Edgar Filing: INSIGHT ENTERPRISES INC

Form 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


þ		Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2008


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number: 0-25092

INSIGHT ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


Delaware		86-0766246
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		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		Name of each exchange on which registered

Common stock, par value $0.01		NASDAQ

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing price of the 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


	Page

PART I

ITEM 1. Business		4

ITEM 1A. Risk Factors		12

ITEM 1B. Unresolved Staff Comments		19

ITEM 2. Properties		19

ITEM 3. Legal Proceedings		20

ITEM 4. Submission of Matters to a Vote of Security Holders		20

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		21

ITEM 6. Selected Financial Data		23

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk		51

ITEM 8. Financial Statements and Supplementary Data		53

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		110

ITEM 9A. Controls and Procedures		110

ITEM 9B. Other Information		112

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance		112

ITEM 11. Executive Compensation		115

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		136

ITEM 13. Certain Relationships and Related Transactions, and Director Independence		140

ITEM 14. Principal Accountant Fees and Services		140

PART IV

ITEM 15. Exhibits and Financial Statement Schedules		141

SIGNATURES		142

EXHIBITS TO FORM 10-K		143

Exhibit 21
Exhibit 23.1
Exhibit 24.1
Exhibit 24.2
Exhibit 24.3
Exhibit 24.4
Exhibit 24.5
Exhibit 24.6
Exhibit 24.7
Exhibit 24.8
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

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:

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.

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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.”

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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general economic conditions, including concerns regarding a global recession and credit constraints;

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changes in the information technology industry and/or the economic environment;

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our reliance on partners for product availability, marketing funds, purchasing incentives and competitive products to sell;

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the informal inquiry from the Division of Enforcement of the SEC and stockholder litigation related to the restatement of our consolidated financial statements;

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our ability to maintain compliance with Nasdaq’s requirements for continued listing;

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our ability to collect our accounts receivable;

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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;

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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;

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actions of our competitors, including manufacturers and publishers of products we sell;

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the integration and operation of acquired businesses, including our ability to achieve expected benefits of the acquisitions;

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seasonal changes in demand for sales of software licenses;

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the risks associated with international operations;

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exposure to changes in, or interpretations of, tax rules and regulations;

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exposure to currency exchange risks and volatility in the U.S. dollar, Canadian dollar, the Euro and the British Pound Sterling exchange rates;

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our dependence on key personnel;

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failure to comply with the terms and conditions of our public sector contracts;

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rapid changes in product standards; and

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intellectual property infringement claims and challenges to our registered trademarks and trade names.

Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the 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.

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:


		% of 2008
		Consolidated Net
Operating Segment*	Geography	Sales
North America	United States and Canada		70	%

EMEA	Europe, Middle East and Africa		27	%

APAC	Asia-Pacific		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.

INSIGHT ENTERPRISES, INC.

To enable our strategic vision, Insight is focused on seven strategic initiatives:

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Continue to build “VAR-like” solutions capabilities;

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Leverage existing client relationships;

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Extend our reach into new client segments;

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Expand our global capabilities;

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Align tactics to ensure we deliver value to partners;

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Drive operational efficiency and improve our return on invested capital (“ROIC”); and

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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:

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Networking and Communication;

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High Performance Systems and Storage; and

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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.

INSIGHT ENTERPRISES, INC.

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.- 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:

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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.

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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.

INSIGHT ENTERPRISES, INC.

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 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:

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Networking and Communications;

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High Performance Systems and Storage;

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Enterprise Software; and

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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.

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:

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Network strategy and infrastructure;

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Unified communications;

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Security; and

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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:

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provide advice on hardware, software licensing and financing programs;

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streamline procurement;

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plan and manage the rollout;

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assist with developing standards and implementing best practices;

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pre-configure systems, load custom software images and tag assets;

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provide logistics planning and drop-ship to locations;

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provide on-site implementation;

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offer help desk support for users; and

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provide IT maintenance services and disposal of equipment at end-of-life.

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.

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:

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product manufacturers, such as Dell, HP, IBM and Lenovo;

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software publishers, such as IBM and Microsoft;

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direct marketers, such as CDW Corporation (North America) and Systemax (Europe);

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software resellers, such as SoftChoice, PC Ware and Software House International;

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systems integrators, such as Compucom Systems, Inc.;

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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;

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national and global service providers, such as IBM Global Services and HP/EDS; and

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e-tailers, such as 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:

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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.

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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.

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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:

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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.

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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.

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:


	North
	America		EMEA		APAC		Consolidated
Management, support services and administration		1,705		573		69		2,347
Sales account executives		1,285		680		96		2,061
Distribution		129		44		—		173

Total		3,119		1,297		165		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.

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			58

Tenure:
Less than one year		23	%		27	%		30	%		31	%		34	%		35	%
One to two years		15	%		11	%		21	%		19	%		19	%		21	%
Two to three years		8	%		11	%		14	%		16	%		17	%		22	%
More than three years		54	%		51	%		35	%		34	%		30	%		22	%

		100	%		100	%		100	%		100	%		100	%		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:

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software sales are seasonally significantly higher in our second and fourth quarters, particularly the second quarter;

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business clients, particularly larger enterprise businesses in the U.S., tend to spend less in the first quarter and more in our fourth quarter as they utilize their remaining capital budget authorizations;

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sales to the federal government in the U.S. are often stronger in our third quarter; and

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sales to public sector clients in the United Kingdom are often stronger in our first quarter.

These trends create overall seasonality in our consolidated results such that sales and profitability are expected to be higher in the second and fourth quarters of the year. For a discussion of risks associated with seasonality see “Risk Factors — 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 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.

INSIGHT ENTERPRISES, INC.

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.

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 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.

INSIGHT ENTERPRISES, INC.

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:

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$72.0 million under our senior revolving credit facility;

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$150.0 million under our accounts receivable securitization financing facility; and

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$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 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.

INSIGHT ENTERPRISES, INC.

The IT hardware, software and services industry is intensely competitive, and actions of our competitors, including manufacturers and publishers of products we sell, can negatively affect our business. Competition in the industry is based on price, product availability, speed of delivery, credit availability, quality and breadth of product lines, and, increasingly, on the ability to tailor specific solutions to client needs. 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.

INSIGHT ENTERPRISES, INC.

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 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

•

resolutions of issues arising from tax examinations and any related interest or penalties.

INSIGHT ENTERPRISES, INC.

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.

INSIGHT ENTERPRISES, INC.

We may not be able to protect our intellectual property adequately, and we may be subject to intellectual property infringement claims. To protect our intellectual property, we rely on copyright and trademark laws, unpatented proprietary know-how, and trade secrets and patents, as well as confidentiality, invention assignment, non-solicitation and non-competition agreements. There can be no assurance that these measures will afford us sufficient protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information without authorization or otherwise infringe on our intellectual property rights. The disclosure of our trade secrets could impair our competitive position and could have a material adverse effect on our business relationships, results of operations, financial condition and future growth prospects. In addition, our registered trademarks and 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.

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	Location	Primary Activities	Own or Lease
Headquarters	Tempe, Arizona, USA	Executive Offices and Administration	Own

North America	Tempe, Arizona, USA	Sales and Administration	Own
	Tempe, Arizona, USA	Sales and Administration	Lease
	Bloomingdale, Illinois, USA	Sales and Administration	Own
	Hanover Park, Illinois, USA	Services and Distribution	Lease
	Plano, Texas, USA	Sales and Administration	Lease
	Liberty Lake, Washington, USA	Sales and Administration	Lease
	Winnipeg, Manitoba, Canada	Sales and Administration	Lease
	Montreal, Quebec, Canada	Sales and Administration	Own
	Mississauga, Ontario, Canada	Sales and Administration	Lease
	Montreal, Quebec, Canada	Distribution	Lease

EMEA	Sheffield, United Kingdom	Sales and Administration	Own
	Sheffield, United Kingdom	Distribution	Lease
	Uxbridge, United Kingdom	Sales and Administration	Lease
	Munich, Germany	Sales and Administration	Lease
	Paris, France	Sales and Administration	Lease

APAC	Sydney, New South Wales, Australia	Sales and Administration	Lease

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 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.

INSIGHT ENTERPRISES, INC.

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.

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.

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
	High Price		Low Price
Year 2008
Fourth Quarter	$	13.38	$	3.40
Third Quarter		17.11		10.70
Second Quarter		18.20		11.00
First Quarter		19.00		15.49
Year 2007
Fourth Quarter	$	27.78	$	17.47
Third Quarter		26.50		22.24
Second Quarter		22.65		17.98
First Quarter		20.33		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.

INSIGHT ENTERPRISES, INC.


	Jan. 1,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,
	2004		2004		2005		2006		2007		2008
Insight Enterprises, Inc. Common Stock (NSIT)		100.00		108.98		104.14		100.21		96.87		36.64

Nasdaq Stock Market U.S. Companies (Market Index)		100.00		108.84		111.16		122.11		132.42		63.80

Nasdaq Retail Trade Stocks (Peer Index)		100.00		126.84		128.04		139.83		127.23		88.82

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.


	Years Ended December 31,
	2008			2007			2006			2005			2004
				As Restated			As Restated			As Restated			As Restated
				(4)			(4)			(5)			(5)
	(in thousands, except per share data)
Consolidated Statements of Operations Data ⁽¹⁾
Net sales	$	4,825,489		$	4,805,474		$	3,599,937		$	2,920,135		$	2,798,545
Costs of goods sold		4,161,906			4,146,848			3,133,751			2,561,519			2,458,828

Gross profit		663,583			658,626			466,186			358,616			339,717
Operating expenses:
Selling and administrative expenses		561,987			542,322			376,722			281,934			277,129
Goodwill impairment		397,247			—			—			—			—
Severance and restructuring expenses		8,595			2,595			729			11,962			2,435
Reductions in liabilities assumed in a previous acquisition		—			—			—			(664	)		(3,617	)

(Loss) earnings from operations		(304,246	)		113,709			88,735			65,384			63,770
Non-operating (income) expense:
Interest income		(2,387	)		(2,078	)		(4,355	)		(3,394	)		(1,849	)
Interest expense		13,479			12,852			5,985			1,850			1,989
Net foreign currency exchange loss (gain)		9,629			(3,887	)		(1,135	)		72			262
Other expense, net		1,107			1,531			901			782			1,190

(Loss) earnings from continuing operations before income taxes		(326,074	)		105,291			87,339			66,074			62,178
Income tax (benefit) expense		(86,347	)		40,686			30,882			26,009			16,362

Net (loss) earnings from continuing operations		(239,727	)		64,605			56,457			40,065			45,816
Earnings from discontinued operations, net of taxes ⁽²⁾		—			4,151			13,084			8,975			32,328

Net (loss) earnings before cumulative effect of change in accounting principle		(239,727	)		68,756			69,541			49,040			78,144
Cumulative effect of change in accounting principle, net of taxes ⁽³⁾		—			—			—			(649	)		—

Net (loss) earnings	$	(239,727	)	$	68,756		$	69,541		$	48,391		$	78,144

INSIGHT ENTERPRISES, INC.


	Years Ended December 31,
	2008			2007		2006		2005			2004
				As Restated		As Restated		As Restated			As Restated
				(4)		(4)		(5)			(5)
	(in thousands, except per share data)
Consolidated Statements of Operations Data ⁽¹⁾
Net (loss) earnings per share — Basic:
Net (loss) earnings from continuing operations	$	(5.15	)	$	1.32	$	1.17	$	0.83		$	0.95
Net earnings from discontinued operations ⁽²⁾		—			0.08		0.27		0.18			0.67
Cumulative effect of change in accounting principle ⁽³⁾		—			—		—		(0.01	)		—

Net (loss) earnings per share	$	(5.15	)	$	1.40	$	1.44	$	1.00		$	1.62


Net (loss) earnings per share — Diluted:
Net (loss) earnings from continuing operations	$	(5.15	)	$	1.29	$	1.15	$	0.82		$	0.92
Net earnings from discontinued operations ⁽²⁾		—			0.08		0.27		0.18			0.67
Cumulative effect of change in accounting principle ⁽³⁾		—			—		—		(0.01	)		—

Net (loss) earnings per share	$	(5.15	)	$	1.37	$	1.42	$	0.99		$	1.59


Shares used in per share calculations:
Basic		46,573			49,055		48,373		48,553			48,389

Diluted		46,573			50,120		49,006		49,057			49,220


	December 31,
	2008		2007		2006		2005		2004
			As Restated		As Restated		As Restated		As Restated
			(4)		(5)		(5)		(5)
	(in thousands)
Consolidated Balance Sheet Data
Working capital	$	317,467	$	417,574	$	382,983	$	346,069	$	355,385
Total assets		1,607,640		1,889,100		1,800,050		933,331		895,162
Short-term debt		—		15,000		30,000		66,309		25,000
Long-term debt		228,000		187,250		224,250		—		—
Stockholders’ equity		421,968		741,738		663,629		547,729		548,922
Cash dividends declared per common share		—		—		—		—		—


⁽¹⁾		Our consolidated statements of operations data above includes results of the acquisitions from their dates of acquisition: MINX from July 10, 2008; Calence from April 1, 2008; and Software Spectrum from September 7, 2006. 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.

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
	As Reported			Adjustments			As Restated			As Reported			Adjustments			As Restated
Consolidated Statements of Operations Data
Net sales	$	2,931,209		$	(11,074	)	$	2,920,135		$	2,780,484		$	18,061		$	2,798,545
Costs of goods sold		2,566,100			(4,581	)		2,561,519			2,437,885			20,943			2,458,828

Gross profit		365,109			(6,493	)		358,616			342,599			(2,882	)		339,717
Operating expenses:
Selling and administrative expenses		279,161			2,773			281,934			276,203			926			277,129
Severance and restructuring Expenses		11,962			—			11,962			2,435			—			2,435
Reductions in liabilities assumed in a previous acquisition		(664	)		—			(664	)		(3,617	)		—			(3,617	)

Earnings (loss) from operations		74,650			(9,266	)		65,384			67,578			(3,808	)		63,770
Non-operating (income) expense:
Interest income		(3,394	)		—			(3,394	)		(1,849	)		—			(1,849	)
Interest expense		1,914			(64	)		1,850			2,011			(22	)		1,989
Net foreign currency exchange (gain) loss		72			—			72			262			—			262
Other expense, net		782			—			782			1,190			—			1,190

Earnings (loss) from continuing operations before income taxes		75,276			(9,202	)		66,074			65,964			(3,786	)		62,178
Income tax expense		29,591			(3,582	)		26,009			17,835			(1,473	)		16,362

Earnings (loss) from continuing operations		45,685			(5,620	)		40,065			48,129			(2,313	)		45,816
Earnings from discontinued operations, net of taxes		8,975			—			8,975			32,328			—			32,328

Net earnings before cumulative change in accounting principle		54,660			(5,620	)		49,040			80,457			(2,313	)		78,144
Cumulative effect of changes in accounting principle, net of taxes of $330 in 2005		(649	)		—			(649	)		—			—			—

Net earnings (loss)	$	54,011		$	(5,620	)	$	48,391		$	80,457		$	(2,313	)	$	78,144


Net earnings per share — Basic:
Net earnings (loss) from continuing operations	$	0.94		$	(0.11	)	$	0.83		$	0.99		$	(0.04	)	$	0.95
Net earnings from discontinued operation		0.18			—			0.18			0.67			—			0.67
Cumulative effect of changes in accounting principle		(0.01	)		—			(0.01	)		—			—			—

Net earnings per share	$	1.11		$	(0.11	)	$	1.00		$	1.66		$	(0.04	)	$	1.62


Net earnings per share — Diluted:
Net earnings (loss) from continuing operations	$	0.93		$	(0.11	)	$	0.82		$	0.96		$	(0.04	)	$	0.92
Net earnings from discontinued operation		0.18			—			0.18			0.67			—			0.67
Cumulative effect of changes in accounting principle		(0.01	)		—			(0.01	)		—			—			—

Net earnings per share	$	1.10		$	(0.11	)	$	0.99		$	1.63		$	(0.04	)	$	1.59


Shares used in per share calculations:
Basic		48,553			—			48,553			48,389			—			48,389

Diluted		49,057			—			49,057			49,220			—			49,220

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
Consolidated Balance Sheet Data
Working capital	$	413,085	$	(30,102	)	$	382,983	$	367,184	$	(21,115	)	$	346,069
Total assets		1,780,265		19,785			1,800,050		922,340		10,991			933,331
Short-term debt		30,000		—			30,000		66,309		—			66,309
Long-term debt		224,250		—			224,250		—		—			—
Stockholders’ equity		690,350		(26,721	)		663,629		569,913		(22,184	)		547,729


	December 31, 2004
	As Reported		Adjustments			As Restated
Consolidated Balance Sheet Data
Working capital	$	370,873	$	(15,488	)	$	355,385
Total assets		887,641		7,521			895,162
Short-term debt		25,000		—			25,000
Long-term debt		—		—			—
Stockholders’ equity		565,517		(16,595	)		548,922

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.

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:

•

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.

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.

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,			Year Ended December 31,
	2008			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		6,347			10,161			9,458			9,128			4,847
F.O.B. destination adjustments		(8,766	)		4,603			6,661			(10,939	)		17,021
Reclassification of partner funding		(4,554	)		(7,259	)		(4,967	)		(2,770	)		(925	)

Total adjustments to costs of goods sold		(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		(1,243	)		2,543			2,363			—			—
Reclassification of partner funding		4,554			7,259			4,967			2,770			925
Amortization of capitalized interest		113			129			3			3			1
Goodwill impairment		(181	)		—			—			—			—

Total adjustments to operating expenses		3,243			9,931			7,333			2,773			926


Net decrease in earnings (loss) from operations		(5,558	)		(12,393	)		(11,804	)		(9,266	)		(3,808	)


Decrease in non-operating expenses:
Capitalized interest		(109	)		(515	)		(808	)		(64	)		(22	)

Total adjustments to non-operating expenses		(109	)		(515	)		(808	)		(64	)		(22	)


Total adjustments to earnings (loss) from continuing operations before income taxes		(5,449	)		(11,878	)		(10,996	)		(9,202	)		(3,786	)
Income tax benefit		2,187			4,472			3,719			3,582			1,473

Total adjustments to earnings (loss) from continuing operations		(3,262	)		(7,406	)		(7,277	)		(5,620	)		(2,313	)

Decrease in gain on sale of a discontinued operation		—			(2,699	)		—			—			—
Income tax benefit		—			1,066			—			—			—

Total adjustments to earnings from discontinued operations, net of tax		—			(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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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 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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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, 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.

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.

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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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 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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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			2007			2006
				As Restated			As Restated
				(1)			(1)
Net sales		100.0	%		100.0	%		100.0	%
Costs of goods sold		86.2			86.3			87.1

Gross profit		13.8			13.7			12.9
Operating expenses:
Selling and administrative expenses		11.7			11.3			10.5
Goodwill impairment		8.2			—			—
Severance and restructuring expenses		0.2			—			—

(Loss) earnings from operations		(6.3	)		2.4			2.4
Non-operating expense, net		0.5			0.2			—

(Loss) earnings from continuing operations before income taxes		(6.8	)		2.2			2.4
Income tax (benefit) expense		(1.8	)		0.9			0.8

Net (loss) earnings from continuing operations		(5.0	)		1.3			1.6
Earnings from discontinued operations, net of taxes		—			0.1			0.3

Net (loss) earnings		(5.0	%)		1.4	%		1.9	%


(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.

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):


	2008		2007		% Change
			As Restated
			(1)
North America	$	3,362,544	$	3,367,998		—
EMEA		1,309,365		1,329,682		(2	%)
APAC		153,580		107,794		42	%

Consolidated	$	4,825,489	$	4,805,474		—


(1)		See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.

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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

Net sales by category for North America, EMEA and APAC were as follows for the years ended December 31, 2008 and 2007:


	North America						EMEA						APAC
	Years Ended December 31,						Years Ended December 31,						Years Ended December 31,
Sales Mix	2008			2007			2008			2007			2008			2007
				As Restated
				(1)
Network and Connectivity		17	%		11	%		4	%		4	%		—			—
Notebooks and PDAs		9	%		11	%		7	%		8	%		—			—
Servers and Storage		9	%		10	%		6	%		7	%		—			—
Desktops		7	%		7	%		4	%		4	%		—			—
Printers		4	%		5	%		3	%		3	%		—			—
Memory and Processors		3	%		4	%		1	%		2	%		—			—
Supplies and Accessories		3	%		4	%		3	%		3	%		—			—
Monitors and Video		4	%		5	%		3	%		3	%		—			—
Miscellaneous		8	%		8	%		3	%		3	%		—			—

Hardware		64	%		65	%		34	%		37	%		—			—
Software		31	%		32	%		65	%		62	%		100	%		100	%
Services		5	%		3	%		1	%		1	%		—			—

		100	%		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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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):


			% of Net					% of Net
	2008		Sales			2007		Sales
						As Restated
						(1)
North America	$	449,186		13.4	%	$	463,163		13.8	%
EMEA		190,673		14.6	%		174,766		13.1	%
APAC		23,724		15.4	%		20,697		19.2	%

Consolidated	$	663,583		13.8	%	$	658,626		13.7	%


(1)		See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.

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.

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):


			% of Net					% of Net
	2008		Sales			2007		Sales
						As Restated
						(1)
North America	$	391,629		11.6	%	$	383,390		11.4	%
EMEA		152,617		11.7	%		143,611		10.8	%
APAC		17,741		11.6	%		15,321		14.2	%

Consolidated	$	561,987		11.6	%	$	542,322		11.3	%


(1)		See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.

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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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 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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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):


	2007		2006		% Change
	As Restated		As Restated
	(1)		(1)
North America	$	3,367,998	$	2,859,678		18	%
EMEA		1,329,682		710,294		87	%
APAC		107,794		29,965		260	%

Consolidated	$	4,805,474	$	3,599,937		33	%


(1)		See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.

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.

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, 2007 and 2006:


	North America						EMEA						APAC
	Years Ended December 31,						Years Ended December 31,						Years Ended December 31,
Sales Mix	2007			2006			2007			2006			2007			2006
	As Restated			As Restated
	(1)			(1)
Network and Connectivity		11	%		14	%		4	%		6	%		—			—
Notebooks and PDAs		11	%		12	%		8	%		12	%		—			—
Servers and Storage		10	%		12	%		7	%		9	%		—			—
Desktops		7	%		8	%		4	%		6	%		—			—
Printers		5	%		6	%		3	%		6	%		—			—
Memory and Processors		4	%		5	%		2	%		3	%		—			—
Supplies and Accessories		4	%		6	%		3	%		5	%		—			—
Monitors and Video		5	%		5	%		3	%		6	%		—			—
Miscellaneous		8	%		9	%		3	%		5	%		—			—

Hardware		65	%		77	%		37	%		58	%		—			—
Software		32	%		21	%		62	%		41	%		100	%		100	%
Services		3	%		2	%		1	%		1	%		—			—

		100	%		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.

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):


			% of Net					% of Net
	2007		Sales			2006		Sales
	As Restated					As Restated
	(1)					(1)
North America	$	463,163		13.8	%	$	362,481		12.7	%
EMEA		174,766		13.1	%		98,805		13.9	%
APAC		20,697		19.2	%		4,900		16.4	%

Consolidated	$	658,626		13.7	%	$	466,186		12.9	%


(1)		See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.

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.

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, 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):


			% of Net					% of Net
	2007		Sales			2006		Sales
	As Restated					As Restated
	(1)					(1)
North America	$	383,390		11.4	%	$	289,788		10.1	%
EMEA		143,611		10.8	%		83,111		11.7	%
APAC		15,321		14.2	%		3,823		12.8	%

Consolidated	$	542,322		11.3	%	$	376,722		10.5	%


(1)		See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.

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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

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
				As Restated (1)			As Restated (1)
Net cash provided by operating activities	$	145,439		$	100,004		$	83,487
Net cash used in investing activities		(153,813	)		(7,645	)		(309,967	)
Net cash provided by (used in) financing activities		9,211			(100,198	)		242,787
Net cash provided by a discontinued operation		—			—			105
Foreign currency exchange effect on cash flow		(8,380	)		9,860			3,140

(Decrease) increase in cash and cash equivalents		(7,543	)		2,021			19,552
Cash and cash equivalents at beginning of year		56,718			54,697			35,145

Cash and cash equivalents at end of year	$	49,175		$	56,718		$	54,697


(1)		See Note 2 “Restatement of Consolidated Financial Statements” in Part II, Item 8.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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 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:


	2008		2007
			As Restated (1)
Days sales outstanding in ending accounts receivable (“DSOs”)^(a)		78		75
Inventory turns (excluding inventories not available for sale)^(b)		38		39
Days purchases outstanding in ending accounts payable (“DPOs”)^(c)		66		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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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. 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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

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 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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

Contractual Obligations for Continuing Operations

At December 31, 2008, our contractual obligations for continuing operations were as follows (in thousands):


	Payments due by period
			Less than		1-3		3-5		More than 5
	Total		1 Year		Years		Years		Years
Long-Term Debt ^(a)	$	228,000	$	—	$	—	$	228,000	$	—
Inventory Financing Facility ^(b)		79,126		79,126		—		—		—
Operating lease obligations		56,424		14,079		20,405		9,699		12,241
Severance and restructuring obligations ^(c)		6,570		5,286		1,284		—		—
Other contractual obligations ^(d)		67,647		15,188		28,134		18,880		5,445

Total	$	437,767	$	113,679	$	49,823	$	256,579	$	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:

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 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.

INSIGHT ENTERPRISES, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

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.

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.

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.


	Sell		Buy
Foreign Currency	GBP		EURO
Foreign Amount		5,000		7,149
Exchange Rate		0.6770		0.7149
USD Equivalent	$	7,386	$	10,000
Maturity Date	January 7, 2009		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.

INSIGHT ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Item 8. Financial Statements and Supplementary Data


	Page

Reports of Independent Registered Public Accounting Firm		54

Consolidated Balance Sheets — December 31, 2008 and 2007		56

Consolidated Statements of Operations — For each of the years in the three-year period ended December 31, 2008		57

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) — For each of the years in the three-year period ended December 31, 2008		58

Consolidated Statements of Cash Flows — For each of the years in the three-year period ended December 31, 2008		59

Notes to Consolidated Financial Statements		61

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

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.

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

INSIGHT ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)


	December 31,
	2008		2007
			As
			Restated
			(1)
ASSETS
Current assets:
Cash and cash equivalents	$	49,175	$	56,718
Accounts receivable, net		990,026		1,061,179
Inventories		103,130		109,557
Inventories not available for sale		30,507		21,450
Deferred income taxes		40,075		42,252
Other current assets		37,495		38,916

Total current assets		1,250,408		1,330,072
Property and equipment, net		157,334		159,740
Goodwill		—		304,573
Intangible assets, net		93,400		80,922
Deferred income taxes		89,757		3,717
Other assets		16,741		10,076

	$	1,607,640	$	1,889,100


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	720,833	$	686,006
Accrued expenses and other current liabilities		175,769		168,607
Current portion of long-term debt		—		15,000
Deferred revenue		36,339		42,885

Total current liabilities		932,941		912,498

Long-term debt		228,000		187,250
Deferred income taxes		2,291		27,539
Other liabilities		22,440		20,075

		1,185,672		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		456		485
Additional paid-in capital		371,664		391,380
Retained earnings		40,290		302,113
Accumulated other comprehensive income — foreign currency translation Adjustments		9,558		47,760

Total stockholders’ equity		421,968		741,738

	$	1,607,640	$	1,889,100


(1)		See Note 2 “Restatement of Consolidated Financial Statements.”

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Years Ended December 31,
	2008			2007			2006
				As			As
				Restated			Restated
				(1)			(1)
Net sales	$	4,825,489		$	4,805,474		$	3,599,937
Costs of goods sold		4,161,906			4,146,848			3,133,751

Gross profit		663,583			658,626			466,186
Operating expenses:
Selling and administrative expenses		561,987			542,322			376,722
Goodwill impairment		397,247			—			—
Severance and restructuring expenses		8,595			2,595			729

(Loss) earnings from operations		(304,246	)		113,709			88,735
Non-operating (income) expense:
Interest income		(2,387	)		(2,078	)		(4,355	)
Interest expense		13,479			12,852			5,985
Net foreign currency exchange loss (gain)		9,629			(3,887	)		(1,135	)
Other expense, net		1,107			1,531			901

(Loss) earnings from continuing operations before income taxes		(326,074	)		105,291			87,339
Income tax (benefit) expense		(86,347	)		40,686			30,882

Net (loss) earnings from continuing operations		(239,727	)		64,605			56,457
Earnings from discontinued operations, net of taxes of $1,719 and $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	$	(5.15	)	$	1.32		$	1.17
Net earnings from discontinued operations		—			0.08			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	$	(5.15	)	$	1.29		$	1.15
Net earnings from discontinued operations		—			0.08			0.27

Net (loss) earnings per share	$	(5.15	)	$	1.37		$	1.42


Shares used in per share calculations:
Basic		46,573			49,055			48,373

Diluted		46,573			50,120			49,006


(1)		See Note 2 “Restatement of Consolidated Financial Statements.”

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME (LOSS)

(in thousands)


																Accumulated
																Other						Total
	Common Stock						Treasury Stock						Additional Paid-in			Comprehensive			Retained			Stockholders’
	Shares			Par Value			Shares			Par Value			Capital			Income			Earnings			Equity
Balances at December 31, 2005—As Reported		47,736		$	477			—		$	—		$	334,404		$	14,186		$	220,846		$	569,913
Cumulative effect of prior period adjustments		—			—			—			—			—			28			(22,212	)		(22,184	)

Balances at December 31, 2005—As Restated (1)		47,736			477			—			—			334,404			14,214			198,634			547,729
Issuance of common stock under employee stock plans		1,132			12			—			—			14,822			—			—			14,834
Stock-based compensation expense		—			—			—			—			16,055			—			—			16,055
Tax benefit from employee gains on stock-based compensation		—			—			—			—			882			—			—			882
Comprehensive income:
Foreign currency translation adjustment, net of tax		—			—			—			—			—			14,588			—			14,588
Net earnings		—			—			—			—			—			—			69,541			69,541

Total comprehensive income																							84,129

Balances at December 31, 2006—As Restated (1)		48,868			489			—			—			366,163			28,802			268,175			663,629
Issuance of common stock under employee stock plans		1,546			15			—			—			24,506			—			—			24,521
Stock-based compensation expense		—			—			—			—			14,083			—			—			14,083
Tax benefit from employee gains on stock-based compensation		—			—			—			—			1,791			—			—			1,791
Repurchase of treasury stock		—			—			(1,956	)		(50,000	)		—			—			—			(50,000	)
Retirement of treasury stock		(1,956	)		(19	)		1,956			50,000			(15,163	)		—			(34,818	)		—
Comprehensive income:
Foreign currency translation adjustment, net of tax		—			—			—			—			—			18,958			—			18,958
Net earnings		—			—			—			—			—			—			68,756			68,756

Total comprehensive income																							87,714

Balances at December 31, 2007—As Restated (1)		48,458			485			—			—			391,380			47,760			302,113			741,738
Issuance of common stock under employee stock plans, net of shares withheld for payroll taxes		631			6			—			—			2,905			—			—			2,911
Stock-based compensation expense		—			—			—			—			7,985			—			—			7,985
Tax shortfall from stock-based compensation		—			—			—			—			(2,737	)		—			—			(2,737	)
Repurchase of treasury stock		—			—			(3,494	)		(50,000	)		—			—			—			(50,000	)
Retirement of treasury stock		(3,494	)		(35	)		3,494			50,000			(27,869	)		—			(22,096	)		—
Comprehensive loss:
Foreign currency translation adjustment, net of tax		—			—			—			—			—			(38,202	)		—			(38,202	)
Net loss		—			—			—			—			—			—			(239,727	)		(239,727	)

Total comprehensive loss																							(277,929	)

Balances at December 31, 2008		45,595		$	456			—		$	—		$	371,664		$	9,558		$	40,290		$	421,968


(1)		See Note 2 “Restatement of Consolidated Financial Statements.”

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Years Ended December 31,
	2008			2007			2006
				As			As
				Restated			Restated
				(1)			(1)
Cash flows from operating activities:
Net (loss) earnings from continuing operations	$	(239,727	)	$	64,605		$	56,457
Plus: net earnings from discontinued operations		—			4,151			13,084

Net (loss) earnings		(239,727	)		68,756			69,541
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Goodwill impairment		397,247			—			—
Depreciation and amortization		41,239			34,663			25,375
Provision for losses on accounts receivable		3,452			2,646			3,033
Write-downs of inventories		7,614			6,900			8,442
Non-cash stock-based compensation		7,985			14,083			16,094
Gain on sale of discontinued operations		—			(8,287	)		(14,872	)
Excess tax benefit from employee gains on stock-based compensation		(111	)		(497	)		(1,123	)
Deferred income taxes		(108,088	)		(4,224	)		(582	)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable		53,797			(69,586	)		(297,294	)
(Increase) decrease in inventories		(11,901	)		326			27,948
Decrease in other current assets		6,787			4,159			10,152
Decrease (increase) in other assets		9,085			(454	)		(8,370	)
(Decrease) increase in accounts payable		(27,941	)		53,801			226,126
(Decrease) increase in deferred revenue		(3,538	)		1,502			2,514
Increase (decrease) in accrued expenses and other liabilities		9,539			(3,784	)		16,503

Net cash provided by operating activities		145,439			100,004			83,487

Cash flows from investing activities:
Acquisition of Calence, net of cash acquired		(124,671	)		—			—
Acquisition of MINX, net of cash acquired		(1,595	)		—			—
Proceeds from sale of discontinued operations, net of direct expenses		(900	)		28,631			46,250
Purchases of property and equipment		(26,647	)		(36,276	)		(35,050	)
Acquisition of Software Spectrum, net of cash acquired		—			—			(321,167	)

Net cash used in investing activities		(153,813	)		(7,645	)		(309,967	)

Cash flows from financing activities:
Borrowings on senior revolving credit facility		989,606			—			—
Repayments on senior revolving credit facility		(761,606	)		—			—
Borrowings on accounts receivable securitization financing facility		466,874			682,000			291,000
Repayments on accounts receivable securitization financing facility		(612,874	)		(704,000	)		(123,000	)
Borrowings on term loan		—			—			75,000
Repayments on term loan		(56,250	)		(15,000	)		(3,750	)
Net borrowings under inventory financing facility		48,889			—			—
Borrowings on short-term financing facility		—			—			20,000
Repayments on short-term financing facility		—			—			(65,000	)
Net repayments on line of credit		—			(15,000	)		(6,309	)
Repayments on debt assumed in Calence and MINX acquisitions		(10,978	)		—			—
Payment of deferred financing fees		(3,779	)		—			—
Proceeds from sales of common stock under employee stock plans		5,031			24,521			16,462
Excess tax benefit from employee gains on stock-based compensation		111			497			1,123
Payment of payroll taxes on stock-based compensation through shares withheld		(2,120	)		—			—
Repurchases of common stock		(50,000	)		(50,000	)		—
(Decrease) increase in book overdrafts		(3,693	)		(23,216	)		37,261

Net cash provided by (used in) financing activities		9,211			(100,198	)		242,787

Cash flows from discontinued operations:
Net cash used in operating activities		—			—			(8,909	)
Net cash provided by investing activities		—			—			11,710
Net cash used in financing activities		—			—			(2,696	)

Net cash provided by discontinued operations		—			—			105

INSIGHT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)


	Years Ended December 31,
	2008			2007		2006
				As		As
				Restated		Restated
				(1)		(1)
Foreign currency exchange effect on cash flows		(8,380	)		9,860		3,140

(Decrease) increase in cash and cash equivalents		(7,543	)		2,021		19,552
Cash and cash equivalents at beginning of year		56,718			54,697		35,145

Cash and cash equivalents at end of year	$	49,175		$	56,718	$	54,697


Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$	12,328		$	12,834	$	5,814

Cash paid during the year for income taxes	$	34,420		$	39,622	$	40,820


(1)		See Note 2 “Restatement of Consolidated Financial Statements.”

See accompanying notes to consolidated financial statements.

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		Geography
North America		United States and Canada
EMEA		Europe, Middle East and Africa
APAC		Asia-Pacific

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.

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:


		Estimated Economic Life
Leasehold improvements		Shorter of underlying lease term or asset life
Furniture and fixtures		2-7 years
Equipment		3-5 years
Software		3-10 years
Buildings		29 years

INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 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:


		Estimated Economic Life
Customer relationships		8 – 11 years
Acquired technology related assets		5 years
Backlog		10 months – 5 years
Non-compete agreements		1 – 2 years
Trade names		< 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.

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.

INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

From time to time, the sale of hardware and software products may also include the provision of services and the associated contracts contain multiple elements or non-standard terms and conditions. Sales of services currently represent a small percentage of our net sales. Net sales of services that are performed at client locations are often service-only contracts and are recorded as sales when the services are performed and completed. If the service is performed at a client location in conjunction with a hardware, software or other services sale, we recognize net sales 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.

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.

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		46,573			49,055		48,373
Potential dilutive common shares due to dilutive stock options and restricted stock awards and units		—			1,065		633

Weighted-average shares used to compute diluted EPS		46,573			50,120		49,006


Net (loss) earnings from continuing operations per share:
Basic	$	(5.15	)	$	1.32	$	1.17

Diluted	$	(5.15	)	$	1.29	$	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):

Years Ended December 31,

2008

2007

2006

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.

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

INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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).

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

•

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 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.

INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

•

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):


	Net Earnings						Retained Earnings
	Years Ended December 31,						At December 31,
	2007			2006			2005
As previously reported	$	77,795		$	76,818		$	220,846

Adjustments:
Trade credit adjustments		(10,161	)		(9,458	)		(35,191	)
Other miscellaneous accounting adjustments		(4,416	)		(1,538	)		(1,397	)
Income tax benefit		5,538			3,719			14,376

Total adjustments		(9,039	)		(7,277	)		(22,212	)

As restated	$	68,756		$	69,541		$	198,634

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,			Year Ended December 31,
	2008			2007			2006			2005			2004
	(unaudited)									(unaudited)			(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		6,347			10,161			9,458			9,128			4,847
F.O.B. destination adjustments		(8,766	)		4,603			6,661			(10,939	)		17,021
Reclassification of partner funding		(4,554	)		(7,259	)		(4,967	)		(2,770	)		(925	)

Total adjustments to costs of goods sold		(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		(1,243	)		2,543			2,363			—			—
Reclassification of partner funding		4,554			7,259			4,967			2,770			925
Amortization of capitalized interest		113			129			3			3			1
Goodwill impairment		(181	)		—			—			—			—

Total adjustments to operating expenses		3,243			9,931			7,333			2,773			926


Net decrease in earnings (loss) from operations		(5,558	)		(12,393	)		(11,804	)		(9,266	)		(3,808	)


Decrease in non-operating expenses:
Capitalized interest		(109	)		(515	)		(808	)		(64	)		(22	)

Total adjustments to non-operating expenses		(109	)		(515	)		(808	)		(64	)		(22	)


Total adjustments to earnings (loss) from continuing operations before income taxes		(5,449	)		(11,878	)		(10,996	)		(9,202	)		(3,786	)
Income tax benefit		2,187			4,472			3,719			3,582			1,473

Total adjustments to earnings (loss) from continuing operations		(3,262	)		(7,406	)		(7,277	)		(5,620	)		(2,313	)

Decrease in gain on sale of a discontinued operation		—			(2,699	)		—			—			—
Income tax benefit		—			1,066			—			—			—

Total adjustments to earnings from discontinued operations, net of tax		—			(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.

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			As Restated			As Reported			Adjustments			As Restated
Net sales	$	4,800,431		$	5,043		$	4,805,474		$	3,593,256		$	6,681		$	3,599,937
Costs of goods sold		4,139,343			7,505			4,146,848			3,122,599			11,152			3,133,751

Gross profit		661,088			(2,462	)		658,626			470,657			(4,471	)		466,186
Operating expenses:
Selling and administrative expenses		532,391			9,931			542,322			369,389			7,333			376,722
Severance and restructuring expenses		2,595			—			2,595			729			—			729

Earnings (loss) from operations		126,102			(12,393	)		113,709			100,539			(11,804	)		88,735
Non-operating (income) expense:
Interest income		(2,078	)		—			(2,078	)		(4,355	)		—			(4,355	)
Interest expense		13,367			(515	)		12,852			6,793			(808	)		5,985
Net foreign currency exchange (gain) loss		(3,887	)		—			(3,887	)		(1,135	)		—			(1,135	)
Other expense, net		1,531			—			1,531			901			—			901

Earnings (loss) from continuing operations before income taxes		117,169			(11,878	)		105,291			98,335			(10,996	)		87,339
Income tax expense (benefit)		45,158			(4,472	)		40,686			34,601			(3,719	)		30,882

Earnings (loss) from continuing operations		72,011			(7,406	)		64,605			63,734			(7,277	)		56,457
Earnings (loss) from discontinued operations, net of taxes		5,784			(1,633	)		4,151			13,084			—			13,084

Net earnings (loss)	$	77,795		$	(9,039	)	$	68,756		$	76,818		$	(7,277	)	$	69,541


Net earnings per share — Basic:
Net earnings (loss) from continuing operations	$	1.47		$	(0.15	)	$	1.32		$	1.32		$	(0.15	)	$	1.17
Net earnings (loss) from discontinued operation		0.12			(0.04	)		0.08			0.27			—			0.27

Net earnings (loss) per share	$	1.59		$	(0.19	)	$	1.40		$	1.59		$	(0.15	)	$	1.44


Net earnings per share — Diluted:
Net earnings (loss) from continuing operations	$	1.44		$	(0.15	)	$	1.29		$	1.31		$	(0.16	)	$	1.15
Net earnings (loss) from discontinued operation		0.12			(0.04	)		0.08			0.27			—			0.27

Net earnings (loss) per share	$	1.56		$	(0.19	)	$	1.37		$	1.58		$	(0.16	)	$	1.42


Shares used in per share calculations:
Basic		49,055			—			49,055			48,373			—			48,373

Diluted		49,760			360			50,120			48,564			442			49,006

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):

INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


	December 31, 2007
	As Reported		Adjustments			As Restated
ASSETS
Current Assets:
Cash and cash equivalents	$	56,718	$	—		$	56,718
Accounts receivable, net		1,072,612		(11,433	)		1,061,179
Inventories		98,863		10,694			109,557
Inventories not available for sale		21,450		—			21,450
Deferred income taxes		22,020		20,232			42,252
Other current assets		38,916		—			38,916

Total current assets		1,310,579		19,493			1,330,072

Property and equipment, net		158,467		1,273			159,740
Goodwill		306,742		(2,169	)		304,573
Intangible assets, net		80,922		—			80,922
Deferred income taxes		392		3,325			3,717
Other assets		10,076		—			10,076

	$	1,867,178	$	21,922		$	1,889,100


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	685,578	$	428		$	686,006
Accrued expenses and other current liabilities		113,891		54,716			168,607
Current portion of long-term debt		15,000		—			15,000
Deferred revenue		42,885		—			42,885
Line of credit		—		—			—

Total current liabilities		857,354		55,144			912,498

Long-term debt		187,250		—			187,250
Deferred income taxes		27,305		234			27,539
Other liabilities		20,075		—			20,075

		1,091,984		55,378			1,147,362

Stockholders’ equity:
Preferred stock		—		—			—
Common stock		485		—			485
Additional paid in capital		386,139		5,241			391,380
Retained earnings		340,641		(38,528	)		302,113
Accumulated other comprehensive income- foreign currency translation adjustment		47,929		(169	)		47,760

Total stockholders’ equity		775,194		(33,456	)		741,738


	$	1,867,178	$	21,922		$	1,889,100

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									Year Ended December 31, 2006
	As Reported			Adjustments			As Restated			As Reported			Adjustments			As Restated
Cash flows from operating activities
Net earnings from continuing operations	$	72,011		$	(7,406	)	$	64,605		$	63,734		$	(7,277	)	$	56,457
Plus: net earnings from discontinued operation		5,784			(1,633	)		4,151			13,084			—			13,084

Net earnings		77,795			(9,039	)		68,756			76,818			(7,277	)		69,541

Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		34,533			130			34,663			25,372			3			25,375
Provisions for losses on accounts receivable		2,646			—			2,646			3,033			—			3,033
Write-downs of inventories		6,900			—			6,900			8,442			—			8,442
Non-cash stock-based compensation expense		11,540			2,543			14,083			13,731			2,363			16,094
Gain on sale of discontinued operations		(8,287	)		—			(8,287	)		(14,872	)		—			(14,872	)
Excess tax benefit from employee gains on stock-based compensation		(486	)		(11	)		(497	)		(1,085	)		(38	)		(1,123	)
Deferred income taxes		1,072			(5,296	)		(4,224	)		2,744			(3,326	)		(582	)
Changes in assets and liabilities:
Increase in accounts receivable		(64,543	)		(5,043	)		(69,586	)		(290,612	)		(6,682	)		(297,294	)
(Increase) decrease in inventories		(4,278	)		4,604			326			21,287			6,661			27,948
Decrease in other current assets		4,159			—			4,159			10,152			—			10,152
Increase in other assets		(454	)		—			(454	)		(8,370	)		—			(8,370	)
Increase in accounts payable		53,596			205			53,801			226,196			(70	)		226,126
Increase in deferred revenue		1,502			—			1,502			2,514			—			2,514
(Decrease) increase in accrued expenses and other current liabilities		(16,277	)		12,493			(3,784	)		7,252			9,251			16,503

Net cash provided by operating activities		99,418			586			100,004			82,602			885			83,487


Cash flows from investing activities
Cash receipt of underwriter receivable		28,631			—			28,631			46,250			—			46,250
Purchases of property and equipment		(35,761	)		(515	)		(36,276	)		(34,242	)		(808	)		(35,050	)
Acquisition of Software Spectrum, net of cash acquired		—			—			—			(321,167	)		—			(321,167	)

Net cash used in investing activities		(7,130	)		(515	)		(7,645	)		(309,159	)		(808	)		(309,967	)

Cash flows from financing activities
Borrowings on accounts receivable securitization financing facility		682,000			—			682,000			291,000			—			291,000
Repayments on accounts receivable securitization financing facility		(704,000	)		—			(704,000	)		(123,000	)		—			(123,000	)
Borrowings on term loan		—			—			—			75,000			—			75,000
Repayments on term loan		(15,000	)		—			(15,000	)		(3,750	)		—			(3,750	)
Borrowings on short-term financing facility		—			—			—			20,000			—			20,000
Repayments on short-term financing facility		—			—			—			(65,000	)		—			(65,000	)
Net repayment on line of credit		(15,000	)		—			(15,000	)		(6,309	)		—			(6,309	)
Proceeds from sales of common stock under employee stock plans		24,521			—			24,521			16,462			—			16,462
Excess tax benefit from employee gains on stock-based compensation		486			11			497			1,085			38			1,123
Repurchases of common stock		(50,000	)		—			(50,000	)		—			—			—

(Decrease) increase in book overdrafts		(23,216	)		—			(23,216	)		37,261			—			37,261

Net cash (used in) provided by financing activities		(100,209	)		11			(100,198	)		242,749			38			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	$	—	$	—		$	—	$	(8,909	)	$	—		$	(8,909	)
Net cash provided by investing activities		—		—			—		11,710			—			11,710
Net cash used in financing activities		—		—			—		(2,696	)		—			(2,696	)

Net cash used in discontinued operation		—		—			—		105			—			105

Foreign currency exchange effect on cash flows		9,942		(82	)		9,860		3,255			(115	)		3,140

Increase in cash and cash equivalents		2,021		—			2,021		19,552			—			19,552
Cash and cash equivalents at the beginning of the year		54,697		—			54,697		35,145			—			35,145

Cash and cash equivalents at the end of the year	$	56,718	$	—		$	56,718	$	54,697		$	—		$	54,697

Related Proceedings

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.

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		Significant
			Market Prices		Other		Significant
	Value as of		in Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs		Balance Sheet
	2008		(Level 1)		(Level 2)		(Level 3)		Classification
Assets:
Foreign Exchange Derivatives	$	228	$	—	$	228	$	—	Other Assets

Total Assets at Fair Value	$	228	$	—	$	228	$	—

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			2007
				As
				Restated
				(1)
Software	$	114,221		$	101,432
Buildings		69,381			70,269
Equipment		48,935			41,483
Furniture and fixtures		31,836			29,258
Leasehold improvements		17,036			17,289
Land		7,558			7,722

		288,967			267,453
Accumulated depreciation and amortization		(131,633	)		(107,713	)

Property and equipment, net	$	157,334		$	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.

INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, 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):


	North America			EMEA			APAC			Consolidated
Balance at December 31, 2006 — As Restated (1)	$	221,051		$	61,510		$	15,460		$	298,021
Adjustments		(720	)		5,867			1,405			6,552

Balance at December 31, 2007 — As Restated (1)		220,331			67,377			16,865			304,573
Goodwill recorded in connection with the acquisition of Calence		104,071			—			—			104,071
Goodwill recorded in connection with the acquisition of MINX		—			9,108			—			9,108
Impairment charge		(323,422	)		(59,852	)		(13,973	)		(397,247	)
Other adjustments		(980	)		(16,633	)		(2,892	)		(20,505	)

Balance at December 31, 2008	$	—		$	—		$	—		$	—


(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 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.

INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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):


	December 31,
	2008			2007
Customer relationships	$	109,576		$	91,484
Backlog		7,446			—
Acquired technology related assets		1,700			1,700
Non-compete agreements		191			—
Trade names		150			—

		119,063			93,184
Accumulated amortization		(25,663	)		(12,262	)

Intangible assets, net	$	93,400		$	80,922

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 asset