EX-99.1 2 p73113exv99w1.htm EX-99.1 exv99w1
 

Exhibit — 99.1
(INSIGHT LOGO)
     
FOR IMMEDIATE RELEASE   Nasdaq: NSIT
INSIGHT ENTERPRISES, INC. REPORTS PRELIMINARY THIRD QUARTER RESULTS
Net Sales — $919 Million; GAAP Diluted EPS — $0.35; Non-GAAP Diluted EPS — $0.40
TEMPE, Ariz. – November 6, 2006 – Insight Enterprises, Inc. (Nasdaq: NSIT) (the “Company”) today reported preliminary unaudited results of operations for the three and nine months ended September 30, 2006. These results are preliminary because the Company’s Board of Directors has recently appointed an Options Subcommittee, composed of independent directors, to conduct a review of the Company’s stock option practices, and the Options Subcommittee has retained independent outside legal counsel. Certain present and former directors and executive officers of the Company have been named as defendants in a derivative lawsuit, related to stock option practices from 1997 to 2002, filed in Superior Court, County of Maricopa, Arizona on September 21, 2006. The Company has been named as a nominal defendant in that action. In addition, on October 27, 2006, the Company received an informal inquiry from the Securities and Exchange Commission (the “SEC”) requesting certain documents and information relating to the Company’s stock option grant practices from January 1, 1996 to the present. At this time, the Options Subcommittee has commenced its review but has not reached any conclusions about the Company’s stock option practices, and the Company is cooperating with the SEC in its inquiry. As a result, the Company will not be in a position to file its Form 10-Q for the third quarter ended September 30, 2006 by the filing deadline. The Company will file its Form 10-Q as soon as practicable after completion of this review.
As the review is in its early stages and no conclusions have been reached, the accounting effect of this matter, if any, cannot be quantified. There can be no assurance that the results of the review will not require possible restatement of the Company’s financial statements should any potential errors be identified and quantified. All results reported today are presented without taking into account any adjustments that may be required in connection with the ongoing stock option review and related SEC inquiry and should be considered preliminary until the Company files its Form 10-Q for the third quarter ended September 30, 2006.
Third Quarter Highlights:
  •   Quarterly net sales growth of 11.5% from $823.6 million in Q3 2005 to $918.6 million in Q3 2006, including Software Spectrum.
 
  •   18% year over year growth in non-GAAP* diluted EPS from $0.34 in Q3 2005 to $0.40 in Q3 2006 (13% year over year growth in GAAP diluted EPS from $0.31 in Q3 2005 to $0.35 in Q3 2006), including Software Spectrum.
 
  •   Insight North America, excluding Software Spectrum, quarterly net sales declined 0.7% while non-GAAP* earnings from operations increased 14% over prior year (GAAP earnings from operations were essentially flat).
 
  •   Insight UK, excluding Software Spectrum, quarterly net sales and non-GAAP* earnings from operations increased 1.8% and 7%, respectively, over prior year (GAAP earnings from operations grew 4%). In British pounds sterling, quarterly net sales decreased by 3.2%, while non-GAAP* earnings from operations grew by 2% over prior year.
 
  •   Completed Software Spectrum acquisition on September 7, 2006. Insight Enterprises, Inc. results include 23 calendar days of Software Spectrum results.
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Insight Q3 2006 Results, Page 2   November 6, 2006
Financial Summary Table
(in thousands, except per share data and percentages)
                                                 
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2006   2005   % change   2006   2005   % change
Insight Enterprises, Inc.
                                                
Net sales
   $ 918,592     $ 823,599       11.5 %   $ 2,544,599     $ 2,371,633       7.3 %
Net earnings – GAAP
   $ 17,240     $ 15,382       12 %   $ 57,341     $ 43,579       32 %
Net earnings – non-GAAP*
   $ 19,416     $ 16,398       18 %   $ 55,555     $ 46,956       18 %
Diluted earnings per share – GAAP
   $ 0.35     $ 0.31       13 %   $ 1.18     $ 0.88       34 %
Diluted earnings per share – non-GAAP*
   $ 0.40     $ 0.34       18 %   $ 1.14     $ 0.95       20 %
 
                                                
Insight North America
                                                
Net sales
   $ 694,390     $ 699,294       (0.7 %)   $ 2,085,129     $ 2,011,031       3.7 %
Earnings from operations – GAAP
   $ 19,488     $ 19,498       —     $ 57,066     $ 52,897       8 %
Earnings from operations – non-GAAP*
   $ 22,524     $ 19,707       14 %   $ 66,788     $ 57,045       17 %
 
                                                
Insight UK
                                                
Net sales
   $ 126,488     $ 124,305       1.8 %   $ 361,756     $ 360,602       0.3 %
Earnings from operations – GAAP
   $ 3,426     $ 3,280       4 %   $ 9,890     $ 9,646       3 %
Earnings from operations – non-GAAP*
   $ 3,896     $ 3,658       7 %   $ 10,928     $ 9,774       12 %
 
                                                
Software Spectrum (23 calendar days)
                                                
Net sales
   $ 97,714       —       —     $ 97,714       —       —  
Earnings from operations – GAAP
   $ 2,355       —       —     $ 2,355       —       —  
Earnings from operations – non-GAAP*
   $ 2,408       —       —     $ 2,408       —       —  
 
*   A tabular reconciliation of financial measures prepared in accordance with United States generally accepted accounting principles (“GAAP”) to non-GAAP financial measures is included at the end of this press release.
This Financial Summary Table does not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
“I am pleased to announce that Insight had another successful quarter,” said Rich Fennessy, chief executive officer. “We achieved solid financial results, completed the acquisition of Software Spectrum, developed and initiated detailed integration plans across all aspects of our business, and started the roll out of our mySAP upgrade. While we experienced challenges within our legacy Insight business with top line growth, we are very pleased with our performance in growing our quarterly earnings.”
Use of Non-GAAP Financial Measures: The non-GAAP financial measures in the 2006 and/or 2005 periods exclude stock-based compensation expense, settlement expense, severance and restructuring expense, the gain on the sale of discontinued operation, income resulting from reductions in liabilities assumed in a previous acquisition, and the tax effects of these items. We exclude these items when internally evaluating gross profit, selling and administrative expenses, earnings from operations, tax expense, net earnings and diluted earnings per share for the Company and when evaluating gross profit, selling and administrative expenses and earnings from operations for the individual operating segments. These non-GAAP measures are used to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare our results to competitors’ financial results. We believe that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and competitors’ results and assist in forecasting performance for future periods because they exclude items we believe to be outside of normal operating results. These non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
Our effective tax rate for the three months ended September 30, 2006 was 32.3% compared to 38.4% for the three months ended September 30, 2005. The non-GAAP effective tax rate for the three months ended September 30, 2006 was 33.1% compared to 38.2% for the three months ended September 30, 2005. The decrease in the effective tax rate was primarily
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  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 3   November 6, 2006
the result of a benefit recognized during the third quarter of 2006 for the reversal of accrued income taxes of $1.4 million resulting from the determination during the quarter that a reserve previously recorded for potential tax exposures was no longer necessary.
Cash flows from operations for the nine months ended September 30, 2006 and 2005 were $104.4 million and $59.4 million, respectively. During the nine months ended September 30, 2006, we received $46.5 million from the sale of Direct Alliance and used $323.0 million, net of cash acquired of $30.3 million, to acquire Software Spectrum. The acquisition 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 receivable securitization financing facility. Cash flows from operations for the nine months ended September 30, 2006 resulted primarily from net earnings from continuing operations before depreciation and amortization, decreases in inventories and increases in accounts payable. Inventories decreased due primarily to decreases in inventories not available for sale, which represent inventories segregated pursuant to binding customer contracts, which will be recorded as net sales when the criteria for sales recognition are met. Accounts payable increased due to the timing of payments at period end. Cash flows from operations for the nine months ended September 30, 2005 resulted primarily from net earnings from continuing operations before depreciation and amortization and increases in deferred revenue for client payments received in advance of shipment. We had $53.0 million available under our line of credit and $39.5 million available under our amended accounts receivable securitization financing facility at September 30, 2006. At September 30, 2006, we had $71.1 million in cash and cash equivalents.
Stock-Based Compensation Expense
On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which requires stock-based compensation to be measured based on the grant-date fair value of the award and recognized over the period during which an employee is required to provide service in exchange for the award. We adopted SFAS No. 123R using the modified prospective transition method. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the adoption date and compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption. Prior periods have not been restated. However, we recorded stock-based compensation expense in prior periods related to the amortization of the fair value of restricted stock shares and units over their respective vesting periods. Stock-based compensation expense is classified in the same line item of the consolidated statements of earnings as other payroll-related expenses for the specific employee and is excluded from non-GAAP financial measures reported herein.
Stock-based compensation expense for the three and nine months ended September 30, 2006 and 2005 was recorded in the financial statements as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Insight North America
                                
Selling and administrative expenses
   $ 2,528     $ 209     $ 8,214     $ 498  
 
                        
 
                                
Insight UK
                                
Selling and administrative expenses
   $ 249     $ —     $ 817     $ —  
 
                        
 
                                
Software Spectrum
                                
Selling and administrative expenses
   $ 53     $ —     $ 53     $ —  
 
                        
 
                                
Total Continuing Operations
                                
Selling and administrative expenses
   $ 2,830     $ 209     $ 9,084     $ 498  
 
                        
 
                                
Discontinued Operation
   $ —     $ 8     $ 1,017     $ 13  
 
                        
Stock-based compensation expense disclosed only in the footnotes to the consolidated financial statements for the three and nine months ended September 30, 2005 was $3.9 million and $10.5 million, respectively.
The above stock-based compensation expense amounts do not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 4   November 6, 2006
Severance and Restructuring Expenses
During the three months ended September 30, 2006, Insight North America and Insight UK recorded severance expense of $508,000 and $221,000, respectively, associated with the elimination of Insight positions as part of our integration and expense reduction plans. During the three months ended September 30, 2005, Insight UK recorded restructuring costs of $378,000 for duplicate rent expense related to the move to a new facility at the end of 2005.
OPERATING SEGMENTS
We are a leading provider of information technology (“IT”) products and services to businesses, government and educational institutions in North America, Europe, the Middle-East, Africa and Asia-Pacific. Insight’s offerings include brand name computing products, software and advanced IT services. Prior to the acquisition of Software Spectrum, we were organized in two segments: Insight North America and Insight UK. Because Software Spectrum results are only included for 23 calendar days, this quarter we have disclosed those results through earnings from operations separately from the results of Insight North America and Insight UK. During the fourth quarter, our chief executive officer and management will reevaluate the operating segments and determine how separate financial information will be reviewed in the future. We expect to discuss results of operations for the combined business in the following operating segments: North America, EMEA and Asia Pacific.
Insight North America
Insight North America’s net sales for the three months ended September 30, 2006 decreased 0.7% to $694.4 million, compared to net sales of $699.3 million for the three months ended September 30, 2005. “The quarter provided a challenging demand environment, especially within our Enterprise clients, that limited opportunities to drive sales growth,” said Fennessy. “Insight Public Sector, however, was unique in that it delivered very strong results for the third quarter, benefiting from strong sales behind state contracts and a seasonally strong Federal business.”
Insight North America’s gross profit as a percentage of net sales was 12.2% for the three months ended September 30, 2006, compared to 11.2% for the three months ended September 30, 2005. “The increase from the third quarter of 2005 was due primarily to increases in sales of services, increases in supplier reimbursements and decreases in the reserve for vendor receivables, offset partially by decreases in freight margin and increases in the write-downs of inventories,” said Stanley Laybourne, chief financial officer.
Insight North America’s selling and administrative expenses were 8.9% (non-GAAP) of net sales for the three months ended September 30, 2006, compared to 8.4% (non-GAAP) for the three months ended September 30, 2005. The non-GAAP selling and administrative expenses exclude stock-based compensation expense of $2.5 million and $209,000 for the three months ended September 30, 2006 and 2005, respectively. Selling and administrative expenses in the third quarter of 2006 also include approximately $720,000 of accelerated depreciation related to portions of our current operating system that will not be utilized after our upgrade to mySAP. “Compared to Q3 2005, we have seen increases in sales incentive plans, increased bonus expenses due to increased overall financial performance, accelerated depreciation and integration-related expenses, offset partially by a decrease in marketing expenses,” Laybourne said.
Insight North America’s earnings from operations for the three months ended September 30, 2006 were $22.5 million (non-GAAP) compared to $19.7 million (non-GAAP) for the three months ended September 30, 2005. The non-GAAP earnings from operations for the three months ended September 30, 2006 excludes stock-based compensation expense of $2.5 million and severance and restructuring expenses of $508,000. The non-GAAP earnings from operations for the three months ended September 30, 2005 excludes stock-based compensation of $209,000.
Insight UK
Insight UK’s net sales for the three months ended September 30, 2006 increased by 1.8% to $126.5 million, compared to net sales of $124.3 million for the three months ended September 30, 2005. In British pounds sterling, net sales decreased by 3.2% compared to the three months ended September 30, 2005. “We continue to experience challenges in the UK market that have prevented top line growth, particularly with our small- to medium-sized and large enterprise clients,” said Fennessy. “Similar to Insight North America, sales to our public sector clients in the UK continue to show strong growth and provide new sales opportunities.”
Insight UK’s gross profit as a percentage of net sales was 14.3% for the three months ended September 30, 2006, compared to 13.3% for the three months ended September 30, 2005. “The increase in gross margin from the third quarter of 2005 was due primarily to increases in product margins, increases in referral fees for Microsoft enterprise software
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Insight Q3 2006 Results, Page 5   November 6, 2006
agreement renewals, increases in sales of services and decreases in write-downs of inventories. These increases to gross margin were offset partially by a decrease in supplier reimbursements,” said Laybourne.
For the three months ended September 30, 2006, Insight UK’s selling and administrative expenses were 11.2% (non-GAAP) of net sales compared with 10.3% (GAAP and non-GAAP) in the same quarter of 2005. “The increase in selling and administrative expenses as a percentage of net sales was due primarily to increases in sales compensation plans and facility costs related to our new London facility, offset partially by a property tax rebate recorded during the quarter,” said Laybourne. The non-GAAP selling and administrative expenses exclude stock-based compensation expense of $249,000 for the three months ended September 30, 2006.
Insight UK’s earnings from operations in the three months ended September 30, 2006 were $3.9 million (non-GAAP), compared to $3.7 million (non-GAAP) in the three months ended September 30, 2005. The non-GAAP earnings from operations exclude stock-based compensation expense of $249,000 and severance and restructuring expense of $221,000 for the three months ended September 30, 2006 and severance and restructuring expense of $378,000 for the three months ended September 30, 2005.
Software Spectrum
Software Spectrum’s results of operations are included in our consolidated results of operations after the close of the acquisition on September 7, 2006. In the last 23 days of September, Software Spectrum contributed $97.7 million in net sales and $2.4 million (GAAP and non-GAAP) in earnings from operations to our consolidated results. The non-GAAP earnings from operations exclude stock-based compensation expense of $53,000 for the three months ended September 30, 2006.
CONFERENCE CALL AND WEBCAST
We will host a conference call and live webcast today at 5:00 p.m. ET to discuss the quarterly results of operations. A live webcast of the conference call (in listen-only mode) will be available on our corporate website at www.insight.com and a replay of the webcast will be available on our corporate website for a limited time.
FORWARD-LOOKING INFORMATION
Certain statements in this release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements 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 statement. 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:
  •   changes in the information technology industry and/or the economic environment;
 
  •   our reliance on suppliers for product availability, marketing funds, purchasing incentives and competitive products to sell;
 
  •   disruptions in our information technology and voice and data networks;
 
  •   the integration and operation of Software Spectrum;
 
  •   our ability to achieve the expected benefits from the acquisition of Software Spectrum;
 
  •   actions of our competitors, including manufacturers of products we sell;
 
  •   the risks associated with international operations;
 
  •   migration of Software Spectrum to our information technology and voice and data networks;
 
  •   our ability to renew or replace financing facilities;
 
  •   increased outstanding debt and interest expense and lower availability on our financing facilities;
 
  •   increased exposure to currency exchange risks;
 
  •   our dependence on key personnel;
 
  •   risk that purchased goodwill or amortizable intangible assets become impaired;
 
  •   sales of software licenses are subject to seasonal changes in demand;
 
  •   our failure to comply with the terms and conditions of our public sector contracts;
 
  •   we have very limited experience in outsourcing business functions to India;
 
  •   rapid changes in product standards;
 
  •   intellectual property infringement claims; and
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Insight Q3 2006 Results, Page 6   November 6, 2006
  •   risks that are otherwise described from time to time in our Securities and Exchange Commission reports, including but not limited to the items discussed in “Factors That Could Affect Future Results” set forth in “Risk Factors” in Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 as filed with the Securities and Exchange Commission.
In addition, these forward-looking statements include statements regarding the review to be conducted by the Options Subcommittee, the informal inquiry commenced by the SEC, and the Company’s intent to file its Form 10-Q as soon as practicable. There can be no assurances that forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. Important factors that could cause actual results to differ materially include: the results and findings of the review by the Options Subcommittee; the results and findings of the SEC’s informal inquiry; the effect, if any, of such results or findings on the financial statements of the Company; the Company’s inability to timely file reports with the Securities and Exchange Commission and any related effects on credit agreement covenants; risks associated with the Company’s inability to meet NASDAQ requirements for continued listing; and risks of litigation and governmental or other regulatory inquiry or proceedings arising out of or related to the Company’s historical stock option practices. Therefore, any forward-looking statements in this release 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.
                 
Contacts:
      Stanley Laybourne       Karen McGinnis
 
      Chief Financial Officer       Chief Accounting Officer
 
      Tel. 480-350-1142       Tel. 480-333-3074
 
      Email slaybour@insight.com       Email kmcginni@insight.com
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Insight Q3 2006 Results, Page 7   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Net sales
   $ 918,592     $ 823,599     $ 2,544,599     $ 2,371,633  
Costs of goods sold
     803,041       728,937       2,225,743       2,090,991  
 
                        
Gross profit
     115,551       94,662       318,856       280,642  
Operating expenses:
                                
Selling and administrative expenses
     89,553       71,506       248,816       214,321  
Severance and restructuring expenses
     729       378       729       4,442  
Reductions in liabilities assumed in a previous acquisition
     —       —       —       (664 )
 
                        
Earnings from operations
     25,269       22,778       69,311       62,543  
Non-operating (income) expense:
                                
Interest income
     (1,650 )     (830 )     (3,658 )     (2,560 )
Interest expense
     1,264       429       2,333       1,026  
Other expense, net
     208       207       552       674  
 
                        
Earnings from continuing operations before income taxes
     25,447       22,972       70,084       63,403  
Income tax expense
     8,207       8,814       23,980       24,447  
 
                        
Net earnings from continuing operations
     17,240       14,158       46,104       38,956  
Earnings from discontinued operation, net of taxes of $0, $755, $1,258 and $2,857, respectively
     —       1,224       2,093       4,623  
Gain on sale of discontinued operation, net of taxes of $5,978 for the nine months ended September 30, 2006
     —       —       9,144       —  
 
                        
Net earnings from discontinued operation
     —       1,224       11,237       4,623  
 
                        
Net earnings
   $ 17,240     $ 15,382     $ 57,341     $ 43,579  
 
                        
 
                                
Net earnings per share — Basic:
                                
Net earnings from continuing operations
   $ 0.36     $ 0.29     $ 0.96     $ 0.80  
Net earnings from discontinued operation
     0.00       0.03       0.23       0.09  
 
                        
Net earnings per share
   $ 0.36     $ 0.32     $ 1.19     $ 0.89  
 
                        
 
                                
Net earnings per share — Diluted:
                                
Net earnings from continuing operations
   $ 0.35     $ 0.29     $ 0.95     $ 0.79  
Net earnings from discontinued operation
     0.00       0.02       0.23       0.09  
 
                        
Net earnings per share
   $ 0.35     $ 0.31     $ 1.18     $ 0.88  
 
                        
 
                                
Shares used in per share calculations:
                                
Basic
     48,411       48,412       48,230       48,862  
 
                        
Diluted
     48,766       48,900       48,729       49,372  
 
                        
These Consolidated Statements of Earnings do not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 8   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
                 
    September 30,     December 31,  
    2006     2005  
    (unaudited)          
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 71,071     $ 35,145  
Accounts receivable, net
     716,685       480,458  
Inventories
     124,882       121,223  
Inventories not available for sale
     19,402       35,528  
Deferred income taxes and other current assets
     47,179       29,624  
 
            
Total current assets
     979,219       701,978  
 
                
Property and equipment, net
     127,078       133,017  
Buildings held for lease
     16,706       —  
Goodwill
     291,108       87,124  
Intangible assets
     87,000       —  
Other assets
     12,995       221  
 
            
 
   $ 1,514,106     $ 922,340  
 
            
 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
   $ 397,873     $ 183,501  
Accrued expenses and other current liabilities
     116,202       54,926  
Current portion of long term debt
     13,215       —  
Deferred revenue
     33,860       24,747  
Line of credit
     22,000       21,309  
Inventories financing facility
     —       4,281  
Short-term financing facility
     —       45,000  
 
            
Total current liabilities
     583,150       333,764  
 
                
Long-term debt
     243,785       —  
Deferred income taxes and other long-term liabilities
     26,889       22,552  
 
                
Stockholders’ equity:
                
Preferred stock
     —       —  
Common stock
     487       477  
Additional paid-in capital
     324,297       299,043  
Retained earnings
     309,655       252,318  
Accumulated other comprehensive income – foreign currency translation adjustment
     25,843       14,186  
 
            
Total stockholders’ equity
     660,282       566,024  
 
            
 
   $ 1,514,106     $ 922,340  
 
            
These Consolidated Balance Sheets do not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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Insight Enterprises, Inc.
  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 9   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
                 
    Nine Months Ended  
    September 30,  
    2006     2005  
Cash flows from operating activities:
                
Net earnings from continuing operations
   $ 46,104     $ 38,956  
Plus: net earnings from discontinued operation
     11,237       4,623  
 
            
Net earnings
     57,341       43,579  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Depreciation and amortization
     14,819       10,954  
Provision for losses on accounts receivable
     2,101       4,410  
Write-downs of inventories
     6,892       5,253  
Non-cash stock-based compensation
     10,101       550  
Gain on sale of discontinued operation
     (15,122 )     —  
Tax benefit from employee gains on stock-based compensation
     —       1,936  
Excess tax benefit from employee gains on stock-based compensation
     (2,652 )     —  
Deferred income taxes
     8,459       3,590  
Changes in assets and liabilities:
                
(Increase) decrease in accounts receivable
     (7,201 )     4,085  
Decrease in inventories
     16,187       4,526  
(Increase) decrease in other current assets
     (4,261 )     4,849  
Increase in other assets
     (4,115 )     (349 )
Increase (decrease) in accounts payable
     20,885       (22,822 )
Decrease in inventories financing facility
     (4,281 )     (3,035 )
(Decrease) increase in deferred revenue
     (3,193 )     9,668  
Increase (decrease) in accrued expenses and other current liabilities liabilities
     8,404       (7,789 )
 
            
Net cash provided by operating activities
     104,364       59,408  
 
            
Cash flows from investing activities:
                
Proceeds from sale of discontinued operation
     46,500       —  
Acquisition of Software Spectrum, net of cash acquired
     (323,009 )     —  
Purchases of property and equipment
     (27,233 )     (26,395 )
Cash receipt of underwriter receivable, net
     —       26,904  
 
            
Net cash (used in) provided by investing activities
     (303,742 )     509  
 
            
Cash flows from financing activities:
                
Repayments on short-term financing facility
     (45,000 )     (40,000 )
Borrowings on long-term financing facility
     202,000       60,000  
Repayments on long-term financing facility
     (20,000 )     —  
Borrowings on term loan
     75,000       —  
Net borrowings on line of credit
     691       —  
Proceeds from sales of common stock under employee stock plans
     14,667       6,589  
Excess tax benefit from employee gains on stock-based compensation
     2,652       —  
Repurchase of common stock
     —       (49,077 )
 
            
Net cash provided by (used in) financing activities
     230,010       (22,488 )
 
            
Cash flows from discontinued operation:
                
Net cash used in operating activities
     (8,885 )     (2,349 )
Net cash provided by (used in) investing activities
     11,710       (2,605 )
Net cash used in financing activities
     (2,696 )     (127 )
 
            
Net cash provided by (used in) discontinued operation
     129       (5,081 )
Foreign currency exchange effect on cash flow
     5,165       (3,225 )
 
            
Increase in cash and cash equivalents
     35,926       29,023  
 
            
Cash and cash equivalents at beginning of period
     35,145       38,443  
 
            
Cash and cash equivalents at end of period
   $ 71,071     $ 67,466  
 
            
These Consolidated Statements of Cash Flows do not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 10   November 6, 2006
Insight Enterprises, Inc. and Subsidiaries
Quarterly Operating Statistics Table
(unaudited)
                         
    Three Months Ended
    September 30,
    2006   2005   Change
Insight Enterprises, Inc.
                        
Working capital (in thousands)
   $ 396,069     $ 355,221       11 %
Days sales outstanding in ending accounts receivable (“DSOs”)(a)
     46       44     2  days
Annualized inventory turns(a)(b)
     28       32     (4  days)
Days costs of goods sold outstanding in ending accounts payable (“DPOs”)(a)
     25       25     3  days
Effective tax rate (GAAP)
     32.3 %     38.4 %     (6.1 %)
Effective tax rate (Non-GAAP)
     33.1 %     38.2 %     (5.1 %)
 
                        
Insight North America(a)
                        
Number of shipping days
     63       64     (1  day)
Number of account executives
     1,033       1,071       (4 %)
Average account executive tenure (years)
     4.3       3.8     0.5  years
Percentage of account executives with tenure of:
                        
<1 year
     23 %     24 %     (1 %)
1-2 years
     12 %     16 %     (4 %)
2-3 years
     11 %     9 %     2 %
>3 years
     54 %     51 %     3 %
Net sales per average account executive
   $ 652,776     $ 658,159       (1 %)
Gross profit per average account executive
   $ 79,488     $ 73,572       8 %
Direct shipments %
     57 %     68 %     (13 %) (c)
Electronic net sales %
     23 %     n/a  (d)     n/a  (d)
Electronic transactions %
     33 %     n/a  (d)     n/a  (d)
Product mix (as a % of net product sales):
                        
Notebooks and PDA’s
     17 %     18 %     (2 %) (e)
Desktops and servers
     15 %     16 %     (4 %) (e)
Software
     12 %     11 %     6 % (e)
Storage devices
     8 %     8 %     (5 %) (e)
Networking and connectivity
     14 %     13 %     10 % (e)
Printers
     7 %     7 %     5 % (e)
Monitors and video
     6 %     7 %     (19 %) (e)
Memory and processors
     6 %     5 %     12 % (e)
Supplies and accessories
     7 %     7 %     (1 %) (e)
Miscellaneous
     8 %     8 %     4 % (e)
 
(a)   Excluding the 23 calendar days of Software Spectrum’s results during the three months ended September 30, 2006.
 
(b)   Excluding inventories not available for sale.
 
(c)   Represents percentage decline in number of direct shipments.
 
(d)   No prior year information is available as we changed our methodology in the first quarter of 2006 for capturing electronic net sales and transactions.
 
(e)   Represents percentage of net sales growth/decline in product category.
This Quarterly Operating Statistics Table does not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 11   November 6, 2006
Insight Enterprises, Inc. and Subsidiaries
Quarterly Operating Statistics Table (continued)
(unaudited)
                         
    Three Months Ended
    September 30,
    2006   2005   Change
Insight UK(a)
                        
Number of shipping days
     64       65     (1  day)
Number of account executives
     291       293       (1 %)
Average account executive tenure (years)
     2.2       2.0     0.2  years
Percentage of account executives with tenure of:
                        
<1 year
     44 %     43 %     1 %
1-2 years
     19 %     23 %     (4 %)
2-3 years
     13 %     12 %     1 %
>3 years
     24 %     22 %     2 %
Net sales per average account executive
   $ 466,742     $ 417,134       12 %
Gross profit per average account executive
   $ 66,878     $ 55,346       21 %
Direct shipments %
     47 %     48 %     (1 %) (b)
Electronic net sales %
     20 %     n/a  (c)     n/a  (c)
Electronic transactions %
     39 %     n/a  (c)     n/a  (c)
Product mix (as a % of net product sales):
                        
Notebooks and PDA’s
     19 %     19 %     3 % (d)
Desktops and servers
     15 %     16 %     (7 %) (d)
Software
     14 %     14 %     3 % (d)
Storage devices
     8 %     8 %     6 % (d)
Networking and connectivity
     9 %     8 %     11 % (d)
Printers
     8 %     8 %     9 % (d)
Monitors and video
     9 %     11 %     (22 %) (d)
Memory and processors
     4 %     4 %     16 % (d)
Supplies and accessories
     8 %     7 %     16 % (d)
Miscellaneous
     6 %     5 %     7 % (d)
 
(a)   Excluding the 23 calendar days of Software Spectrum’s results during the three months ended September 30, 2006.
 
(b)   Represents percentage growth/decline in number of direct shipments.
 
(c)   No prior year information is available as we changed our methodology in the first quarter of 2006 for capturing electronic net sales and transactions.
 
(d)   Represents percentage net sales growth/decline in product category.
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  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 12   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Operating Segment Statement of Earnings Information
(In thousands)
(unaudited)
                                 
    Three Months Ended September 30, 2006  
    Insight             Software        
    North America     Insight UK     Spectrum     Consolidated  
Net sales
   $ 694,390     $ 126,488     $ 97,714     $ 918,592  
Costs of goods sold
     609,835       108,364       84,842       803,041  
 
                        
Gross profit
     84,555       18,124       12,872       115,551  
Operating expenses:
                                
Selling and administrative expenses
     64,559       14,477       10,517       89,553  
Severance and restructuring expenses
     508       221       —       729  
 
                        
Earnings from operations
   $ 19,488     $ 3,426     $ 2,355       25,269  
 
                          
Non-operating income, net
                             (178 )
 
                              
Earnings from continuing operations before income taxes
                             25,447  
Income tax expense
                             8,207  
 
                              
Net earnings from continuing operations
                             17,240  
Net earnings from discontinued operation
                             —  
 
                              
Net earnings
                           $ 17,240  
 
                              
 
                                
Total assets
   $ 1,478,057     $ 117,547     $ 657,914     $ 1,514,106 *
 
                        
 
*   Consolidated total assets include corporate assets and intercompany eliminations for a net reduction of $739,412.
                                 
    Nine Months Ended September 30, 2006  
    Insight             Software        
    North America     Insight UK     Spectrum     Consolidated  
Net sales
   $ 2,085,129     $ 361,756     $ 97,714     $ 2,544,599  
Costs of goods sold
     1,832,290       308,611       84,842       2,225,743  
 
                        
Gross profit
     252,839       53,145       12,872       318,856  
Operating expenses:
                                
Selling and administrative expenses
     195,265       43,034       10,517       248,816  
Severance and restructuring expenses
     508       221       —       729  
 
                        
Earnings from operations
   $ 57,066     $ 9,890     $ 2,355       69,311  
 
                          
Non-operating income, net
                             (773 )
 
                              
Earnings from continuing operations before income taxes
                             70,084  
Income tax expense
                             23,980  
 
                              
Net earnings from continuing operations
                             46,104  
Net earnings from discontinued operation
                             11,237  
 
                              
Net earnings
                           $ 57,341  
 
                              
 
                                
Total assets
   $ 1,478,057     $ 117,547     $ 657,914     $ 1,514,106 *
 
                        
 
*   Consolidated total assets include corporate assets and intercompany eliminations for a net reduction of $739,412.
This Operating Segment Statement of Earnings Information does not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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Insight Q3 2006 Results, Page 13   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Operating Segment Statement of Earnings Information
(In thousands)
(unaudited)
                         
    Three Months Ended September 30, 2005  
    Insight              
    North America     Insight UK     Consolidated  
Net sales
   $ 699,294     $ 124,305     $ 823,599  
Costs of goods sold
     621,124       107,813       728,937  
 
                  
Gross profit
     78,170       16,492       94,662  
Operating expenses:
                        
Selling and administrative expenses
     58,672       12,834       71,506  
Severance and restructuring expenses
     —       378       378  
 
                  
Earnings from operations
   $ 19,498     $ 3,280       22,778  
 
                    
Non-operating income, net
                     (194 )
 
                      
Earnings from continuing operations before income taxes
                     22,972  
Income tax expense
                     8,814  
 
                      
Net earnings from continuing operations
                     14,158  
Net earnings from discontinued operation
                     1,224  
 
                      
Net earnings
                   $ 15,382  
 
                      
 
                        
Total assets
   $ 1,028,530     $ 153,783     $ 876,755 *
 
                  
 
*   Consolidated total assets include assets of a discontinued operation, corporate assets and intercompany eliminations for a net reduction of $305,558.
                         
    Nine Months Ended September 30, 2005  
    Insight              
    North America     Insight UK     Consolidated  
Net sales
   $ 2,011,031     $ 360,602     $ 2,371,633  
Costs of goods sold
     1,778,694       312,297       2,090,991  
 
                  
Gross profit
     232,337       48,305       280,642  
Operating expenses:
                        
Selling and administrative expenses
     175,790       38,531       214,321  
Severance and restructuring expenses
     3,650       792       4,442  
Reductions in liabilities assumed in a previous acquisition
     —       (664 )     (664 )
 
                  
Earnings from operations
   $ 52,897     $ 9,646       62,543  
 
                    
Non-operating income, net
                     (860 )
 
                      
Earnings from continuing operations before income taxes
                     63,403  
Income tax expense
                     24,447  
 
                      
Net earnings from continuing operations
                     38,956  
Net earnings from discontinued operation
                     4,623  
 
                      
Net earnings
                   $ 43,579  
 
                      
 
                        
Total assets
   $ 1,028,530     $ 153,783     $ 876,755 *
 
                  
 
*   Consolidated total assets include assets of a discontinued operation, corporate assets and intercompany eliminations for a net reduction of $305,558.
This Operating Segment Statement of Earnings Information does not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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Insight Q3 2006 Results, Page 14   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Reconciliation of Consolidated GAAP to Non-GAAP Financial Measures
(In thousands, except per share data and percentages)
(unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Selling and Administrative Expenses:
                                
GAAP
   $ 89,553     $ 71,506     $ 248,826     $ 214,321  
Settlement expense
     —       —       (1,000 )     —  
Stock-based compensation expense
     (2,830 )     (209 )     (9,084 )     (498 )
 
                        
Non-GAAP
   $ 86,723     $ 71,297     $ 238,742     $ 213,823  
 
                        
Non-GAAP selling and administrative expenses as a percentage of net sales
     9.4 %     8.7 %     9.4 %     9.0 %
 
                                
Earnings from Operations:
                                
GAAP
   $ 25,269     $ 22,778     $ 69,311     $ 62,543  
Settlement expense
     —       —       1,000       —  
Stock-based compensation expense
     2,830       209       9,084       498  
Severance and restructuring expenses
     729       378       729       4,442  
Reductions in liabilities assumed in a previous acquisition
     —       —       —       (664 )
 
                        
Non-GAAP
   $ 28,828     $ 23,366     $ 80,124     $ 66,819  
 
                        
Non-GAAP earnings from operations as a percentage of net sales (“Operating Margin”)
     3.1 %     2.8 %     3.1 %     2.8 %
 
                                
Effective Tax Rate:
                                
GAAP
     32.3 %     38.4 %     34.2 %     38.6 %
Tax rate effect of adjustments
     0.8 %     (0.2 %)     0.5 %     (0.2 %)
 
                        
Non-GAAP
     33.1 %     38.2 %     34.7 %     38.4 %
 
                        
 
                                
Net Earnings from Continuing Operations:
                                
GAAP
   $ 17,240     $ 14,158     $ 46,104     $ 38,956  
Settlement expense, net of tax
     —       —       605       —  
Stock-based compensation expense, net of tax
     1,722       130       5,671       303  
Severance and restructuring expenses, net of tax
     454       260       454       2,751  
Reductions in liabilities assumed in a previous acquisition, net of tax
     —       —       —       (306 )
 
                        
Non-GAAP
   $ 19,416     $ 14,548     $ 52,834     $ 41,704  
 
                        
This Reconciliation of Consolidated GAAP to Non-GAAP Financial Measures does not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
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Insight Q3 2006 Results, Page 15   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Reconciliation of Consolidated GAAP to Non-GAAP Financial Measures
(In thousands, except per share data and percentages)
(unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Net Earnings from Discontinued Operation:
                                
GAAP
   $ —     $ 1,224     $ 11,237     $ 4,623  
Stock-based compensation expense, net of tax
     —       5       628       8  
Severance and restructuring expenses, net of tax
     —       621       —       621  
Gain on sale of discontinued operation, net of tax
     —       —       (9,144 )     —  
 
                        
Non-GAAP
   $ —     $ 1,850     $ 2,721     $ 5,252  
 
                        
 
                                
Net Earnings:
                                
GAAP
   $ 17,240     $ 15,382     $ 57,341     $ 43,579  
Settlement expense, net of tax
     —       —       605       —  
Stock-based compensation expense, net of tax
     1,722       135       6,299       311  
Severance and restructuring expenses, net of tax
     454       881       454       3,372  
Reductions in liabilities assumed in a previous acquisition, net of tax
     —       —       —       (306 )
Gain on sale of discontinued operation, net of tax
     —       —       (9,144 )     —  
 
                        
Non-GAAP
   $ 19,416     $ 16,398     $ 55,555     $ 46,956  
 
                        
 
                                
Diluted Earnings Per Share:
                                
GAAP
   $ 0.35     $ 0.31     $ 1.18     $ 0.88  
Settlement expense, net of tax
     —       —       0.01       —  
Stock-based compensation expense, net of tax
     0.04       0.01       0.13       —  
Severance and restructuring expenses, net of tax
     0.01       0.02       0.01       0.07  
Reductions in liabilities assumed in a previous acquisition, net of tax
     —       —       —       —  
Gain on sale of discontinued operation, net of tax
     —       —       (0.19 )     —  
 
                        
Non-GAAP
   $ 0.40     $ 0.34     $ 1.14     $ 0.95  
 
                        
This Reconciliation of Consolidated GAAP to Non-GAAP Financial Measures does not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
- MORE -
                 
Insight Enterprises, Inc.
  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 16   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Reconciliation of Operating Segment GAAP to Non-GAAP Financial Measures
(In thousands, except percentages)
(unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Insight North America:
                                
Selling and Administrative Expenses:
                                
GAAP
   $ 64,559     $ 58,672     $ 195,265     $ 175,790  
Settlement expense
     —       —       (1,000 )     —  
Stock-based compensation expense
     (2,528 )     (209 )     (8,214 )     (498 )
 
                        
Non-GAAP
   $ 62,031     $ 58,463     $ 186,051     $ 175,292  
 
                        
Non-GAAP selling and administrative expenses as a percentage of net sales
     8.9 %     8.4 %     8.9 %     8.7 %
 
                                
Earnings from Operations:
                                
GAAP
   $ 19,488     $ 19,498     $ 57,066     $ 52,897  
Settlement expense
     —       —       1,000       —  
Stock-based compensation expense
     2,528       209       8,214       498  
Severance and restructuring expense
     508       —       508       3,650  
 
                        
Non-GAAP
   $ 22,524     $ 19,707     $ 66,788     $ 57,045  
 
                        
Non-GAAP earnings from operations as a percentage of net sales (“Operating Margin”)
     3.2 %     2.8 %     3.2 %     2.8 %
 
                                
Insight UK:
                                
Selling and Administrative Expenses:
                                
GAAP
   $ 14,477     $ 12,834     $ 43,034     $ 38,531  
Stock-based compensation expense
     (249 )     —       (817 )     —  
 
                        
Non-GAAP
   $ 14,228     $ 12,834     $ 42,217     $ 38,531  
 
                        
Non-GAAP selling and administrative expenses as a percentage of net sales
     11.2 %     10.3 %     11.7 %     10.7 %
 
                                
Earnings from Operations:
                                
GAAP
   $ 3,426     $ 3,280     $ 9,890     $ 9,646  
Stock-based compensation expense
     249       —       817       —  
Severance and restructuring expense
     221       378       221       792  
Reductions in liabilities assumed in a previous acquisition
     —       —       —       (664 )
 
                        
Non-GAAP
   $ 3,896     $ 3,658     $ 10,928     $ 9,774  
 
                        
Non-GAAP earnings from operations as a percentage of net sales (“Operating Margin”)
     3.1 %     2.9 %     3.0 %     2.7 %
This Reconciliation of Operating Segment GAAP to Non-GAAP Financial Measures does not include the effect of any unrecorded non-cash equity-based compensation charges that may be required as a result of the stock option review and related SEC inquiry.
- MORE -
                 
Insight Enterprises, Inc.
  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958

 

 

     
Insight Q3 2006 Results, Page 17   November 6, 2006
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
Reconciliation of Operating Segment GAAP to Non-GAAP Financial Measures
(In thousands, except percentages)
(unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2006     2005     2006     2005  
Software Spectrum:
                                
Selling and Administrative Expenses:
                                
GAAP
   $ 10,517     $       $ 10,517     $    
Stock-based compensation expense
     (53 )     —       (53 )     —  
 
                        
Non-GAAP
   $ 10,464     $ —     $ 10,464     $ —  
 
                        
Non-GAAP selling and administrative expenses as a percentage of net sales
     10.7 %     —       10.7 %     —  
 
                                
Earnings from Operations:
                                
GAAP
   $ 2,355     $ —     $ 2,355     $ —  
Stock-based compensation expense
     53       —       53       —  
Reductions in liabilities assumed in a previous acquisition
     —       —       —       —  
 
                        
Non-GAAP
   $ 2,408     $ —     $ 2,408     $ —  
 
                        
Non-GAAP earnings from operations as a percentage of net sales (“Operating Margin”)
     2.5 %     —       2.5 %     —  
###
                 
Insight Enterprises, Inc.
  1305 West Auto Drive   Tempe, Arizona 85284   480-902-1001   FAX 480-760-8958