exercises of stock options and vesting of restricted shares and units and the number of shares acquired
and value realized on exercise or vesting by the named executive officers during 2008.
Option Awards
Stock Awards
Number of
Shares
Acquired
on Exercise (#)
Value Realized
on Exercise ($)
Number of
Shares
Acquired
on Vesting (#)(1)
Value Realized
on Vesting ($)(1)
-
-
-
-
25,000
220,128
-
-
-
-
-
-
58,600
-
18,467
30,200
12,600
14,266
1,046,873
-
334,240
517,492
228,046
248,504
Name
Richard A. Fennessy
Glynis A. Bryan
Stuart A. Fenton
Mark T. McGrath
Gary M. Glandon
Catherine W. Eckstein
(1)
During 2008, the stock awards that vested for the named executive officers in the United States were net-share
settled such that the Company withheld shares with value equivalent to the named executive officer’s minimum
statutory United States tax obligation for the applicable income and other employment taxes and remitted the cash
to the appropriate taxing authorities. The amounts in the table represent the gross number of shares and value
134
INSIGHT ENTERPRISES, INC.
realized on vesting for each of the named executive officers. The net number of shares acquired by Mr. Fennessy,
Mr. McGrath, Mr. Glandon and Ms. Eckstein on vesting were 38,565, 20,197, 8,262 and 9,397, respectively.
Nonqualified Deferred Compensation Table
Effective January 1, 2008, the Company established the Insight Nonqualified Deferred Compensation Plan
(“Deferred Compensation Plan”) with an effective date of January 1, 2008. The Deferred Compensation Plan is a
nonqualified deferred compensation plan maintained primarily to provide deferred compensation benefits for “a select
group of management or highly compensated employees” as defined by the Employee Retirement Income Security Act
of 1974, as amended, and was designed to comply with Section 409A of the Code. The Deferred Compensation Plan
permits participants to voluntarily defer receipt of compensation including salary, bonuses and any other cash
compensation, up to 90% of base salary and up to 100% for other cash compensation. Participants earn a rate of return
on their deferred amounts based on their selection from a variety of independently managed funds. Employees are fully
vested in their deferrals, but withdrawals at times other than deferral dates selected by participants are not permitted
until retirement, termination of employment, disability or death, except in case of unforeseen emergencies. The
Company does not provide a guaranteed rate of return on these deferred amounts, and the rate of return realized
depends on the participant’s fund selections and market performance of these funds.
Name
Richard A. Fennessy
Gary M. Glandon
Executive
Contributions
in Last FY
($)(1)
Company
Contributions
in Last FY
($)(2)
Aggregate
Earnings
in Last FY
($)(3)
Aggregate
Withdrawals/
Distributions
($)(4)
Aggregate
Balance at
Last FYE
($)(5)
87,708
12,987
-
-
(19,204)
(2,332)
-
-
68,504
10,655
(1)
The amounts reported in this column reflect, on a cash basis, named executive officer contributions during 2008 to our
Deferred Compensation Plan, a non-qualified deferred compensation plan. All of the salary and non-equity compensation
amounts voluntarily deferred by the named executive officers are included in the salary and non-equity incentive
compensation amounts reported for the named executive officers in the Summary Compensation Table.
(2)
The Company does not currently make any contributions to the Deferred Compensation Plan.
(3)
The amounts are deemed investment returns in 2008 on employee contributions.
(4)
No withdrawals or distributions were made to any named executive officers under the Deferred Compensation Plan in 2008.
(5)
The balances are the balances of the named executive officers’ accounts as of the end of 2008. All of the salary and non-
equity compensation amounts voluntarily deferred by the named executive officers are included in the salary and non-equity
incentive compensation amounts reported for the named executive officers in the Summary Compensation Table.
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INSIGHT ENTERPRISES, INC.
Director Compensation
Mr. Fennessy does not receive any separate compensation for his Board service or activities. In 2008, each non-
employee director received $20,000 per quarter for serving on the Board. An additional $1,250 per quarter was paid to
the director serving as Chair of a committee. For 2009, each non-employee director will again receive $20,000 per
quarter for serving on the Board and $2,500 per quarter for serving as Chair of a committee. For 2008, Mr. Crown,
Chair of the Board, was paid a retainer of $110,000 in lieu of standard compensation for directors because of his time
commitments to the Company as Chair of the Board. For 2009, the Compensation Committee has recommended to the
Board for approval and the Board has approved a $110,000 retainer for Mr. Crown for service as Chair of the Board.
We reimburse non-employee directors for their reasonable expenses incurred in connection with service as directors, and
non-employee directors may elect to participate in the medical and dental benefit programs offered to all teammates at
the rates paid by teammates of the Company.
In 2008, non-employee directors received 2,000 RSUs upon joining the Board and all directors received a grant of
RSUs equal in value to $70,000 on the date of the approval of the award, which amounted to 3,500 shares that will vest
ratably over three years, subject to continued Board service. For 2009, existing non-employee directors will continue to
receive a grant of RSUs equal to $70,000, but the valuation will be calculated at the closing price of the Company’s
shares on the date of its annual meeting, in accordance with the Company’s past practices. Upon joining the Board, new
non-employee directors will receive a pro-rata share of the last annual grant of RSUs to the other non-employee
directors, based on the number of whole months the new non-employee director will serve before the next regularly
scheduled annual meeting date. These awards will also vest ratably over three years, subject to continued Board service.
The table below sets forth information concerning compensation of the Company’s directors in 2008.
Name
Fees Earned or
Paid in
Cash
($)
Stock Awards
Option Awards
($)(1)(3)
($)(2)(3)
Total ($)
Timothy A. Crown
110,000
31,183
-
141,183
Bennett Dorrance
80,000
31,183
868
112,051
Michael M. Fisher
85,000
31,183
868
117,051
Larry A. Gunning
80,000
31,183
868
112,051
Anthony A. Ibargüen
40,000
4,024
-
44,024
Robertson C. Jones
85,000
31,183
868
117,051
Kathleen S. Pushor
80,000
31,183
3,329
114,512
(1)
(2)
David J. Robino
85,000
44,032
-
129,032
These amounts reflect the dollar amount recognized in accordance with SFAS No. 123R for financial statement purposes for
the year ended December 31, 2008. These amounts include awards pursuant to the 2007 Plan and the 1998 Plan and thus
may include amounts from awards granted in and prior to 2008. Assumptions used in the calculations of these amounts are
included in the footnotes to the Company’s audited consolidated financial statements for the fiscal year ended December 31,
2008, which are included in Item 8 of this report. An estimate of forfeitures is not included in these amounts nor were any
actual forfeitures included in these amounts. On July 1, 2008, Mr. Ibargüen was granted 2,000 restricted stock units related
to the commencement of his Board service. The grant date fair value of these awards was $24,080 (calculated by
multiplying the number of shares by $12.04 per share, the closing price reported by The Nasdaq Global Select Market). On
May 6, 2008, each continuing non-employee director was granted 3,500 restricted stock units in connection with their
annual award. The grant date fair value of each of these awards was $42,525 (calculated by multiplying the number of
shares by $12.15 per share, the closing price reported by The Nasdaq Global Select Market).
These amounts reflect the dollar amount recognized in accordance with SFAS No. 123R for financial statement purposes for
the year ended December 31, 2008. These amounts include awards pursuant to the 1998 Plan and the 1999 Broad Based
Plan and thus include amounts from awards granted prior to 2008. Assumptions used in the calculations of these amounts
are included in footnotes to the Company’s audited consolidated financial statements for the fiscal year ended December 31,
136
INSIGHT ENTERPRISES, INC.
2008, which are included in Item 8 of this report. An estimate of forfeitures is not included in these amounts nor were any
actual forfeitures included in these amounts. There were no option awards made to non-employee directors during 2008.
(3)
As of December 31, 2008, the aggregate number of stock awards and option awards outstanding for each director was as
follows:
Name
Stock Awards Option Awards
Timothy A. Crown
Bennett Dorrance
Michael M. Fisher
Larry A. Gunning
Anthony A. Ibargüen
Robertson C. Jones
Kathleen S. Pushor
David J. Robino
7,000
7,000
7,000
7,000
2,000
7,000
7,000
8,000
186,000
10,000
12,593
12,593
-
12,593
5,000
-
The cost of certain perquisites and other personal benefits are not included because in the aggregate they did not
exceed, in the case of any director, $10,000.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Securities Authorized for Issuance Under Equity Compensation Plans
The following table gives information with respect to our existing equity compensation plans as of December 31,
2008:
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options
(a)
Weighted
Average
Exercise Price
of Outstanding
Options
(b)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
2,444,379(1)
$19.36
3,026,135(2)
92,294(3)
$22.47
-
Plan Category
Equity compensation plans approved by security
holders ......................................................
Equity compensation plans not approved by
security holders ........................................
Total
2,536,673
$19.47
3,026,135
(1) Consists of options that are outstanding under our 1998 Long Term Incentive Plan, our 1994 Stock Option Plan and our 2007
Omnibus Plan (the “2007 Plan”).
(2) Consists of shares of common stock remaining available for issuance under the 2007 Plan.
(3) Consists of options that are outstanding under our 1999 Broad Based Plan.
On October 1, 2007, Insight’s Board of Directors approved the 2007 Plan, and it became effective when it was
approved by Insight’s stockholders at the annual meeting on November 12, 2007. The 2007 Plan is administered by the
Compensation Committee of Insight’s Board of Directors. 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
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INSIGHT ENTERPRISES, INC.
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 Exchange Act. 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 to Insight that are not related to capital raising or promoting or maintaining a market for
Insight’s stock. The 2007 Plan allows for awards of options, stock appreciation rights (SARs), restricted stock, restricted
stock units (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, 2008, 3,026,135 shares of stock were available for
grant under the 2007 Plan.
In October 1997, the Company’s stockholders approved the 1998 Long-Term Incentive Plan (the “1998 LTIP”) for
our officers, teammates, directors, consultants and independent contractors. The 1998 LTIP authorized grants of
incentive stock options, non-qualified stock options, stock appreciation rights, performance shares, restricted common
stock and performance-based awards. In 2000, the Company’s stockholders approved an amendment to the 1998 LTIP
increasing the number of shares eligible for awards to 6,000,000 and allowing our Board of Directors to reserve (which it
did) additional shares such that the number of shares of common stock available for grant under the 1998 LTIP and any
other option plans, plus the number of options to acquire shares of common stock granted but not yet exercised, or in the
case of restricted stock, granted but not yet vested, under the 1998 LTIP and any other option plans, shall not exceed
20% of the outstanding shares of our common stock at the time of calculation of the additional shares. With stockholder
approval of the 2007 Plan in November 2007, as discussed above, no more grants will be made under the 1998 LTIP.
In September 1999, we established the 1999 Broad Based Employee Stock Option Plan (the “1999 Broad Based
Plan”) for our teammates. The total number of stock options initially available for grant under the 1999 Broad Based
Plan was 1,500,000; provided, however, that no more than 20% of the shares of stock available under the 1999 Broad
Based Plan may be awarded to the officers of the Company. With stockholder approval of the 2007 Plan in November
2007, as discussed above, no more grants will be made under the 1999 Broad Based Plan.
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INSIGHT ENTERPRISES, INC.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our common stock as of
April 30, 2009 (except as otherwise indicated) by (i) each person or entity known to us own beneficially more than 5% of
the outstanding shares of our common stock, (ii) each of our directors, (iii) each of the named executive officers and (iv)
all directors and executive officers as a group.
Name
FMR LLC
AXA Financial, Inc. and affiliated entities
Dimensional Fund Advisors LP
Barclays Global Investors, N.A. and affiliated entities
Jennison Associates LLC
Richard A. Fennessy
Timothy A. Crown
Mark T. McGrath
Glynis A. Bryan
Gary M. Glandon
Stuart A. Fenton
Robertson C. Jones
Catherine W. Eckstein
Michael M. Fisher
Larry A. Gunning
Kathleen S. Pushor
Bennett Dorrance
Anthony A. Ibargüen
David J. Robino
Shares of Common Stock Beneficially
Owned (1)
Number of Shares
Percent
5,109,196(2)
4,927,778(3)
3,649,089(4)
3,410,493(5)
2,764,263(6)
1,033,370(7)
352,667(8)
296,773(9)
77,320(10)
77,118(11)
53,467(12)
35,094(13)
18,331
15,594(14)
13,094(15)
12,701(16)
10,001(17)
4,000
3,335(18)
11.21%
10.80%
8.01%
7.48%
6.06%
2.21%
*
*
*
*
*
*
*
*
*
*
*
*
*
All directors and executive officers as a group (17 persons)
2,082,878(19)
4.41%
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect
to securities. In accordance with SEC rules, a person is deemed to own beneficially any shares that such person has the right to
acquire within 60 days of the date of determination of beneficial ownership. Such shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of any other person. Except as indicated by footnote, and subject to
community property laws where applicable, to our knowledge the persons or entities named in the table above have sole voting
and investment power with respect to all shares of common stock shown as beneficially owned by them.
(2) Share data based on information in a Schedule 13G filed on March 10, 2009 with the SEC by FMR LLC. As of February 28,
2009, the Schedule 13G indicates that FMR LLC had sole voting power with respect to 2,600 shares, shared voting power with
respect to 0 shares, sole dispositive power with respect to 5,109,196 shares and shared dispositive power with respect to 0 shares.
The address of FMR LLC is 82 Devonshire Street, Boston, MA 02109.
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INSIGHT ENTERPRISES, INC.
(3) Share data based on information in an amendment to a Schedule 13G filed on February 13, 2009 with the SEC by AXA Financial,
Inc., AXA, The Mutuelles AXA and certain of their affiliated entities. As of December 31, 2008, the Schedule 13G indicates that
AXA Rosenberg Investment Management LLC, AllianceBernstein and AXA Equitable Life Insurance had sole voting power as to
1,136,652 shares, 2,492,338 shares and 2,900 shares, respectively, and sole dispositive power as to 2,122,195 shares, 2,802,683
shares and 2,900 shares, respectively. The address for AXA Financial, Inc. is 1290 Avenue of the Americas, New York, New
York 10104, the address for AXA is 25, avenue Matignon, 75008 Paris, France and the address for The Mutuelles AXA is 26, rue
Drouot, 75009 Paris, France.
(4) Share data based on information in an amendment to a Schedule 13G filed on February 9, 2009 with the SEC by Dimensional
Fund Advisors LP. As of December 31, 2008, the Schedule 13G indicates that Dimensional Fund Advisors LP had sole voting
power with respect to 3,536,434 shares and sole dispositive power with respect to 3,649,089 shares. The address of Dimensional
Fund Advisors LP is Palisades West, Building One. 6300 Bee Cave Road, Austin, TX 78746.
(5) Share data based on information in a Schedule 13G filed on February 5, 2009 with the SEC by Barclays Global Investors, NA
(“Barclays Investors”), Barclays Global Fund Advisors (“Barclays Fund Advisors”), Barclays Global Investors, LTD (“Barclays
Investors Ltd.”), Barclays Global Investors Japan Limited (“Barclays Japan Limited”), Barclays Global Investors Canada Limited
(“Barclays Canada Limited”), Barclays Global Investors Australia Limited (“Barclays Australia Limited”) and Barclays Global
Investors (Deutschland) AG (“Barclays Global Investors AG”). As of December 31, 2008, the Schedule 13G indicates that
Barclays Investors has sole voting power as to 1,130,409 shares and sole dispositive power as to 1,322,211 shares, Barclays Fund
Advisors has sole voting power as to 1,538,275 shares and sole dispositive power as to 2,057,203 shares, Barclays Investors Ltd.
has sole dispositive power as to 1,670 shares and sole dispositive power as to 31,079 shares. The address for Barclays Investors
and Barclays Fund Advisors is 400 Howard Street, San Francisco, CA 94105, the address for Barclays Investors Ltd. is Murray
House, 1 Royal Mint Court, London, United Kingdom EC3N 4HH, the address for Barclays Japan Limited is Ebisu Prime Square
Tower 8th Floor, 1-1-39 Hiroo Shibuya-Ku, Tokyo 150-8402 Japan. The address for Barclays Canada Limited is Brookfield Place
161 Bay Street, Suite 2500, PO Box 614, Toronto, Canada, Ontario M5J 2S1. The address for Barclays Australia Limited is Level
43, Grosvenor Place, 225 George Street, PO Box N43, Sydney, Australia, NSW 1220. The address for Barclays Global Investors
AG is Apianstrasse 6, D-85774, Unterfohring, Germany.
(6) Share data based on information in a Schedule 13G filed on February 17, 2009 with the SEC by Jennison Associates LLC. As of
December 31, 2008, the Schedule 13G indicates that Jennison Associates LLC had sole voting power with respect to 2,713,363
shares and shared dispositive power with respect to 2,764,263 shares. The address of Jennison Associates LLC is 466 Lexington
Avenue, New York, NY 10017.
(7) Includes 850,000 shares subject to options exercisable within 60 days of April 30, 2009.
(8) Includes 1,500 shares subject to restricted stock that will vest within 60 days of April 30, 2009.
(9) Includes 200,000 shares subject to options exercisable within 60 days of April 30, 2009.
(10) Includes 66,667 shares subject to options exercisable within 60 days of April 30, 2009.
(11) Includes 60,000 shares subject to options exercisable within 60 days of April 30, 2009.
(12) Includes 20,000 shares subject to options exercisable within 60 days of April 30, 2009.
(13) Includes 11,593 shares subject to options exercisable or restricted stock that will vest within 60 days of April 30, 2009.
(14) Includes 11,593 shares subject to options exercisable or restricted stock that will vest within 60 days of April 30, 2009.
(15) Includes 11,593 shares subject to options exercisable or restricted stock that will vest within 60 days of April 30, 2009.
(16) Includes 6,500 shares subject to options exercisable or restricted stock that will vest within 60 days of April 30, 2009.
(17) Includes 4,000 shares subject to options exercisable or restricted stock that will vest within 60 days of April 30, 2009.
(18) Includes 1,834 shares subject to restricted stock that will vest within 60 days of April 30, 2009.
(19) Includes 1,294,030 shares subject to options exercisable or restricted stock that will vest within 60 days of April 30, 2009.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons, Promoters and Certain Control Persons
Our written policy provides that any transaction with respect to a director or executive officer who is subject to the
reporting requirements of Section 16(a) of the Exchange Act must be reviewed and approved, in advance, by the Audit
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INSIGHT ENTERPRISES, INC.
Committee. Any such related party transactions will only be approved if the Audit Committee determines that such
transaction will not impair the involved person’s service to, and exercise of judgment on behalf of, the Company, or
otherwise create a conflict of interest that would be detrimental to the Company.
Director Independence
The Board has determined that all of our directors, except for Mr. Fennessy, our President and Chief Executive
Officer, meet the independence requirements of the Marketplace Rules of the NASDAQ Stock Market. The independent
directors hold executive sessions without management present on a quarterly basis and more often as they determine
appropriate.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm during the year ended December 31, 2008 was KPMG. KPMG
has audited our consolidated financial statements since 1988.
Fees and Independence
Audit Fees. KPMG billed us an aggregate of $4,109,000 and $4,372,000 for professional services rendered for the
audit of our consolidated financial statements, reviews of our consolidated financial statements included in our quarterly
reports on Form 10-Q and statutory audits for foreign subsidiaries for the years ended December 31, 2008 and 2007,
respectively.
Audit-Related Fees. Audit-related fees billed by KPMG for the year ended December 31, 2008 were $104,000 and
included an audit in accordance with Statement on Auditing Standards No. 70 and a compliance audit of a United
Kingdom contract. No audit related fees were paid to KPMG for the year ended December 31, 2007.
Tax Fees. Tax fees billed by KPMG for the years ended December 31, 2008 and 2007 of $104,000 and $84,000,
respectively, include fees for services relating to tax compliance, expatriates and tax planning and advice, including
assistance with tax audits.
All Other Fees. There were no other fees paid to KPMG for the years ended December 31, 2008 and 2007.
The Audit Committee has determined that the provision of services by KPMG described in the preceding paragraphs
is compatible with maintaining KPMG’s independence. All permissible non-audit services provided by KPMG in 2008
were pre-approved by the Audit Committee. In addition, no audit engagement hours were spent by people other than
KPMG’s full-time, permanent employees.
Pursuant to Section 202 of the Sarbanes-Oxley Act of 2002, our Audit Committee has approved all auditing and
non-audit services performed to date and currently planned to be provided related to the fiscal year 2008 by our
independent registered public accounting firm, KPMG. The services include the annual audit, quarterly reviews,
statutory audits for foreign subsidiaries, issuances of consents related to SEC filings and certain tax compliance services.
The Audit Committee has adopted procedures for pre-approving all audit and permissible non-audit services
provided by KPMG. For each non-audit service, as defined in the policy, performed by KPMG, an engagement letter
confirming the scope and terms of the work to be performed is submitted to the Audit Committee for pre-approval. Any
modification to an executed engagement letter must also be pre-approved by the Audit Committee. As permitted by
Section 10A(i)(3) of the Exchange Act, the Audit Committee has delegated pre-approval authority to the Chair of the
Audit Committee for all engagements under $100,000. The Chair of the Audit Committee must report any pre-approval
decisions to the Audit Committee at its next regular quarterly meeting. All non-audit services provided by KPMG were
pre-approved by the Audit Committee during 2008.
.
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INSIGHT ENTERPRISES, INC.
PART IV
Item 15. Exhibits and 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.
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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/ Richard A. Fennessy
Richard A. Fennessy
Chief Executive Officer
Dated: May 11, 2009
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/ Richard A. Fennessy
Richard A. Fennessy
President, Chief Executive Officer and May 11, 2009
Director
/s/ Glynis A. Bryan
Glynis A. Bryan
/s/ Timothy A. Crown*
Timothy A. Crown
/s/ Bennett Dorrance*
Bennett Dorrance
/s/ Michael M. Fisher*
Michael M. Fisher
/s/ Larry A. Gunning*
Larry A. Gunning
/s/ Robertson C. Jones*
Robertson C. Jones
/s/ Kathleen S. Pushor*
Kathleen S. Pushor
/s/ David J. Robino*
David J. Robino
/s/ Anthony A. Ibargüen*
Anthony Ibargüen
* By: /s/ Steven R. Andrews
Steven R. Andrews, Attorney in Fact
Chief Financial Officer
(principal financial officer and principal
accounting officer)
May 11, 2009
Chairman of the Board
May 11, 2009
May 11, 2009
May 11, 2009
May 11, 2009
May 11, 2009
May 11, 2009
May 11, 2009
May 11, 2009
Director
Director
Director
Director
Director
Director
Director
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INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
(Unless otherwise noted, exhibits are filed herewith.)
(1)
(2)
(2)
(2)
(2)
(2)
Exhibit
No.
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Description
— 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).
— 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).
— Form of Certificate of Designation of Series A Preferred Stock (incorporated by reference to
Exhibit 5 of our Registration Statement on Form 8-A (no. 00-25092) filed on March 17, 1999).
— 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).
— 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).
— 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).
— 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).
— 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).
— 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).
— Executive Service Agreement between Insight Direct UK Limited and Stuart Fenton dated
September 12, 2002 (incorporated by reference to Exhibit 10.31 of our annual report on Form
10-K for the year ended December 31, 2002).
— Receivables Purchase Agreement dated as of December 31, 2002 among Insight Receivables,
LLC, Insight Enterprises, Inc., Jupiter Securitization Corporation, Bank One NA (main office –
Chicago), 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).
— 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).
— Amendment No. 1 to Receivables Purchase Agreement dated as of September 3, 2003 among
Insight Receivables, LLC, Insight Enterprises, Inc. and Jupiter Securitization Corporation, Bank
One NA (incorporated by reference to Exhibit 10.2 of our quarterly report on Form 10-Q for the
quarter ended September 30, 2003).
10.10
— 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).
10.11
(2)
— Employment Agreement between Insight Enterprises, Inc. and Karen K. McGinnis dated as of
and effective October 15, 2004 (incorporated by reference to Exhibit 10.2 of our quarterly report
on Form 10-Q for the quarter ended September 30, 2004).
10.12
(2)
— Employment Agreement between Insight Enterprises, Inc. and Richard A. Fennessy dated as of
10.13
(2)
October 24, 2004, effective November 15, 2004 (incorporated by reference to Exhibit 99.1 of our
current report on Form 8-K filed on October 28, 2004).
— First Amendment to Employment Agreement between Insight Enterprises, Inc. and Timothy A.
Crown dated as of March 4, 2005 and effective March 1, 2005 (incorporated by reference to
Items 1.01 and 1.02 of our current report on Form 8-K filed on March 10, 2005).
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INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
Exhibit
No.
10.14
(2)
Description
— Amendment to Executive Service Agreement between Insight Direct (UK) and Stuart Fenton
dated as of March 1, 2005 and effective July 1, 2004 (incorporated by reference to Exhibit 10.25
of our annual report on Form 10-K for the year ended December 31, 2004).
10.15
(2)
— First Amendment to Employment Agreement between Insight Enterprises, Inc. and Karen K.
10.16
10.17
(2)
10.18
10.19
10.20
10.21
McGinnis dated as of April 26, 2005 and effective January 1, 2005 (incorporated by reference to
Exhibit 10.3 of our quarterly report on Form 10-Q for the quarter ended March 31, 2005).
— Amendment No. 5 to Receivables Purchase Agreement dated as of March 25, 2005 among
Insight Receivables, LLC (the “Seller”), Insight Enterprises, Inc. (the “Servicer”), JP Morgan
Chase Bank N.A. (successor by merger to Bank One, NA (Main Office Chicago)), as a Financial
Institution and as Agent (in its capacity as Agent, the “Agent”), and Jupiter Securitization
Corporation (“Jupiter”) (incorporated by reference to Exhibit 10.4 of our quarterly report on
Form 10-Q for the quarter ended March 31, 2005).
— Employment Agreement between Insight Direct USA, Inc. and Mark McGrath dated as of May
15, 2005 to be effective May 23, 2005 (incorporated by reference to Exhibit 10.1 of our current
report on Form 8-K filed on May 19, 2005).
— Amendment No. 6 to Receivables Purchase Agreement dated as of December 19, 2005 among
Insight Receivables, LLC (the “Seller”), Insight Enterprises, Inc. (the “Servicer”), JP Morgan
Chase Bank N.A. (successor by merger to Bank One, NA (Main Office Chicago)), as a Financial
Institution and as Agent (in its capacity as Agent, the “Agent”), and Jupiter Securitization
Corporation (“Jupiter”) (incorporated by reference to Exhibit 10.1 of our current report on Form
8-K filed on December 22, 2005).
— Stock Purchase Agreement, dated as of June 14, 2006, by and among Teletech Holdings, Inc.,
Insight Enterprises, Inc. and Direct Alliance Corporation (incorporated by reference to Exhibit
10.1 of our current report on Form 8-K filed on June 15, 2006).
— Stock Purchase Agreement, dated as of July 20, 2006, by and among Insight Enterprises, Inc.,
Level 3 Communications, Inc. and Technology Spectrum Inc. (incorporated by reference to
Exhibit 10.1 of our current report on Form 8-K filed on July 21, 2006).
— Amendment No. 7 to Receivables Purchase Agreement, dated as of September 7, 2006, among
Insight Receivables, LLC, Insight Enterprises, Inc., JPMorgan Chase Bank, N.A. (successor by
merger to Bank One, NA (Main Office Chicago)), as a Financial Institution and as Agent, and
Jupiter Securitization Company LLC (formerly Jupiter Securitization Corporation)
(incorporated by reference to Exhibit 10.2 of our current report on Form 8-K filed on September
8, 2006).
145
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
Exhibit
No.
10.22
(2)
Description
— Stanley Laybourne Retirement/Termination Program - Summary of Key Terms. (incorporated by
reference to Exhibit 10.30 of our annual report on Form 10-K for the year ended December 31,
2006).
10.23
(2)
— Employment Agreement between Insight Enterprises, Inc. and Steven R. Andrews dated
10.24
(2)
September 12, 2007 (incorporated by reference to Exhibit 10.1 of our quarterly report on Form
10-Q for the quarter ended September 30, 2007).
— Employment Agreement between Insight Enterprises, Inc. and Glynis A. Bryan dated December
16, 2007 (incorporated by reference to Exhibit 10.1 of our current report on Form 8-K filed on
November 21, 2007).
10.24.1
(2)
— Offer letter between Insight Enterprises, Inc. and Glynis A. Bryan dated November 16, 2007
10.25
(2)
(incorporated by reference to Exhibit 10.2 of our current report on Form 8-K filed on November
21, 2007).
— 2007 Omnibus Plan (incorporated by reference to Annex A of our Proxy Statement filed on
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
October 9, 2007).
— Agreement and Plan of Merger, dated as of January 24, 2008, by and among Insight Enterprises,
Inc., Insight Networking Services, LLC, and Calence, LLC (incorporated by reference to Exhibit
10.1 of our current report on Form 8-K filed on January 28, 2008).
— Support Agreement, dated January 24, 2008 among Insight Enterprises, Inc., Avnet, Inc.,
Calence Holdings, Inc., Michael F. Fong, Timothy J. Porthouse, Richard J. Lesniak, Jr., Mary
Donna Rives Lesniak, The Richard J. Lesniak Revocable Trust and the Mary Donna Lesniak
Irrevocable Trust (incorporated by reference to Exhibit 10.2 of our current report on Form 8-K
filed on January 28, 2008).
— Second Amended and Restated Credit Agreement, dated as of April 1, 2008, among Insight
Enterprises, Inc., the European Borrowers from time to time party thereto, 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 10.1 of our current report on Form 8-K filed on April 4, 2008).
— 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).
— Separation and General Release Agreement by and between Insight Enterprises, Inc. and Stanley
Laybourne dated as of May 1, 2007 (incorporated by reference to Exhibit 10.1 of our quarterly
report on Form 10-Q for the quarter ended June 30, 2008).
— Employment Agreement between Insight Enterprises, Inc. and Catherine Eckstein, effective as
of January 12, 2007 (incorporated by reference to Exhibit 10.2 of our quarterly report on Form
10-Q for the quarter ended June 30, 2008).
— Release and Severance Agreement between Insight Enterprises, Inc. and Catherine Eckstein
(incorporated by reference to Exhibit 10.3 of our quarterly report on Form 10-Q for the quarter
ended June 30, 2008).
— Employment Agreement between Insight Enterprises, Inc. and Gary Glandon, effective as of
January 12, 2007 (incorporated by reference to Exhibit 10.4 of our quarterly report on Form 10-
Q for the quarter ended June 30, 2008).
— 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).
— Amendment No. 9 to Receivables Purchase Agreement dated as of September 17, 2008 among
Insight Receivables, LLC, Insight Enterprises, Inc., JPMorgan Chase Bank, N.A. as Agent and
JS Siloed Trust as assignee of Jupiter Securitization Company LLC (incorporated by reference to
Exhibit 10.3 of our current report on Form 8-K filed on September 23, 2008).
146
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
Description
— 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).
— Executive Management Separation Plan effective as of January 1, 2008 (incorporated by
reference to Exhibit 10.5 for our current report on Form 10-Q for the quarter ended September
30, 2008).
— Amended and Restated Employment Agreement between Insight Enterprises, Inc. and Richard
A. Fennessy dated as of January 1, 2009 (incorporated by reference to Exhibit 10.1 of our
current report on Form 8-K filed on January 7, 2009).
— Amended and Restated Employment Agreement between Insight Enterprises, Inc. and Mark T.
McGrath dated as of January 1, 2009 (incorporated by reference to Exhibit 10.2 of our current
report on Form 8-K filed on January 7, 2009).
— 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).
— 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).
— Amended and Restated Employment Agreement between Insight Enterprises, Inc. and Gary M.
Glandon dated as of January 1, 2009 (incorporated by reference to Exhibit 10.5 of our current
report on Form 8-K filed on January 7, 2009).
— Amended and Restated Employment Agreement between Insight Enterprises, Inc. and Karen K.
McGinnis dated as of January 1, 2009 (incorporated by reference to Exhibit 10.6 of our current
report on Form 8-K filed on January 7, 2009).
— 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).
— Subsidiaries of the Registrant.
— Consent of KPMG LLP.
— Power of Attorney for Timothy A. Crown dated May 4, 2009.
— Power of Attorney for Bennett Dorrance dated May 4, 2009.
— Power of Attorney for Michael M. Fisher dated May 4, 2009.
— Power of Attorney for Larry A. Gunning dated May 4, 2009.
— Power of Attorney for Anthony A. Ibargüen dated May 4, 2009.
— Power of Attorney for Robertson C. Jones dated May 4, 2009.
— Power of Attorney for Kathleen S. Pushor dated May 4, 2009.
— Power of Attorney for David J. Robino dated May 4, 2009.
— Certification of Chief Executive Officer Pursuant to Securities and Exchange Act Rule 13a-14,
as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
— Certification of Chief Financial Officer Pursuant to Securities and Exchange Act Rule 13a-14, as
Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
— 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.
Exhibit
No.
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
21
23.1
24.1
24.2
24.3
24.4
24.5
24.6
24.7
24.8
31.1
31.2
32.1
(1) 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, Richard A. Fennessy, Michael M. Fisher, Larry A. Gunning, Anthony A. Ibargüen, Helen K.
Johnson, Robertson C. Jones, Kathleen S. Pushor, David J. Robino and Stephen A. Speidel. Pursuant to the
instructions accompanying Item 601 of Regulation S-K, the Registrant is filing the form of such indemnification
agreement.
(2) Management contract or compensatory plan or arrangement.
147
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INSIGHT ENTERPRISES, INC.
CERTIFICATION
Exhibit 31.1
I, Richard A. Fennessy, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Insight Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: May 11, 2009
By: /s/ Richard A Fennessy
Richard A. Fennessy
Chief Executive Officer
INSIGHT ENTERPRISES, INC.
CERTIFICATION
Exhibit 31.2
I, Glynis A. Bryan, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Insight Enterprises, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5 The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: May 11, 2009
By: /s/ Glynis A. Bryan
Glynis A. Bryan
Chief Financial Officer
INSIGHT ENTERPRISES, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Insight Enterprises, Inc. (the “Company”) on Form 10-K for the period
ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
we, Richard A. Fennessy, Chief Executive Officer of the Company, and Glynis A. Bryan, Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002,
that to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
By: /s/ Richard A. Fennessy
Richard A. Fennessy
Chief Executive Officer
May 11, 2009
By: /s/ Glynis A. Bryan
Glynis A. Bryan
Chief Financial Officer
May 11, 2009
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signatures that appear in typed form within the electronic version of this written statement
required by Section 906, has been provided to Insight Enterprises, Inc. and will be retained by Insight Enterprises, Inc.
and furnished to the Securities and Exchange Commission or its staff upon request.
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