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
or
|
|
|
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)
Registrants 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 registrants 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 registrants common stock as reported on The
Nasdaq Global Select Market on June 30, 2008, the last business day of the registrants most
recently completed second fiscal quarter, was $527,456,717.
The number of shares outstanding of the registrants 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
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 Companys 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 Companys 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 Companys 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:
1
INSIGHT ENTERPRISES, INC.
|
|
|
An adjustment of $2.7 million to allocate a portion of our North America goodwill
not previously allocated to the carrying amount of a division of our North America
operating segment that we sold on March 1, 2007 in determining the gain on sale. This
adjustment reduced the gain on sale of the discontinued operation recorded in the three
months ended March 31, 2007, which gain is included in earnings from discontinued
operations. The tax effect of this adjustment was $1.1 million. |
|
|
|
Adjustments to hardware net sales and costs of goods sold recognized in prior
periods to recognize sales based on a de facto passage of title at the time of
delivery. Although our usual sales terms are F.O.B. shipping point or equivalent, at
which time title and risk of loss have passed to the client, we have a general practice
of covering customer losses while products are in transit despite our stated shipping
terms, and as a result delivery is not deemed to have occurred until the product is
received by the client. The net increase (decrease) in gross profit resulting from
these adjustments was $1.0 million, ($135,000), $20,000, $440,000 and ($522,000) for
the years ended December 31, 2004, 2005, 2006 and 2007 and the nine months ended
September 30, 2008, respectively. Adjustments related to periods prior to 2004
resulted in a $1.4 million reduction of retained earnings as of December 31, 2003. |
|
|
|
Adjustments to recognize stock based compensation expense related to
performance-based restricted stock units (RSUs) on a straight-line basis over the
requisite service period for each separately vesting portion of the award as if the
award was, in substance, multiple awards (i.e., a graded vesting basis) instead of on a
straight-line basis over the requisite service period for the entire award. The net
increase (decrease) in operating expenses was $2.4 million, $2.5 million and ($1.2
million) for the years ended December 31, 2006 and 2007 and the nine months ended
September 30, 2008, respectively. |
|
|
|
Adjustments to capitalize interest on internal-use software development projects in
prior periods and record the related amortization expense thereon. The net increase
(decrease) in pretax earnings resulting from these adjustments was $21,000, $61,000,
$805,000, $386,000 and ($4,000) for the years ended December 31, 2004, 2005, 2006 and
2007 and the nine months ended September 30, 2008, respectively. |
|
|
|
Revisions in the classification of consideration that exceeded the specific,
incremental identifiable costs of shared marketing expense programs of $925,000, $2.8
million, $5.0 million, $7.3 million and $4.6 million for the years ended December 31,
2004, 2005, 2006 and 2007 and the nine months ended September 30, 2008, respectively,
to reflect such excess consideration as a reduction of costs of goods sold instead of a
reduction of the related selling administration expenses. These revisions in
classification related to our EMEA operating segment and had no effect on reported net
earnings in any period. |
All financial information contained in this Annual Report on Form 10-K gives effect to the
restatement of our consolidated financial statements as described above. We have not amended, and
we do not intend to amend, our previously filed Annual Reports on Form 10-K or Quarterly Reports on
Form 10-Q for each of the fiscal years and fiscal quarters of 1996 through 2007, or for the first
nine months of the fiscal year ended December 31, 2008. Financial information included in reports
previously filed or furnished by Insight Enterprises, Inc. for the periods from January 1, 1996
through September 30, 2008 should not be relied upon and are superseded by the information in this
Annual Report on Form 10-K.
For more information on the matters that have caused us to restate our financial statements
and data previously reported, see Managements 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 Companys internal control over financial reporting was
not effective as of December 31, 2008. A description of that material weakness, as well as
managements plan to remediate that material weakness, is more fully discussed in Part II, Item 9A,
Controls and Procedures.
2
INSIGHT ENTERPRISES, INC.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including statements in Managements
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:
|
|
|
general economic conditions, including concerns regarding a global recession and credit
constraints; |
|
|
|
changes in the information technology industry and/or the economic environment; |
|
|
|
our reliance on partners for product availability, marketing funds, purchasing
incentives and competitive products to sell; |
|
|
|
the informal inquiry from the Division of Enforcement of the SEC and stockholder
litigation related to the restatement of our consolidated financial statements; |
|
|
|
our ability to maintain compliance with Nasdaqs requirements for continued listing; |
|
|
|
our ability to collect our accounts receivable; |
|
|
|
increased debt and interest expense and lower availability on our financing facilities
and changes in the overall capital markets that could increase our borrowing costs or
reduce future availability of financing; |
|
|
|
disruptions in our information technology systems and voice and data networks, including
our system upgrade and the migration of acquired businesses to our information technology
systems and voice and data networks; |
|
|
|
actions of our competitors, including manufacturers and publishers of products we sell; |
|
|
|
the integration and operation of acquired businesses, including our ability to achieve
expected benefits of the acquisitions; |
|
|
|
seasonal changes in demand for sales of software licenses; |
|
|
|
the risks associated with international operations; |
|
|
|
exposure to changes in, or interpretations of, tax rules and regulations; |
|
|
|
exposure to currency exchange risks and volatility in the U.S. dollar, Canadian dollar,
the Euro and the British Pound Sterling exchange rates; |
|
|
|
our dependence on key personnel; |
|
|
|
failure to comply with the terms and conditions of our public sector contracts; |
|
|
|
rapid changes in product standards; and |
|
|
|
intellectual property infringement claims and challenges to our registered trademarks
and trade names. |
Additionally, there may be other risks that are otherwise described from time to time in the
reports that we file with the SEC. Any forward-looking statements in this report should be
considered in light of various important factors, including the risks and uncertainties listed
above, as well as others. We assume no obligation to update, and do not intend to update, any
forward-looking statements. We do not endorse any projections regarding future performance that
may be made by third parties.
3
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
Managements 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 Insights value
proposition.
4
INSIGHT ENTERPRISES, INC.
To enable our strategic vision, Insight is focused on seven strategic initiatives:
|
|
|
Continue to build VAR-like solutions capabilities; |
|
|
|
Leverage existing client relationships; |
|
|
|
Extend our reach into new client segments; |
|
|
|
Expand our global capabilities; |
|
|
|
Align tactics to ensure we deliver value to partners; |
|
|
|
Drive operational efficiency and improve our return on invested capital (ROIC);
and |
|
|
|
Continue to strengthen the teammate experience. |
Continue to build VAR-like solutions capabilities. The Value-Added Resellers (VARs) that
have historically serviced the solutions needs of business end-users are typically smaller
companies with technical expertise in fewer product and service specialties and in more limited
geographic areas than Insight. Unlike typical VARs, Insight has broader capabilities with
expanding service capabilities, a wider product offering with an efficient supply chain, and the
ability to service clients across multiple industries and geographies.
In addition to our standard IT lifecycle services offerings, our strategy is to focus on
expanding our technical expertise in three high-growth advanced IT solution areas:
|
|
|
Networking and Communication; |
|
|
|
High Performance Systems and Storage; and |
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.
5
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:
|
|
|
Geographic expansion Focused on increasing our penetration in EMEA and APAC in
growing markets where we see the greatest growth and return on investment opportunity. |
|
|
|
Portfolio expansion Focused on broadening our offering in established markets by
adding hardware and services and expanding our client base in certain existing markets,
specifically in EMEA and APAC, where we currently only offer software and software
related services. |
For a discussion of risks associated with international operations, see Risk Factors There
are risks associated with our international operations that are different than the risks associated
with our operations in the U.S., and our exposure to the risks of a global market could hinder our
ability to maintain and expand international operations, in Part I, Item 1A of this report.
Align tactics to ensure we deliver value to partners. We are focused on understanding our
partners objectives and developing plans and programs to grow our mutual businesses. Our strategy
is focused on: increasing partner alignment by increasing skills and marketing alignment with key
partners; building enhanced capabilities to deliver, monitor, analyze and report return on
marketing investment for our partners; and building strong relationships with our key partners
field sales organizations.
We measure partner satisfaction annually through a partner satisfaction survey in North
America and EMEA and through similar means in APAC. We hold quarterly business reviews with our
largest partners to review business results from the prior quarter, discuss plans for the future
and obtain feedback. Additionally, we host an annual partner conference in North America and EMEA
where we articulate our strategy and facilitate various strategic and tactical discussions with our
partners.
For a discussion of risks associated with our reliance on partners, see Risk Factors We
rely on our partners for product availability, marketing funds, purchasing incentives and
competitive products to sell, in Part I, Item 1A of this report.
Drive operational efficiency and improve our return on invested capital (ROIC). Our goal is
to decrease selling, general and administrative expenses as a percentage of net sales. In the
short term, to address market weakness and the deterioration in our operational performance, we
took significant restructuring actions in 2008 to reduce fixed costs and discretionary spending.
In 2009, we plan to continue to take actions to decrease discretionary spending, such as
eliminating merit increases, reducing equity incentive programs, foregoing employee recognition
events, minimizing non-client travel, and
continuing to evaluate all aspects of our cost structure given the current economic environment.
We also plan to leverage the functionality of our IT systems to automate manual processes and
improve efficiencies throughout the organization. We have implemented a ROIC focus into our core
management systems and have introduced appropriate metrics and
rewards to reinforce the importance of this key measure. We also maintain a close focus on cash
flow and liquidity and have initiatives underway to improve working capital metrics, such as days
sales outstanding and days purchases outstanding, and to continue to focus on strong inventory
management through balancing warehousing versus direct shipments to our clients.
Continue to strengthen the teammate experience. We believe our teammates are the foundation
of the Insight experience. Therefore, we focus on teammate development to promote teammate
satisfaction, build teammates skill sets and motivate teammates to ensure client satisfaction. We
use a multi-faceted approach to assess and improve teammate satisfaction, including confidential
surveys, teammate interviews, focus groups and a variety of other methods. In addition, we monitor
key teammate metrics each month, such as turnover and attrition rates, as well as measures against
development, diversity and training goals.
6
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:
|
|
|
Networking and Communications; |
|
|
|
High Performance Systems and Storage; |
|
|
|
Enterprise Software; and |
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.
7
INSIGHT ENTERPRISES, INC.
Networking and Communications. Advanced networking technologies that merge voice, data and
video applications are becoming a critical component of an enterprises strategic IT infrastructure
and the backbone of an organizations unified communications strategy. We are a Cisco Gold
Certified partner in the United States and the United Kingdom and have Master Certifications in
unified communications and security in the U.S. Our networking and communications solutions
provide clients secure voice and data communications within and across organizations and are
marketed and delivered in four areas:
|
|
|
Network strategy and infrastructure; |
|
|
|
Unified communications; |
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 clients deployment process.
IT Lifecycle Services. We offer clients a suite of services designed to streamline the
deployment cycle of IT assets, as well as minimize the complexity and cost of managing those assets
throughout their life. We:
|
|
|
provide advice on hardware, software licensing and financing programs; |
|
|
|
streamline procurement; |
|
|
|
plan and manage the rollout; |
|
|
|
assist with developing standards and implementing best practices; |
|
|
|
pre-configure systems, load custom software images and tag assets; |
|
|
|
provide logistics planning and drop-ship to locations; |
|
|
|
provide on-site implementation; |
|
|
|
offer help desk support for users; and |
|
|
|
provide IT maintenance services and disposal of equipment at end-of-life. |
These services are available primarily in the U.S., Canada and the United Kingdom at present.
In addition, we offer clients a portfolio of Software Asset Management (SAM) services,
including SAM consultation, assessment of ISO standard attainment, license reconciliations, and our
proprietary Insight:LicenseAdvisor SAM solution platform. Our SAM services are provided to clients
throughout North America, EMEA and APAC.
Information Technology Systems
We have committed significant resources to the IT systems we use to manage our business. We
believe that our success is dependent upon our ability to provide prompt and efficient service to
our clients based on the accuracy, quality and utilization of the information generated by our IT
systems. These systems affect our ability to manage our sales, client service, distribution,
inventories and accounting systems and the reliability of our voice and data networks. Our U.S.
and foreign locations are not on a single IT system platform.
8
INSIGHT ENTERPRISES, INC.
To support our business more efficiently and effectively, we recently completed an IT systems
upgrade project in the U.S. hardware and services portion of our North America operations. We are
focused on driving improvements in sales productivity through this upgraded IT system to support
higher levels of client satisfaction and new client acquisition as well as garnering efficiencies
in this portion of our business as more processes become automated. We are also in the process of
the conversion of our EMEA operations to a new IT system platform intended to enable us to sell
hardware and services to clients in that region to promote future sales growth. We believe that in
order to remain competitive, we will need to continue to make enhancements and upgrades to our IT
systems.
For a discussion of risks associated with our IT systems, see Risk Factors Disruptions in
our IT systems and voice and data networks, including our systems upgrades and the migration of
acquired businesses to our IT systems and voice and data networks, could affect our ability to
service our clients and cause us to incur additional expenses, in Part I, Item 1A of this report.
Competition
The IT hardware, software and services industry is very fragmented and highly competitive. We
compete with a large number and wide variety of marketers and resellers of IT hardware, software
and services, including:
|
|
|
product manufacturers, such as Dell, HP, IBM and Lenovo; |
|
|
|
software publishers, such as IBM and Microsoft; |
|
|
|
direct marketers, such as CDW Corporation (North America) and Systemax (Europe); |
|
|
|
software resellers, such as SoftChoice, PC Ware and Software House International; |
|
|
|
systems integrators, such as Compucom Systems, Inc.; |
|
|
|
national and regional resellers, including VARs, specialty retailers, aggregators,
distributors, and to a lesser extent, national computer retailers, computer
superstores, Internet-only computer providers, consumer electronics and office supply
superstores and mass merchandisers; |
|
|
|
national and global service providers, such as IBM Global Services and HP/EDS; and |
|
|
|
e-tailers, such as Amazon, Buy.com and e-Buyer (United Kingdom). |
The competitive landscape in the industry is changing as various competitors expand their
product and service offerings. In addition, emerging models such as Software as a Service (SaaS)
are creating new competitors and opportunities.
We believe that we have three advantages over our competitors:
|
|
|
Global Reach We have one of the broadest footprints in the IT industry, with
physical presence in 22 countries and the ability to service clients in 170 countries,
either internally or through partner relationships. Our ability to conduct business
with clients in their language and currency is a key differentiator. |
|
|
|
Client Penetration and Retention We have deep penetration in small, medium and
large businesses and public sector institutions. Most competitors focus on one or two
of these sectors. This enables us to reach a broad range of clients on behalf of our
partners. In addition, we have very strong client retention and loyalty that can be
leveraged as we build our trusted advisor capabilities. |
|
|
|
Technical Expertise and Service Offerings We have broad technical expertise when
compared to the competition as evidenced by our long list of certifications, licensing
capability and technology practices. In addition, we offer a broad array of
technology-related services to our clients. |
We have two primary weaknesses:
|
|
|
Brand Awareness The Insight brand is less known than those of our primary
competitors, and we believe our advertising expenditures are significantly lower than
many of our competitors. |
|
|
|
Inconsistent Geographic Delivery Capabilities While we have deeper capabilities
than many of our competitors, our ability to deliver across all geographies varies
considerably. Our most developed capabilities (hardware, software and services) are
found in the U.S. and the United Kingdom. Our capabilities in Canada are deep in
software and hardware and are developing in services. The balance of our footprint
currently delivers only software and software-related services. |
9
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
manufacturers 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 Insights 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.
10
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:
|
|
|
software sales are seasonally significantly higher in our second and fourth
quarters, particularly the second quarter; |
|
|
|
business clients, particularly larger enterprise businesses in the U.S., tend to
spend less in the first quarter and more in our fourth quarter as they utilize their
remaining capital budget authorizations; |
|
|
|
sales to the federal government in the U.S. are often stronger in our third quarter;
and |
|
|
|
sales to public sector clients in the United Kingdom are often stronger in our first
quarter. |
These trends create overall seasonality in our consolidated results such that sales and
profitability are expected to be higher in the second and fourth quarters of the year. For a
discussion of risks associated with seasonality see Risk Factors Sales of software licenses are
subject to seasonal changes in demand and resulting sales activities, in Part I, Item 1A of this
report.
Backlog
The majority of our backlog historically has been and continues to be open cancelable purchase
orders. We do not believe that backlog as of any particular date is indicative of future results.
Intellectual Property
We do not maintain a traditional research and development group, but we do develop and seek to
protect a range of intellectual property, including trademarks, service marks, copyrights, domain
name rights, trade dress, trade secrets and similar intellectual property relying, for such
protection, on applicable statutes and common law rights, trade-secret protection and
confidentiality and license agreements, as applicable, with teammates, clients, partners and others
to protect our intellectual property rights. Our principal trademark is a registered mark, and we
also license certain of our proprietary intellectual property rights to third parties. We have
registered a number of domain names, applied for registration of other marks in the U.S. and in
select international jurisdictions, and, from time to time, filed patent 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.
11
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.
12
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 Companys
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 Nasdaqs
requirements for continued listing. The Company has received a Nasdaq Staff Determination letter
stating that, as a result of the delayed filing of the Companys 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 Companys 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 managements 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.
13
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:
|
|
|
$72.0 million under our senior revolving credit facility; |
|
|
|
$150.0 million under our accounts receivable securitization financing facility; and |
|
|
|
$9.1 million under our inventory financing facility. |
Our borrowing capacity under our senior revolving credit facility and the ABS facility is
limited by certain financial covenants, particularly a maximum leverage ratio. The maximum
leverage ratio is calculated as aggregate debt outstanding divided by the Companys 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 Companys total
debt capacity. As of December 31, 2008, of the $450.0 million of total debt capacity available,
the Companys 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.
14
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.
15
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
managements 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; |
|
|
|
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. |
16
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.
17
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 teammates annual salary up to two times the
teammates annual salary and bonus.
18
INSIGHT ENTERPRISES, INC.
Any provision of our certificate of incorporation, bylaws or employment agreements, or
Delaware law that has the effect of delaying or deterring a change in control could limit the
opportunity for our stockholders to receive a premium for their shares of our common stock and also
could affect the price that some investors are willing to pay for our common stock.
Sales of additional common stock and securities convertible into our common stock may dilute
the voting power of current holders. We may issue equity securities in the future whose terms and
rights are superior to those of our common stock. Our certificate of incorporation authorizes the
issuance of up to 3,000,000 shares of preferred stock. These are blank check preferred shares,
meaning that our Board of Directors is authorized, from time to time, to issue the shares and
designate their voting, conversion and other rights, including rights superior, or preferential, to
rights of already outstanding shares, all without stockholder consent. No preferred shares are
outstanding, and we currently do not intend to issue any shares of preferred stock. Any shares of
preferred stock that may be issued in the future could be given voting and conversion rights that
could dilute the voting power and equity of existing holders of shares of common stock and have
preferences over shares of common stock with respect to dividends and liquidation rights.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal executive offices are located at 6820 South Harl Avenue, Tempe, Arizona 85283.
We believe that our facilities will be suitable and adequate for our present purposes, and we
anticipate that we will be able to extend our existing leases on terms satisfactory to us or, if
necessary, to locate substitute facilities on acceptable terms. At December 31, 2008, we owned or
leased a total of approximately 1.3 million square feet of office and warehouse space, and, while
approximately 85% of the square footage is in the United States, we own or lease office and
warehouse facilities in twelve countries in EMEA.
Information about significant sales, distribution, services and administration facilities in
use as of December 31, 2008 is summarized in the following table:
|
|
|
|
|
|
|
Operating Segment |
|
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.
19
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 TeleTechs allegations and are
defending this matter in arbitration. In recording the disposition of DAC on June 30, 2006, we
deferred $5,000,000 as a contingent gain on sale related to this clawback.
On April 1, 2008, we completed the acquisition of Calence pursuant to an agreement and plan of
merger (the Merger Agreement), a related support agreement (the Support Agreement) and other
ancillary agreements. In April 2008, in connection with an investigation being conducted by the
United States Department of Justice (the DOJ), Calence received a subpoena from the Office of the
Inspector General of the Federal Communications Commission (the FCC) requesting documents related
to the award, by the Universal Service Administration Company (USAC), of funds under the E-Rate
program to a participating school district. The E-Rate program provides schools and libraries with
discounts to obtain affordable telecommunications and internet access. No allegations were made
against Calence, and we have responded to the subpoena. Pursuant to the Merger Agreement and the
Support Agreement, the former owners of Calence have agreed to indemnify us for certain losses and
damages that may arise out of or result from this matter, including our fees and expenses for
responding to the subpoena.
Beginning in March 2009, three purported class action lawsuits were filed in the U.S. District
Court for the District of Arizona against us and certain of our current and former directors and
officers on behalf of purchasers of our securities during the period April 22, 2004 to February 6,
2009 (the period specified in the first complaint is January 30, 2007 to February 6, 2009). The
complaints, which seek unspecified damages, assert claims under the federal securities laws
relating to our February 9, 2009 announcement that we expected to restate our financial statements
for the year ended December 31, 2007 and for the first three quarters of 2008 and that the
restatement would include a material reduction of retained earnings. The complaints also allege
that we issued false and misleading financial statements and issued misleading public statements
about our results of operations. None of the defendants have responded to the complaints at this
time.
On March 19, 2009, we received a letter of informal inquiry from the Division of Enforcement
of the SEC requesting certain documents and information relating to the Companys historical
accounting treatment of aged trade credits. We are cooperating with the SEC. We cannot predict
the outcome of this investigation.
Item 4. Submission of Matters to a Vote of Security Holders
None.
20
INSIGHT ENTERPRISES, INC.
PART II
Item 5. Market for Registrants 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.
21
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 |
|
22
INSIGHT ENTERPRISES, INC.
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with our
Consolidated Financial Statements and the Notes thereto in Part II, Item 8 and Managements
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
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. |
24
INSIGHT ENTERPRISES, INC.
The table below reflects the effects of the restatement adjustments on our consolidated
statements of operations data for the years ended December 31, 2005 and 2004 (in thousands, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 |
|
|
Year Ended December 31, 2004 |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
INSIGHT ENTERPRISES, INC.
The tables below reflect the effects of the restatement adjustments on our consolidated
balance sheet data as of December 31, 2006, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
December 31, 2005 |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
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 |
|
26
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7. Managements 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 Companys 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 Companys 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 Companys 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 managements identification of errors in the Companys accounting for aged trade
credits, the Company retained outside legal counsel to conduct a factual investigation into the
Companys 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 Companys accounting or financial results. The Audit Committee has received
these findings as well as the recommendations of management, board counsel and other advisors
concerning the proposed remedial actions to be taken with respect to the aged trade credit issue.
The Audit Committee has adopted these remedial measures and directed management to implement them
under the supervision of the Audit Committee. Detailed information about the remedial measures
that management plans to implement is included in Part II, Item 9A Controls and Procedures of
this report.
We determined, based upon the results of our internal review and analysis and the related
internal investigation, that the periods in which certain aged trade credits in accounts receivable
and accounts payable were previously recorded as a reduction of costs of goods sold preceded the
periods in which the Company was legally discharged of the underlying liabilities under applicable
domestic and foreign laws. The restated consolidated financial statements included in this Annual
Report on Form 10-K reflect the corrections resulting from our determination. The cumulative
restatement charge covering the period from December 1, 1996 through September 30, 2008 related to
this trade credit issue is $61.2 million, or $37.7 million after taxes. These aged trade credit
liabilities totaled $59.4 million as of December 31, 2008.
We expect that the final settlement of these liabilities with our clients and our partners and
ultimately with state and/or foreign regulatory bodies may take multiple years and may be settled
for less than the estimated liability. However, we cannot provide any assurances that the final
settlement will be materially lower.
27
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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
Companys internal control over financial reporting was not effective as of December 31, 2008. A
description of that material weakness, as well as managements plan to remediate that material
weakness, is more fully discussed in Part II, Item 9A, Controls and Procedures.
We have incurred substantial expenses related to our internal review, including the cost of
outside legal counsel, forensic accounting consultants and outside consultants engaged to assist
management in quantifying the related liabilities under applicable domestic and foreign laws. We
have incurred approximately $4.1 million in such costs through March 31, 2009 and anticipate
additional fees will be incurred in the completion of the financial statement restatement and
related matters.
Restatement Adjustments
We determined that corrections to our consolidated financial statements are required to
reverse material prior period reductions of costs of goods sold and the related income tax effects
as a result of these incorrect releases of aged trade credits prior
to the legal discharge of the underlying liability. These trade credits arose from
unclaimed credit memos, duplicate payments, payments for returned product or overpayments made to
us by our clients, and, to a lesser extent, from goods received by us from a supplier for which we
were never invoiced.
We recorded an aggregate gross charge of approximately $35.2 million to our consolidated
retained earnings as of December 31, 2005 and established a related current liability. This amount
represented approximately $33.0 million of costs of goods sold and $2.2 million of selling and
administrative expenses relating to the period from December 1, 1996 through December 31, 2005.
The aggregate tax benefit related to these trade credit restatement adjustments is $13.8 million,
which benefit reduced the charge to retained earnings as of December 31, 2005 and established a
related deferred tax asset. In addition, our statements of operations for the years ended December
31, 2006 and 2007, and the quarters ended March 31, June 30, and September 30, 2008 contained in
this Annual Report have been restated to reflect an aggregate of approximately $9.5 million, $10.2
million, $2.8 million, $2.2 million and $1.3 million, respectively, of increases in costs of goods
sold and to establish a related current liability relating to aged trade credits. These reinstated
aged trade credit liabilities totaled $59.4 million at December 31, 2008 and are recorded in
accrued expenses and other current liabilities.
Other Miscellaneous Accounting Adjustments
In addition to the restatements for aged trade credits, we also corrected previously reported
financial statements for the following other miscellaneous accounting adjustments as a result of a review of our critical accounting policies:
|
|
|
An adjustment of $2.7 million to allocate a portion of our North America goodwill
not previously allocated to the carrying amount of a division of our North America
operating segment that we sold on March 1, 2007 in determining the gain on sale. This
adjustment reduced the gain on sale of the discontinued operation recorded in the three
months ended March 31, 2007, which gain is included in earnings from discontinued
operations. The tax effect of this adjustment was $1.1 million. |
|
|
|
Adjustments to hardware net sales and costs of goods sold recognized in prior
periods to recognize sales based on a de facto passage of title at the time of
delivery. Although our usual sales terms are F.O.B. shipping point or equivalent, at
which time title and risk of loss have passed to the client, we have a general practice
of covering customer losses while products are in transit despite our stated shipping
terms, and as a result delivery is not deemed to have occurred until the product is
received by the client. The net increase (decrease) in gross profit resulting from
these adjustments was $20,000, $440,000 and ($522,000) for the years ended December 31,
2006 and 2007 and the nine months ended September 30, 2008, respectively. The tax
expense (benefit) related to these adjustments was $8,000, $174,000 and ($201,000) for
the years ended December 31, 2006 and 2007 and the nine months ended September 30,
2008, respectively. Adjustments related to periods prior to 2006 resulted in an
$895,000 reduction of retained earnings as of December 31, 2005. |
28
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
|
|
|
Adjustments to recognize stock based compensation expense related to
performance-based RSUs on a straight-line basis over the requisite service period for
each separately vesting portion of the award as if the award was, in substance,
multiple awards (i.e., a graded vesting basis) instead of on a straight-line basis over
the requisite service period for the entire award. The net increase (decrease) in
operating expenses was $2.4 million, $2.5 million and ($1.2 million) for the years
ended December 31, 2006 and 2007 and the nine months ended September 30, 2008,
respectively. |
|
|
|
Adjustments to capitalize interest on internal-use software development projects in
prior periods and record the related amortization expense thereon. The net increase
(decrease) in pretax earnings resulting from these adjustments was $805,000, $386,000
and ($4,000) for the years ended December 31, 2006 and 2007 and the nine months ended
September 30, 2008, respectively. The tax expense (benefit) related to these
adjustments was $318,000, $152,000 and ($2,000) for the years ended December 31, 2006
and 2007 and the nine months ended September 30, 2008, respectively. Adjustments
related to periods prior to 2006 resulted in a $50,000 reduction of retained earnings
as of December 31, 2005. |
|
|
|
Revisions in the classification of consideration that exceeded the specific,
incremental identifiable costs of shared marketing expense programs of $5.0 million,
$7.3 million and $4.6 million for the years ended December 31, 2006 and 2007 and the
nine months ended September 30, 2008, respectively, to reflect such excess
consideration as a reduction of costs of goods sold instead of a reduction of the
related selling administration expenses. These revisions in classification related to
our EMEA operating segment and had no effect on reported net earnings in any period. |
29
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 Companys historical accounting
treatment of aged trade credits. We are cooperating with the SEC. We cannot predict the outcome
of this investigation.
30
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Beginning in March 2009, three purported class action lawsuits were filed in the U.S. District
Court for the District of Arizona against us and certain of our current and former directors and
officers on behalf of purchasers of our securities during the period April 22, 2004 to February 6,
2009 (the period specified in the first complaint is January 30, 2007 to February 6, 2009). The
complaints, which seek unspecified damages, assert claims under the federal securities laws
relating to our February 9, 2009 announcement that we expected to restate our financial statements
for the year ended December 31, 2007 and for the first three quarters of 2008 and that the
restatement would include a material reduction of retained earnings. The complaints also allege
that we issued false and misleading financial statements and issued misleading public statements
about our results of operations. None of the defendants have responded to the complaints at this
time.
Overview
We are a leading provider of information technology (IT) hardware, software and services to
small, medium and large businesses and public sector institutions in North America, Europe, the
Middle East, Africa and Asia-Pacific. Currently, our offerings in North America and the United
Kingdom include IT hardware, software and services. Our offerings in the remainder of our EMEA
segment and in APAC currently only include software and select software-related services.
Our strategic vision is to be the trusted advisor to our clients, helping them enhance their
business performance through innovative technology solutions. Our strategy is to grow profitable
market share through the continued transformation of Insight into a complete IT solutions company
and to establish Insight as a Global Value-Added Reseller (G-VAR), differentiating us in the
marketplace and giving us a competitive advantage.
Net sales for the year ended December 31, 2008 increased slightly over the year ended December
31, 2007. While net sales for the year ended December 31, 2008 compared to the year ended December
31, 2007 remained flat in North America, net sales in EMEA declined 2% and net sales in APAC grew
42% year over year. We reported a net loss from continuing operations of $239.7 million and a
diluted loss per share of $5.15 for the year ended December 31, 2008, primarily as a result of a
$276.7 million, net of tax, goodwill impairment charge taken during the year. Net earnings from
continuing operations for the year ended December 31, 2007 increased 14% and diluted earnings from
continuing operations per share increased 12% compared to the year ended December 31, 2006.
The results of operations for the year ended December 31, 2008 include the effect of the
following items:
|
|
|
goodwill impairment charge of $397.2 million, $276.7 million net of tax; |
|
|
|
foreign currency losses of $9.6 million, $6.6 million net of tax; |
|
|
|
severance and restructuring expenses of $8.6 million, $5.7 million net of tax;
and |
|
|
|
foreign tax credit impairment of $8.7 million. |
The results of operations for the year ended December 31, 2007 include the effect of the
following items:
|
|
|
expenses of $13.0 million, $7.9 million net of tax, for professional fees and
costs associated with our stock option review; |
|
|
|
gain on sale of a discontinued operation of $5.6 million, $3.4 million net of
tax; |
|
|
|
foreign currency gains of $3.9 million, $2.5 million net of tax; and |
|
|
|
severance and restructuring expenses of $2.6 million, $1.5 million net of tax. |
The results of operations for the year ended December 31, 2006 include the following items:
|
|
|
gain on the sale of a discontinued operation of $14.9 million, $9.0 million net
of tax; |
|
|
|
expenses of $1.6 million, $1.0 million net of tax, for professional fees
associated with our stock option review; |
|
|
|
foreign currency gains of $1.1 million, $751,000 net of tax; and |
|
|
|
severance and restructuring expenses of $729,000, $454,000 net of tax. |
31
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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
nations 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 Calences 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.
32
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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.
33
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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.
34
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 units goodwill. Management must also apply judgment in
determining the estimated fair value of these individual assets and liabilities and may include
independent valuations of certain internally generated and unrecognized intangible assets, such as
trademarks. Management also evaluates the merits of each significant assumption, both individually
and in the aggregate, used to determine the fair values of these individual assets and liabilities.
If the carrying amount of our goodwill exceeds the implied fair value of that goodwill, an
impairment loss would be recognized in an amount equal to the excess.
At December 31, 2007, our goodwill balance was allocated among all three of our operating
segments, which represented the purchase price in excess of the net amount assigned to assets
acquired and liabilities assumed in connection with previous acquisitions, adjusted for changes in
foreign currency exchange rates. We tested goodwill for impairment during the fourth quarter of
2007. At that time, we concluded that the fair value of each of our reporting units was in excess
of the carrying value.
On April 1, 2008, we acquired Calence, which has been integrated into our North America
business. On July 10, 2008, we acquired MINX, which has been integrated into our EMEA business.
Under the purchase method of accounting, the purchase price for each acquisition was allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed based on their
estimated fair values. The excess purchase price over fair value of net assets acquired was
recorded as goodwill in the respective reporting unit. The primary driver for these acquisitions
was to enhance our technical capabilities around networking, advanced communications and managed
services and to help accelerate our transformation to a broad-based technology solutions advisor
and provider.
In consideration of market conditions and the decline in our overall market capitalization
resulting from decreases in the market price of Insights 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 Insights 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 Insights 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.
35
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 Insights 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.
36
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 Companys past business combinations.
The decline in anticipated growth has not, however, affected the sustainability of the Companys
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.
37
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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.
38
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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.
39
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 Americas 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.
EMEAs 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.
APACs 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 Americas 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.
40
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
EMEAs 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.
APACs 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
Companys past business combinations. The decline in anticipated growth has not, however, affected
the sustainability of the Companys 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 EMEAs 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.
41
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 Americas 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 EMEAs 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.
42
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 Americas 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.
EMEAs 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.
43
INSIGHT ENTERPRISES, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
APACs 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 Americas 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. |
EMEAs 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. |
APACs 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.
44
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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 EMEAs 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. |
45
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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. |
46
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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.
47
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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.
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 Companys 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 Companys total
debt capacity. As of December 31, 2008, of the $450.0 million of total debt capacity available,
the Companys borrowing capacity was limited to $402.1 million based on trailing twelve-month
EBITDA of $134.0 million. Even with lower expected EBITDA and the lower maximum leverage ratio
covenant beginning in the fourth quarter of 2009, we anticipate that we will meet our maximum
leverage ratio requirements over the next four quarters.
On November 13, 2007, our Board of Directors authorized the repurchase of up to $50.0 million
of our common stock through September 30, 2008. During the year ended December 31, 2008, we
purchased 3.5 million shares of our common stock on the open market at an average price of $14.31
per share, which represented the full amount authorized under the repurchase program. All shares
repurchased were retired. We do not currently anticipate any repurchases of our common stock during
2009.
Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income
taxation upon repatriation to the U.S. For foreign entities not treated as branches for U.S. tax
purposes, we do not provide for U.S. income taxes on the undistributed earnings of these
subsidiaries as earnings are reinvested and, in the opinion of 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
Insights 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 Insights
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 SECs Final Rule 67, Disclosure in Managements 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.
48
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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: |
|
I. |
|
Estimated interest payments of $10.9 million in each of the next four
years and $2.7 million in the first three months of 2013, based on the current debt
balance of $228.0 million at December 31, 2008 under the senior revolving credit
facility, multiplied by the weighted average interest rate for the year ended
December 31, 2008 of 4.8% per annum. |
|
II. |
|
Amounts totaling $7.1 million over the next five years to the Valley of
the Sun Bowl Foundation for sponsorship of the Insight Bowl and $7.7 million over
the next seven years for advertising and marketing 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.
49
INSIGHT ENTERPRISES, INC.
MANAGEMENTS 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
nations 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 Calences existing debt totaling approximately $7.4 million, of which $7.1 million was
repaid by us at closing.
Inflation
We have historically not been adversely affected by inflation, as technological advances and
competition within the IT industry have generally caused the prices of the products we sell to
decline and product life cycles tend to be short. This requires our growth in unit sales to exceed
the decline in prices in order to increase our net sales. We believe that most price increases
could be passed on to our clients, as prices charged by us are not set by long-term contracts;
however, as a result of competitive pressure, there can be no assurance that the full effect of any
such price increases could be passed on to our clients.
50
INSIGHT ENTERPRISES, INC.
Recently Issued Accounting Standards
See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report for a
description of recent accounting pronouncements, including our expected dates of adoption and the
estimated effects on our results of operations and financial condition.
2009 Perspective
We
believe that with current demand levels and with the resource and
other actions we have taken over the last several quarters, diluted
earnings per share will be between $0.80 and $0.87 for the full year
of 2009 with more of the earnings coming in the second half of the
year compared to the first half. This outlook does not include the
impact of any severance and restructuring expenses, expenses
associated with the restatement investigation and administration or
related litigation, or other one time charges. This estimated range
does, however, include:
|
|
|
our expectation of a weak hardware demand environment; |
|
|
|
the projected negative effect of known rebate program changes
from our key software partner, which we now project will result in a
$20 - $25 million reduction to our gross profit in 2009, mostly
in the second and fourth quarters given our strong software mix in
those quarters; and |
|
|
|
the offsetting benefits of the aggressive cost reduction
actions taken to date. |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have interest rate exposure arising from our financing facilities, which have variable
interest rates. These variable interest rates are affected by changes in short-term interest
rates. We currently do not hedge our interest rate exposure.
We do not believe that the effect of reasonably possible near-term changes in interest rates
will be material to our financial position, results of operations and cash flows. Our financing
facilities expose net earnings to changes in short-term interest rates since interest rates on the
underlying obligations are variable. We had $228.0 million outstanding under our senior revolving
credit facility and no amounts outstanding under our accounts receivable securitization financing
facility at December 31, 2008. The interest rates attributable to the borrowings under out senior
revolving credit facility and the accounts receivable securitization financing facility were 1.61%
and 3.13%, respectively, per annum at December 31, 2008. The change in annual net earnings from
continuing operations, pretax, resulting from a hypothetical 10% increase or decrease in the
highest applicable interest rate would approximate $0.7 million.
Foreign Currency Exchange Risk
We use the U.S. dollar as our reporting currency. The functional currencies of our
significant foreign subsidiaries are generally the local currencies. Accordingly, assets and
liabilities of the subsidiaries are translated into U.S. dollars at the exchange rate in effect at
the balance sheet dates. Income and expense items are translated at the average exchange rate for
each month within the year. Translation adjustments are recorded directly in other comprehensive
income as a separate component of stockholders equity. Net foreign currency transaction (gains)
losses, including transaction (gains) losses on intercompany balances that are not of a long-term
investment nature, are reported as a separate component of non-operating (income) expense, net in
our consolidated statements of operations. We also maintain cash accounts denominated in
currencies other than the functional currency which expose us to foreign exchange rate movements.
Remeasurement of these cash balances results in (gains) losses that are also reported as a separate
component of non-operating (income) expense.
We monitor our foreign currency exposure and have begun to enter, selectively, into forward
exchange contracts to mitigate risk associated with certain non-functional currency monetary assets
and liabilities related to foreign denominated payables, receivables, and cash balances.
Transaction gains and losses resulting from non-functional currency assets and liabilities are
offset by forward contracts in non-operating (income) and expense, net. The Company does not have
a significant concentration of credit risk with any single counterparty.
51
INSIGHT ENTERPRISES, INC.
The Company generally enters into forward contracts with maturities of three months or less.
The derivatives entered into during 2008 were not designated as hedges under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The
following derivative contracts were entered into during the year ended December 31, 2008, and
remained open and outstanding at December 31, 2008. All U.S. dollar and foreign currency amounts
are presented in thousands.
|
|
|
|
|
|
|
|
|
|
|
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.
52
INSIGHT ENTERPRISES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item 8. Financial Statements and Supplementary Data
53
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Insight Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Insight Enterprises, Inc. and
subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and comprehensive
income (loss) and cash flows for each of
the years in the three-year period ended December 31, 2008. These consolidated financial statements
are the responsibility of the Companys 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 Companys internal
control over financial reporting.
/s/ KPMG LLP
Phoenix, Arizona
May 11, 2009
54
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Insight Enterprises, Inc.:
We have audited Insight Enterprises, Inc.s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Insight
Enterprises, Inc.s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Item 9A (a), Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Companys 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 companys 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
companys 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 companys 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 companys 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 managements
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 ControlIntegrated 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, LLCs 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
55
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.
56
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.
57
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, 2005As 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, 2005As 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, 2006As 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, 2007As 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.
58
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 |
|
|
|
|
|
|
|
|
|
|
|
59
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.
60
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 |
Currently, our offerings in North America and the United Kingdom include IT hardware, software
and services. Our offerings in the remainder of our EMEA segment and in APAC currently only
include software and select software-related services.
Acquisitions and Dispositions
On July 10, 2008, we acquired MINX Limited (MINX), a United Kingdom-based networking
services company for an initial cash purchase price of approximately $1,500,000 and the assumption
of approximately $3,900,000 of existing debt. Up to an additional $550,000 may be due if MINX
achieves certain performance targets over a one-year period.
On April 1, 2008, we completed the acquisition of Calence, LLC (Calence), one of the
nations 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 Calences 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 Wholesales 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 Alliances 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.
61
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
clients or vendors inability to meet its financial obligations, such as in the case of bankruptcy
filings, or deterioration in the clients or vendors 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 |
62
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.
63
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivative Financial Instruments
We enter into forward foreign exchange contracts to mitigate the risk of non-functional
currency monetary assets and liabilities on our consolidated financial statements. These forward
contracts are not designated as hedge instruments under Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. The fair value
of all derivative assets and liabilities are recorded gross in the other current assets and other
current liabilities section of the balance sheet. (Gains) and losses are recorded net in
non-operating (income) expense.
Treasury Stock
We record repurchases of our common stock as treasury stock at cost. We also record the
subsequent retirement of these treasury shares at cost. The excess of the cost of the shares
retired over their par value is allocated between additional paid-in capital and retained earnings.
The amount recorded as a reduction of paid-in capital is based on the excess of the average
original issue price of the shares over par value. The remaining amount is recorded as a reduction
of retained earnings.
Sales Recognition
We adhere to guidelines and principles of sales recognition described in Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition (SAB 104), issued by the staff of the Securities
and Exchange Commission (the SEC). Under SAB 104, sales are recognized when title and risk of
loss are passed to the client, there is persuasive evidence of an arrangement for sale, delivery
has occurred and/or services have been rendered, the sales price is fixed or determinable and
collectibility is reasonably assured. Usual sales terms are F.O.B. shipping point or equivalent,
at which time title and risk of loss have passed to the client. However, because we either (i)
have a general practice of covering client losses while products are in transit despite title and
risk of loss transferring at the point of shipment or (ii) have specifically stated F.O.B.
destination contractual terms with the client, delivery is not deemed to have occurred until the
point in time when the product is received by the client.
We make provisions for estimated product returns that we expect to occur under our return
policy based upon historical return rates. Our manufacturers warrant most of the products we
market, and it is our policy to request that clients return their defective products directly to
the manufacturer for warranty service. On selected products, and for selected client service
reasons, we may accept returns directly from the client and then either credit the client or ship a
replacement product. We generally offer a limited 15- to 30-day return policy for unopened
products and certain opened products, which are consistent with manufacturers terms; however, for
some products we may charge restocking fees. Products returned opened are processed and
returned to the manufacturer or partner for repair, replacement or credit to us. We resell most
unopened products returned to us. Products that cannot be returned to the manufacturer for
warranty processing, but are in working condition, are sold to inventory liquidators, to
end users as previously sold or used products, or through other channels to limit our losses
from returned products.
We record freight billed to our clients as net sales and the related freight costs as costs of
goods sold. We report sales net of any sales-based taxes assessed by governmental authorities that
are imposed on and concurrent with sales transactions.
We also adhere to the guidelines and principles of software revenue recognition described in
Statement of Position 97-2, Software Revenue Recognition (SOP 97-2). Revenue is recognized
from software sales when clients acquire the right to use or copy software under license, but in no
case prior to the commencement of the term of the initial software license agreement, provided that
all other revenue recognition criteria have been met (i.e., delivery, evidence of the arrangement
exists, the fee is fixed or determinable and collectibility of the fee is probable).
64
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. |
We sell certain third-party service contracts and software assurance or subscription products
for which we are not the primary obligor. These sales do not meet the criteria for gross sales
recognition as defined in SAB 104 and EITF Issue No. 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent (EITF 99-19), and thus are recorded on a net sales recognition basis. As
we enter into contracts with third-party service providers or vendors, we evaluate whether the
subsequent sales of such services should be recorded as gross sales or net sales in accordance with
the sales recognition criteria outlined in SAB 104 and EITF 99-19. We determine whether we act as
a principal in the transaction and assume the risks and rewards of ownership or if we are simply
acting as an agent or broker. Under gross sales recognition, the entire selling price is recorded
in sales and our cost to the third-party service provider or vendor is recorded in costs of goods
sold. Under net sales recognition, the cost to the third-party service provider or vendor is
recorded as a reduction to sales, resulting in net sales equal to the gross profit on the
transaction, and there are no costs of goods sold.
Additionally, we sell certain professional services contracts on a fixed fee basis. Revenues
for fixed fee professional services contracts are recognized in accordance with statement of
position (SOP) 81-1 Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. We recognize these services using the percentage of completion method of accounting
based on the ratio of costs incurred to total estimated costs.
Partner Funding
We receive payments and credits from partners, including consideration pursuant to volume
sales incentive programs, volume purchase incentive programs and shared marketing expense programs.
Our policy for accounting for these payments is in accordance with EITF Issue No. 02-16,
Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.
Partner funding received pursuant to volume sales incentive programs is recognized as a reduction
to costs of goods sold. Partner funding received pursuant to volume purchase incentive programs is
allocated to inventories based on the applicable incentives from each partner and is recorded in
cost of goods sold as the inventory is sold. Partner funding received pursuant to shared marketing
expense programs is recorded as a reduction of the related selling and administrative expenses in
the period the program takes place only if the consideration represents a reimbursement of
specific, incremental, identifiable costs. Consideration that exceeds the specific, incremental,
identifiable costs is classified as a reduction of costs of goods sold. The amount of partner
funding recorded as a reduction of selling and administrative expenses totaled $21,523,000,
$17,876,000 and $15,171,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
Concentrations of Risk
Credit Risk
Although we are affected by the international economic climate, management does not believe
material credit risk concentration existed at December 31, 2008. We monitor our clients financial
condition and do not require collateral. Historically, we have not experienced significant losses
related to accounts receivable from any individual client or similar groups of clients.
Supplier Risk
Purchases from Microsoft, a software publisher, Ingram Micro, a distributor, and HP, a
manufacturer, accounted for approximately 22%, 11%, and 11%, respectively, of our aggregate
purchases in 2008. No other partner accounted for more than 10% of purchases in 2008. Our top
five partners as a group for 2008 were Microsoft, Ingram Micro, HP, Tech Data (a distributor) and
Cisco (a manufacturer). Approximately 60% of our total purchases during 2008 came from this group
of partners. Although brand names and individual products are important to our business, we
believe that competitive sources of supply are available in substantially all of our product
categories such that, with the exception of Microsoft, we are not dependent on any single partner
for sourcing products.
65
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.
66
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 Companys 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 Companys 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 Companys interim reporting period beginning April 1, 2009 with early
adoption permitted.
(2) |
|
Restatement of Consolidated Financial Statements |
Background
On February 9, 2009, following an internal review we issued a press release announcing that
our management had identified errors in the Companys 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 Companys 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 Companys 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.
67
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).
Following managements identification of errors in the Companys accounting for aged trade
credits, the Company retained outside legal counsel to conduct a factual investigation into the
Companys 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 Companys accounting or financial results. The Audit Committee has received
these findings as well as the recommendations of management, board counsel and other advisors
concerning the proposed remedial actions to be taken with respect to the aged trade credit issue.
The Audit Committee has adopted these remedial measures and directed management to implement them
under the supervision of the Audit Committee.
Restatement Adjustments
We determined that corrections to our consolidated financial statements are required to
reverse material prior period reductions of costs of goods sold and the related income tax effects
as a result of these incorrect releases of aged trade credits. These trade credits arose from
unclaimed credit memos, duplicate payments, payments for returned product or overpayments made to
us by our clients, and, to a lesser extent, from goods received by us from a supplier for which we
were never invoiced.
We recorded an aggregate gross charge of approximately $35,191,000 to our consolidated
retained earnings as of December 31, 2005 and established a related current liability. This amount
represented approximately $33,021,000 of costs of goods sold and $2,170,000 of selling and
administrative expenses relating to the period from December 1, 1996 through December 31, 2005.
The aggregate tax benefit related to these trade credit restatement adjustments is $13,825,000,
which benefit reduced the charge to retained earnings as of December 31, 2005 and established a
related deferred tax asset. In addition, our statements of operations for the years ended December
31, 2006 and 2007, and the quarters ended March 31, June 30, and September 30, 2008 contained in
this Annual Report have been restated to reflect an aggregate of $9,458,000, $10,161,000,
$2,837,000, $2,245,000 and $1,265,000, respectively, of increases in costs of goods sold and to
establish a related current liability relating to aged trade credits. As of December 31, 2008 the
reinstated trade credits liability included in accrued expenses and other current liabilities was
$59,393,000.
Other Miscellaneous Accounting Adjustments
In addition to the restatements for aged trade credits, we also corrected previously reported
financial statements for the following other miscellaneous accounting adjustments as a result of a
review of our critical accounting policies:
|
|
|
An adjustment of $2,699,000 to allocate a portion of our North America goodwill not
previously allocated to the carrying amount of a division of our North America
operating segment that we sold on March 1, 2007 in determining the gain on sale. This
adjustment reduced the gain on sale of the discontinued operation recorded in the three
months ended March 31, 2007, which gain is included in earnings from discontinued
operations. The tax effect of this adjustment was $1,066,000. |
|
|
|
Adjustments to hardware net sales and costs of goods sold recognized in prior
periods to recognize sales based on a de facto passage of title at the time of
delivery. Although our usual sales terms are F.O.B. shipping point or equivalent, at
which time title and risk of loss have passed to the client, because we have a general
practice of covering customer losses while products are in transit despite our stated
shipping 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. |
68
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 |
|
|
|
|
|
|
|
|
|
|
|
69
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.
70
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 Companys 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 Companys
previously reported consolidated balance sheet as of December 31, 2007 (in thousands):
71
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 |
|
|
|
|
|
|
|
|
|
|
|
72
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the effects of the restatement adjustments on the Companys
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
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 Companys 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.
74
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
counterpartys creditworthiness when in an asset position and the Companys 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.
75
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.
76
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In consideration of market conditions and the decline in our overall market capitalization
resulting from decreases in the market price of Insights 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 Insights 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 Insights publicly traded
common stock ranged from a high of $18.20 to a low of $11.00 on April 24, 2008, when the price
dropped by 22.5% and did not return to levels previous to that single day drop through the end of
the quarter. Based on the sustained significant decline in the market price of our common stock
during the second quarter of 2008, we concluded that a triggering event had occurred subsequent to
March 31, 2008, which would more likely than not reduce the fair value of one or more of our
reporting units below its respective carrying value.
As a result, we performed the first step of the two-step goodwill impairment test in the
second quarter of 2008 in accordance with SFAS 142 and compared the fair values of our reporting
units to their carrying values. The fair values of our reporting units were determined using
established valuation techniques, specifically the market and income approaches. We determined
that the fair value of the North America reporting unit was less than the carrying value of the net
assets of the reporting unit, and thus, we performed step two of the impairment test for the North
America reporting unit. The results of the first step of the two-step goodwill impairment test
indicated that the fair value of each of our EMEA and APAC reporting units was in excess of the
carrying value, and thus we did not perform step two of the impairment test for EMEA or APAC.
In step two of the impairment test, we determined the implied fair value of the goodwill in
our North America reporting unit and compared it to the carrying value of the goodwill. We
allocated the fair value of the North America reporting unit to all of its assets and liabilities
as if the reporting unit had been acquired in a business combination and the fair value of the
North America reporting unit was the price paid to acquire the reporting unit. The excess of the
fair value of the reporting unit over the amounts assigned to its assets and liabilities is the
implied fair value of goodwill. Our step two analysis resulted in no implied fair value of
goodwill for the North America reporting unit, and therefore, we recognized a non-cash goodwill
impairment charge of $313,776,000, $201,050,000 net of taxes, which represented the entire goodwill
balance recorded in our North America operating segment as of June 30, 2008, including the entire
amount of the goodwill recorded in connection with the Calence acquisition, including the earnout
through June 30, 2008. The charge is included in (loss) earnings from continuing operations for
the year ended December 31, 2008.
During the three months ended September 30, 2008, our overall market capitalization increased
with increases in the market price of Insights 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 Insights 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.
77
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 assets exceeded the carrying amount, and no impairment
was indicated.
Amortization expense recognized for the years ended December 31, 2008, 2007 and 2006 was
$13,868,000, $9,749,000 and $3,811,000, respectively. Future amortization expense is estimated as
follows (in thousands):
|
|
|
|
|
Years Ending December 31, |
|
Amortization Expense |
|
2009 |
|
$ |
12,257 |
|
2010 |
|
|
11,918 |
|
2011 |
|
|
11,654 |
|
2012 |
|
|
11,427 |
|
2013 |
|
|
10,466 |
|
Thereafter |
|
|
35,678 |
|
|
|
|
|
Total amortization expense |
|
$ |
93,400 |
|
|
|
|
|
(7) Debt and Inventory Financing Facility
Debt
Our long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Senior revolving credit facility |
|
$ |
228,000 |
|
|
$ |
|
|
Accounts
receivable securitization financing facility (the ABS
facility) |
|
|
|
|
|
|
146,000 |
|
Term loan |
|
|
|
|
|
|
56,250 |
|
|
|
|
|
|
|
|
Total |
|
|
228,000 |
|
|
|
202,250 |
|
Less: current portion of term loan |
|
|
|
|
|
|
(15,000 |
) |
|
|
|
|
|
|
|
Long-term debt |
|
$ |
228,000 |
|
|
$ |
187,250 |
|
|
|
|
|
|
|
|
On April 1, 2008, we entered into a new five-year $300,000,000 senior revolving credit
facility, which replaced our previous $75,000,000 five-year revolving credit facility and our
$75,000,000 five-year term loan facility, which were entered into in September 2006 to finance, in
part, the acquisition of Software Spectrum and for general corporate purposes. The Calence
acquisition was funded, in part, using borrowings under the new facility. Amounts outstanding
under the new senior revolving credit facility bear interest, payable quarterly, at a floating rate
equal to the prime rate or, at our option, a LIBOR rate plus a pre-determined spread of 0.75% to
1.75%. In addition, we pay a commitment fee on
the unused portion of the facility of 0.175% to 0.35%. The weighted average interest rate on amounts outstanding under our senior revolving credit
facility, including the commitment fee was 4.8% during the year ended December 31, 2008. As of December 31, 2008, $72,000,000 was
available under the senior revolving credit facility. The senior revolving credit facility matures
on April 1, 2013.
78
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In connection with the new inventory financing facility discussed below, on September 17,
2008, we amended certain provisions in the senior revolving credit facility to, among other
provisions, permit up to $100,000,000 in outstanding indebtedness under the new inventory financing
facility and the liens securing such indebtedness.
We have an agreement to sell receivables periodically to a special purpose accounts receivable
and financing entity (the SPE), which is exclusively engaged in purchasing receivables from us.
The SPE is a wholly-owned, bankruptcy-remote entity that we have included in our consolidated
financial statements. The SPE funds its purchases by selling undivided interests in eligible trade
accounts receivable to a multi-seller conduit administered by an independent financial institution.
The SPEs assets are available first and foremost to satisfy the claims of the creditors of the
conduit. The sales to the conduit do not qualify for sale treatment under SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities as
we maintain effective control over the receivables that are sold. Accordingly, the receivables
remain recorded on our consolidated balance sheets. At December 31, 2008 and 2007, the SPE owned
$346,235,000 and $396,126,000, respectively, of receivables recorded at fair value and included in
our consolidated balance sheets, of which $150,000,000 and $198,599,000, respectively, was eligible
for funding. The Companys ability to borrow up to the full $150,000,000 under the ABS facility is
based on formulae relating to the amount and quality of the Companys legacy accounts receivable in
the U.S. As a result of the decline in overall sales volume in the legacy business in the U.S. in
the first quarter of 2009, the availability under the ABS facility has decreased by $40,300,000 as
of March 31, 2009. Additionally, we further reduced our eligible receivables under this facility
by $45,900,000 to reflect the legacy business gross trade credit liabilities that were recorded as
part of our financial statement restatement described in Note 2. As a result, total availability
under our ABS facility at March 31, 2009, after consideration of the restatement, was $63,800,000.
We plan to work with our lenders to increase our total capacity under the ABS facility by adding
receivables from our U.S.-based software business to the facility as market and other conditions
permit.
On September 17, 2008, we amended certain provisions of our accounts receivable securitization
facility, which was to have expired on September 7, 2009, including, among other provisions, (i) a
reduction in the facility amount effective December 17, 2008 from $225,000,000 to $150,000,000,
(ii) an increase in the permissible delinquency ratio, and (iii) the creation of a new one-year
term through September 17, 2009.
No amounts are outstanding under the accounts receivable securitization facility at December
31, 2008. Interest is payable monthly, and the interest rate at December 31, 2008 applicable had
there been outstanding balances was 3.13% per annum, including the 1.5% usage fee on any drawn
balances. During the years ended December 31, 2008 and
2007, our weighted average interest rate per annum and weighted average borrowings under the
facility were 4.30% and $128,420,000 and 6.3% and $123,097,000, respectively.
Inventory Financing Facility
On September 17, 2008, we entered into an agreement which provides for a new facility to
purchase inventory from a list of approved vendors. The aggregate availability for vendor
purchases under the inventory financing facility is $90,000,000, and the facility matures on
April 1, 2013 but may be cancelled with 90 days notice. Additionally, the facility may be renewed
under certain circumstances described in the agreement for successive twelve month periods.
Interest does not accrue on accounts payable under this facility provided the accounts payable are
paid within stated vendor terms (ranging from 30 to 60 days). We impute interest on the average
daily balance outstanding during these stated vendor terms based on our blended borrowing rate
during the period under our senior revolving credit facility and our accounts receivable
securitization financing facility. Imputed interest of $581,000 was recorded in 2008. If balances
are not paid within stated vendor terms, they will accrue interest at prime plus 1.25%. The
facility is guaranteed by the Company and each of its material domestic subsidiaries and is secured
by a lien on substantially all of the Companys domestic assets that is of equal priority to the
liens securing borrowings under our senior revolving credit facility. The facility replaced an
existing agreement that the Company assumed in connection with the acquisition of Calence on
April 1, 2008. As of December 31, 2008, $80,904,000 was included in accounts payable related to
this facility.
Covenants
Our financing facilities contain various covenants customary for transactions of this type,
including the requirement that we comply with maximum leverage, minimum fixed charge and asset
coverage ratio requirements and meet monthly, quarterly and annual reporting requirements. If we
fail to comply with these covenants, the lenders would be able to demand payment within a specified
period of time.
79
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 Companys 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 Companys total
debt capacity. As of December 31, 2008, of the $450.0 million of total debt capacity available,
the Companys borrowing capacity was limited to $402.1 million based on trailing twelve-month
EBITDA of $134.0 million. Even with lower expected EBITDA and
the lower maximum leverage ratio covenant beginning in the fourth
quarter of 2009, we anticipate that we will meet our maximum leverage
ratio requirements over the next four quarters.
As discussed above, our senior revolving credit facility and inventory financing facility both
mature on April 1, 2013. The term of our accounts receivable securitization facility is scheduled
to expire on September 17, 2009. If we were unable to renew our
ABS facility in 2009, we believe that cash flows from operations and
extending payment terms with key partners by foregoing early pay
discounts, together with the funds available under our existing
long-term senior revolving credit facility, will be adequate to
support our anticipated working capital requirements for operations
over the next twelve months.
In February 2009, we informed the administrative agents under our senior revolving credit
facility, our accounts receivable securitization financing facility and our inventory financing
facility of our intention to restate our financial statements and on February 6, 2009 obtained
waivers from default with respect thereto from our administrative agents under those facilities.
Under the terms of those waivers, the Company has until May 15, 2009 to deliver our restated
consolidated financial statements for the fiscal year ended December 31, 2007, our restated
selected quarterly financial information for each of the three fiscal quarters ended March 31,
2008, June 30, 2008 and September 30, 2008, and our consolidated financial statements for the
fiscal year ended December 31, 2008. We will be current in our filings with the filing of this
report prior to May 15, 2009.
(8) Market Risk Management
Interest Rate Risk
We have interest rate exposure arising from our financing facilities, which have variable
interest rates. These variable interest rates are affected by changes in short-term interest
rates. We currently do not hedge our interest rate exposure.
We do not believe that the effect of reasonably possible near-term changes in interest rates
will be material to our financial position, results of operations and cash flows. Our financing
facilities expose net earnings to changes in short-term interest rates since interest rates on the
underlying obligations are variable. We had $228,000,000 outstanding under our senior revolving
credit facility and no amounts outstanding under our accounts receivable securitization financing
facility at December 31, 2008. The interest rates attributable to the borrowings under our senior
revolving credit facility and the accounts receivable securitization financing facility were 1.61%
and 3.13%, respectively, per annum at December 31, 2008. The change in annual net earnings from
continuing operations, pretax, resulting from a hypothetical 10% increase or decrease in the
highest applicable interest rate would approximate $700,000.
Foreign Currency Exchange Risk
We use the U.S. dollar as our reporting currency. The functional currencies of our
significant foreign subsidiaries are generally the local currencies. Accordingly, assets and
liabilities of the subsidiaries are translated into U.S. dollars at the exchange rate in effect at
the balance sheet dates. Income and expense items are translated at the average exchange rate for
each month within the year. Translation adjustments are recorded in other comprehensive income as
a separate component of stockholders equity. Net foreign currency transaction (gains) losses,
including transaction (gains) losses on intercompany balances that are not of a long-term
investment nature, are reported as a separate component of non-operating (income) expense, net in
our consolidated statements of operations. We also maintain cash accounts denominated in
currencies other than the functional currency which expose us to foreign exchange rate movements.
Remeasurement of these cash balances results in (gains) losses that are also reported as a separate
component of non-operating (income) expense.
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.
80
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
(9) Leases
We have several non-cancelable operating leases with third parties, primarily for
administrative and distribution center space and computer equipment. Our facilities leases
generally provide for periodic rent increases and many contain escalation clauses and renewal
options. We recognize rent expense on a straight-line basis over the lease term. Rental expense
for these third-party operating leases was $16,132,000, $13,343,000 and $9,491,000 for the years
ended December 31, 2008, 2007 and 2006, respectively, and is included in selling and administrative
expenses in our consolidated statements of operations.
Future minimum lease payments under non-cancelable operating leases (with initial or remaining
lease terms in excess of one year) as of December 31, 2008 are as follows (in thousands):
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
2009 |
|
$ |
14,079 |
|
2010 |
|
|
11,340 |
|
2011 |
|
|
9,065 |
|
2012 |
|
|
6,380 |
|
2013 |
|
|
3,319 |
|
Thereafter |
|
|
12,241 |
|
|
|
|
|
Total minimum lease payments |
|
$ |
56,424 |
|
|
|
|
|
(10) Severance, Restructuring and Acquisition Integration Activities
Severance Costs Expensed in 2008
During the year ended December 31, 2008, North America, EMEA and APAC recorded severance
expense totaling $4,633,000, $3,923,000 and $39,000, respectively, related to on-going
restructuring efforts to reduce operating expenses related to support and management functions as
well as certain sales functions. The following table details the changes in these liabilities
during the year ended December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Severance costs |
|
$ |
4,633 |
|
|
$ |
3,923 |
|
|
$ |
39 |
|
|
$ |
8,595 |
|
Foreign currency
translation
adjustments |
|
|
|
|
|
|
(214 |
) |
|
|
|
|
|
|
(214 |
) |
Cash payments |
|
|
(3,858 |
) |
|
|
(1,770 |
) |
|
|
(39 |
) |
|
|
(5,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2008 |
|
$ |
775 |
|
|
$ |
1,939 |
|
|
$ |
|
|
|
$ |
2,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All remaining outstanding obligations are expected to be paid during 2009 and are therefore
included in accrued expenses and other current liabilities.
81
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Severance Costs Expensed in 2007
During the year ended December 31, 2007, North America, EMEA and APAC recorded severance
expense of $2,960,000, $177,000 and $64,000, respectively, primarily associated with the retirement
of our chief financial officer. Of the severance amounts expensed in 2007, EMEA paid $177,000
during 2007. All other amounts were paid during 2008.
Acquisition-Related Costs Capitalized in 2006 as a Cost of Acquisition of Software Spectrum
In 2006, we recorded $9,738,000 of employee termination benefits and $1,676,000 of facility
based costs in connection with the integration of Software Spectrum. These costs were accounted
for under EITF Issue No. 95-3, Recognition of Liabilities in Connection with Purchase Business
Combinations, and were based on the integration plans that were committed to by management.
Accordingly, these costs were recognized as a liability assumed in the purchase business
combination and included in the allocation of the cost to acquire Software Spectrum.
The employee termination benefits relate to severance payments for Software Spectrum teammates
in North America and EMEA who were terminated in connection with integration plans. The facilities
based costs relate to future lease payments or lease termination costs associated with vacating
Software Spectrum facilities in EMEA.
The following table details the changes in these liabilities during the year ended December
31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
EMEA |
|
|
Consolidated |
|
Balance at December 31, 2007 |
|
$ |
543 |
|
|
$ |
4,395 |
|
|
$ |
4,938 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
(455 |
) |
|
|
(455 |
) |
Adjustments |
|
|
|
|
|
|
(785 |
) |
|
|
(785 |
) |
Cash payments |
|
|
(202 |
) |
|
|
(349 |
) |
|
|
(551 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
341 |
|
|
$ |
2,806 |
|
|
$ |
3,147 |
|
|
|
|
|
|
|
|
|
|
|
In
the accompanying consolidated balance sheet at December 31,
2008, $1,863,000 is expected to
be paid in 2009 and is therefore included in accrued expenses and other current liabilities, and
$1,284,000 is expected to be paid after 2009 and is therefore included in other liabilities
(long-term). In 2008 an adjustment of $785,000 was recorded as a reduction of the severance
accrual in EMEA due to a change in estimate of the costs of the integration plan.
Restructuring Costs Expensed in 2005
During the year ended December 31, 2005, Insight UK moved into a new facility and recorded
facilities-based restructuring costs of $7,458,000.
The following table details the changes in this liability during the year ended December 31,
2008 (in thousands):
|
|
|
|
|
|
|
EMEA |
|
Balance at December 31, 2007 |
|
$ |
2,425 |
|
Adjustments |
|
|
(353 |
) |
Cash payments |
|
|
(1,022 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
$ |
1,050 |
|
|
|
|
|
In 2007, an adjustment of $606,000 was recorded as a reduction in remaining lease obligations
following a successful renegotiation of a portion of the lease. The remaining accrual of
$1,050,000 is expected to be paid in 2009 and is therefore included in accrued expenses and other
current liabilities in the accompanying consolidated balance sheet at December 31, 2008.
82
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(11) Income Taxes
The following table presents the U.S. and foreign components of (loss) earnings from
continuing operations before income taxes and the related income tax (benefit) expense (in
thousands):
(Loss) earnings from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
|
Restated |
|
|
Restated |
|
|
|
|
|
|
|
(1) |
|
|
(1) |
|
U.S. |
|
$ |
(282,554 |
) |
|
$ |
56,728 |
|
|
$ |
59,364 |
|
Foreign |
|
|
(43,520 |
) |
|
|
48,563 |
|
|
|
27,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(326,074 |
) |
|
$ |
105,291 |
|
|
$ |
87,339 |
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
|
Restated |
|
|
Restated |
|
|
|
|
|
|
|
(1) |
|
|
(1) |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
5,379 |
|
|
$ |
22,956 |
|
|
$ |
22,701 |
|
U.S. State and local |
|
|
360 |
|
|
|
2,170 |
|
|
|
975 |
|
Foreign |
|
|
14,674 |
|
|
|
17,091 |
|
|
|
7,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,413 |
|
|
|
42,217 |
|
|
|
31,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
(97,126 |
) |
|
|
(774 |
) |
|
|
(3,058 |
) |
U.S. State and local |
|
|
(10,254 |
) |
|
|
341 |
|
|
|
392 |
|
Foreign |
|
|
620 |
|
|
|
(1,098 |
) |
|
|
2,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,760 |
) |
|
|
(1,531 |
) |
|
|
(603 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(86,347 |
) |
|
$ |
40,686 |
|
|
$ |
30,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
Income tax expense relating to discontinued operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
U.S. |
|
$ |
|
|
|
$ |
1,719 |
|
|
$ |
8,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
1,719 |
|
|
$ |
8,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
83
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following schedule reconciles the differences between the U.S. federal income taxes at the
U.S. statutory rate to our income tax (benefit) expense (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As |
|
|
As |
|
|
|
|
|
|
|
Restated |
|
|
Restated |
|
|
|
|
|
|
|
(1) |
|
|
(1) |
|
Expected (benefit) expense at
U.S. Statutory rate of 35% |
|
$ |
(114,126 |
) |
|
$ |
36,852 |
|
|
$ |
30,569 |
|
Change resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income tax (benefit) expense,
net of federal income tax benefit |
|
|
(9,227 |
) |
|
|
2,323 |
|
|
|
2,228 |
|
Audits and adjustments, net 2,641 347 (2,519) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance |
|
|
8,707 |
|
|
|
313 |
|
|
|
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign income taxed at different rates |
|
|
460 |
|
|
|
(170 |
) |
|
|
(834 |
) |
Non-deductible goodwill impairment charges |
|
|
25,785 |
|
|
|
|
|
|
|
|
|
Other, net |
|
|
(587 |
) |
|
|
1,021 |
|
|
|
1,572 |
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
$ |
(86,347 |
) |
|
$ |
40,686 |
|
|
$ |
30,882 |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
26.5 |
% |
|
|
38.6 |
% |
|
|
35.4 |
% |
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
For foreign entities not treated as branches for U.S. tax purposes, we do not provide for U.S.
income taxes on the undistributed earnings of these subsidiaries as these earnings are reinvested
and, in the opinion of management, will continue to be reinvested indefinitely outside of the U.S.
The undistributed earnings of foreign subsidiaries that are deemed to be indefinitely invested
outside of the U.S. were $23,530,000 at December 31, 2008. It is not practicable to determine the
unrecognized deferred tax liability on those earnings.
The significant components of deferred tax assets and liabilities are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
(1) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Trade credits |
|
$ |
18,920 |
|
|
$ |
19,802 |
|
Net operating loss carryforwards |
|
|
14,096 |
|
|
|
18,179 |
|
Miscellaneous accruals |
|
|
12,886 |
|
|
|
10,506 |
|
Stock compensation |
|
|
8,107 |
|
|
|
10,013 |
|
Allowance for doubtful accounts and returns |
|
|
6,918 |
|
|
|
5,609 |
|
Foreign tax credit carryforwards |
|
|
9,043 |
|
|
|
5,081 |
|
Other, net |
|
|
903 |
|
|
|
3,864 |
|
Accrued vacation and other payroll liabilities |
|
|
3,458 |
|
|
|
3,297 |
|
Write-downs of inventories |
|
|
1,711 |
|
|
|
2,154 |
|
Depreciation allowance carryforwards |
|
|
1,440 |
|
|
|
1,760 |
|
Amortization of goodwill and other intangibles |
|
|
92,116 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
169,598 |
|
|
|
80,265 |
|
Valuation allowance |
|
|
(21,888 |
) |
|
|
(19,975 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
147,710 |
|
|
|
60,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Amortization of Goodwill and other intangibles |
|
|
|
|
|
|
(23,970 |
) |
Depreciation and amortization |
|
|
(19,653 |
) |
|
|
(17,375 |
) |
Prepaid expenses |
|
|
(516 |
) |
|
|
(515 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(20,169 |
) |
|
|
(41,860 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
127,541 |
|
|
$ |
18,430 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
84
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The net current and non-current portions of deferred tax assets and liabilities are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset |
|
$ |
40,075 |
|
|
$ |
42,252 |
|
Net non-current deferred tax asset (liability) |
|
|
87,466 |
|
|
|
(23,822 |
) |
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
|
$ |
127,541 |
|
|
$ |
18,430 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
As of December 31, 2008, we have U.S. state net operating loss carryforwards (NOLs) of
$720,000 that will expire between 2009 and 2028. We also have NOLs from various non-U.S.
jurisdictions of $52,012,000. While the majority of the non-U.S. NOLs have no expiration date,
$468,000 will fully expire in 2018.
On the basis of currently available information, we have provided valuation allowances for
certain of our deferred tax assets where we believe it is more likely than not that the related tax
benefits will not be realized. At December 31, 2008, our valuation allowances totaled $21,888,000,
representing all of our U.S. state NOLs, a portion of our non-U.S. NOLs, foreign depreciation
allowances, foreign tax credits, and a U.S. deferred tax asset related to Software Spectrum foreign
branches. In the future, if we determine that additional realization of these deferred tax assets
is more likely than not, the reversal of the related valuation allowance will reduce income tax
expense. Upon the January 1, 2009 adoption of SFAS 141R, changes that occur after acquisition date
in deferred tax asset valuation allowances and income tax uncertainties resulting from a business
combination, including those associated with acquisitions that closed prior to the effective date
of SFAS 141R, will generally affect income tax expense. At December 31, 2007, our valuation
allowances totaled $19,975,000, representing all of our U.S. state NOLs, a portion of our non-U.S.
NOLs, foreign depreciation allowances, and a U.S. deferred tax asset related to Software Spectrum
foreign branches.
We believe it is more likely than not that forecasted income, including income that may be
generated as a result of prudent and feasible tax planning strategies, together with the tax
effects of deferred tax liabilities, will be sufficient to fully recover our remaining deferred tax
assets. In the future, if we determine that realization of the remaining deferred tax asset is not
more likely than not, we will need to increase our valuation allowance and record additional income
tax expense. As a result of income generated through December 31, 2008 and near-term income
forecasts, during 2008 we determined that we had sufficient positive evidence to recognize our
deferred tax asset related to our United Kingdom, France, Austria, and Hong Kong net operating loss
(foreign NOL) carryforwards. Therefore, the valuation allowance against these foreign NOL
deferred tax assets was released. Since the foreign NOLs were related to activity at Software
Spectrum prior to the acquisition, the reversal was recorded as a reduction of goodwill (see Note
5) and had no effect on income tax (benefit) expense during the year ended December 31, 2008.
The following table summarizes the change in the valuation allowance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Valuation allowance at beginning of year |
|
$ |
19,975 |
|
|
$ |
19,830 |
|
Increases in income tax expense |
|
|
7,000 |
|
|
|
251 |
|
Valuation allowances of Software Spectrum/MINX |
|
|
(3,459 |
) |
|
|
(1,623 |
) |
Foreign currency translation adjustments |
|
|
(1,628 |
) |
|
|
1,517 |
|
|
|
|
|
|
|
|
Valuation allowance at end of year |
|
$ |
21,888 |
|
|
$ |
19,975 |
|
|
|
|
|
|
|
|
A tax shortfall of $2,737,000 related to the exercise of employee stock options and other
employee stock programs was applied to stockholders equity during the year ended December 31,
2008. Tax benefits of $1,791,000 and $882,000 related to the exercise of employee stock options
and other employee stock programs were applied to stockholders equity in the years ended December
31, 2007 and 2006, respectively.
85
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Various taxing jurisdictions are examining our tax returns for various tax years. Although
the outcome of tax audits cannot be predicted with certainty, management believes the ultimate
resolution of these examinations will not result in a material adverse effect to our financial
position or results of operations.
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48), requires that companies recognize the effect of a tax position
in their consolidated financial statements if there is a greater likelihood than not of the
position being sustained upon audit based on the technical merits of the position. We adopted the
provisions of FIN 48 effective January 1, 2007. The adoption of FIN 48 resulted in no cumulative
effect adjustment to our retained earnings. However, in order to conform to the balance sheet
presentation requirements of FIN 48, we classified certain unrecognized tax benefits on our balance
sheet from current assets to non-current assets.
As of December 31, 2008 and 2007, we had approximately $4,300,000 and $13,500,000,
respectively, of unrecognized tax benefits. Of these amounts, approximately $400,000 and
$2,600,000, respectively, relate to accrued interest. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
10,900 |
|
Additions for tax positions in prior periods |
|
|
200 |
|
Additions for tax positions in current period |
|
|
2,100 |
|
Subtractions due to foreign currency translation |
|
|
(300 |
) |
Subtractions due to audit settlements |
|
|
(9,000 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
$ |
3,900 |
|
|
|
|
|
Our policy to classify interest and penalties relating to uncertain tax positions as a
component of income tax (benefit) expense in our consolidated statements of operations did not
change as a result of implementing the provisions of FIN 48.
As of December 31, 2008, if recognized, $3,700,000 of the liability associated with uncertain
tax positions of $4,300,000 would affect our effective tax rate. The remaining $600,000 balance
arose from business combinations that, if recognized, ultimately would be recorded as an adjustment
to an indemnification receivable with no effect on our effective tax rate. We do not believe there
will be any changes over the next twelve months that would have a material effect on our effective
tax rate.
Several of our subsidiaries are currently under audit for the 2002 through 2007 tax years. It
is reasonably possible that the examination phase of these audits may conclude in the next twelve
months and that the related unrecognized tax benefits for uncertain tax positions will decrease.
However, based on the status of the examinations, an estimate of the range of reasonably possible
outcomes cannot be made at this time.
We, including our subsidiaries, file income tax returns in the U.S. federal jurisdiction, and
many state and local and non-U.S. jurisdictions. In the U.S., federal income tax returns for 2004
through 2007 remain open to examination. For U.S. state and local as well as non-U.S.
jurisdictions, the statute of limitations generally varies between three and ten years.
(12) Stock Based Compensation
On January 1, 2006, we adopted SFAS No. 123 (revised 2004), Share Based Payment (SFAS
123R), which requires stock-based compensation to be measured based on the fair value of the award
on the date of grant and the corresponding expense to be recognized over the period during which an
employee is required to provide service in exchange for the award. In March 2005, the SEC issued
SAB No. 107 Share Based Payment (SAB 107), relating to SFAS 123R. We have applied the
provisions of SAB 107 in our adoption of SFAS 123R. Stock-based compensation expense is classified
in the same line item of the consolidated statements of operations as other payroll-related
expenses for the specific employee.
86
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recorded the following pre-tax amounts for stock-based compensation, by operating segment,
in our consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
As Restated |
|
|
As Restated |
|
|
|
|
|
|
|
(1) |
|
|
(1) |
|
North America (2) |
|
$ |
5,794 |
|
|
$ |
11,576 |
|
|
$ |
13,439 |
|
EMEA(2) |
|
|
1,985 |
|
|
|
2,704 |
|
|
|
1,594 |
|
APAC(2) |
|
|
206 |
|
|
|
305 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
Total Continuing Operations |
|
$ |
7,985 |
|
|
$ |
14,585 |
|
|
$ |
15,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements.
|
|
(2) |
|
Recorded in selling and administrative expenses. |
Company Plans
On October 1, 2007 Insights Board of Directors approved the 2007 Omnibus Plan (the 2007
Plan), and the 2007 Plan became effective when it was approved by Insights stockholders at the
annual meeting on November 12, 2007. On August 12, 2008, the 2007 Plan was amended to clarify
certain provisions relating to forfeiture restrictions and grants of discretionary awards to
non-employee directors. The 2007 Plan is administered by the Compensation Committee of Insights
Board of Directors, and except as provided below, the Compensation Committee has the exclusive
authority to administer the 2007 Plan, including the power to determine eligibility, the types of
awards to be granted, the price and the timing of awards. Under the 2007 Plan, the Compensation
Committee may delegate some of its authority to our Chief Executive Officer to grant awards to
individuals other than individuals who are subject to the reporting requirements of Section 16(a)
of the Securities Exchange Act of 1934, as amended (the Exchange Act). Teammates, officers and
members of the Board of Directors are eligible for awards under the 2007 Plan, and consultants and
independent contractors are also eligible if they provide bona fide services that are not related
to capital raising or promoting or maintaining a market for the Companys stock. The 2007 Plan
allows for awards of options, stock appreciation rights (SARs), restricted stock, RSUs, performance
awards as well as grants of cash awards. A total of 4,250,000 shares of stock are reserved for
awards issued under the 2007 Plan. As of December 31, 2008, 3,002,635 shares of stock were
available for grant under the 2007 Plan.
In 1997, we established the 1998 Long-Term Incentive Plan (the 1998 LTIP) for our officers,
teammates, directors, consultants and independent contractors. The 1998 LTIP, as amended,
authorized grants of incentive stock options, non-qualified stock options, stock appreciation
rights, performance shares, restricted common stock and performance-based awards. In 1998 and
1999, we also established the 1998 Employee Restricted Stock Plan for our teammates, the 1998
Officer Restricted Stock Plan for our officers and the 1999 Broad Based Employee Stock Option Plan
for our teammates. Upon stockholder approval of the 2007 Plan in November 2007, as discussed
above, there will be no further grants under these plans.
Accounting for Stock Options
We had no grants of stock options during the year ended December 31, 2008, one grant in 2007
and no grants in 2006. In valuing the December 2007 award, we assumed a dividend yield of 0%,
expected volatility of 36%, a risk-free interest rate of 3.4% and an expected life of 3.5 years.
Consistent with SFAS 123R and SAB 107, we considered the historical volatility of our stock price
in determining our expected volatility. The risk-free interest rate assumption is based upon
observed interest rates appropriate for the term of the stock options. The expected life of stock
options represents the weighted-average period the stock options are expected to remain outstanding
calculated using the simplified method as prescribed in SAB 107.
For the years ended December 31, 2008, 2007 and 2006, we recorded in continuing operations
stock-based compensation expense related to stock options, net of forfeitures, of $524,000,
$3,249,000 and $8,166,000, respectively. In 2006, we recorded $230,000 of stock-based compensation
related to stock options in discontinued operations. As of December 31, 2008, total compensation
cost related to nonvested stock options not yet recognized is $842,000, which is expected to be
recognized over the next 1.26 years on a weighted-average basis.
87
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Included in the amount for the year ended December 31, 2007 is $366,000 of cash payments made
in May through August 2007 to teammates whose stock options expired during the period that
registration statements for our stock plans were suspended as a result of the delay in the filing
of our Annual Report on Form 10-K for the year ended December 31, 2006 and $136,000 of cash
payments made to teammates pursuant to a formal tender offer (the Tender Offer) which allowed
teammates to amend certain options that had been retroactively priced. A total of 63 teammates
participated in the Tender Offer. Pursuant to the Tender Offer, the exercise price per share in
effect for each tendered option was amended to the fair market value per share of our common stock
on the measurement date determined for that option for financial accounting purposes. Each
participant who had an option with an exercise price that was amended, in late 2007, also became
entitled to receive, in early 2008, a cash payment with respect to that option to compensate them
for the spread lost in the amendment. The amount of the cash payment for each eligible option was
calculated by multiplying (i) the amount by which the new exercise price of the option was higher
than the exercise price per share previously in effect for that option, by (ii) the number of
shares of our common stock that the holder could acquire under that option.
During 2007, we also recognized non-cash stock-based compensation expense for a 90-day
extension of the post termination exercise period for stock options related to the retirement of
our former chief financial officer. The modification expense of $186,000 was recorded in severance
and restructuring expenses.
The following table summarizes our stock option activity during the year ended December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
Remaining |
|
|
|
Number |
|
|
Weighted Average |
|
|
Intrinsic Value |
|
|
Contractual |
|
|
|
Outstanding |
|
|
Exercise Price |
|
|
(in-the-money options) |
|
|
Life (in years) |
|
Outstanding at the beginning
of year |
|
|
3,621,130 |
|
|
$ |
19.33 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(345,565 |
) |
|
|
14.56 |
|
|
$ |
1,077,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(738,892 |
) |
|
|
20.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of year |
|
|
2,536,673 |
|
|
|
19.47 |
|
|
$ |
|
|
|
|
1.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of year |
|
|
2,402,590 |
|
|
|
19.57 |
|
|
$ |
|
|
|
|
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest |
|
|
2,513,520 |
|
|
|
19.49 |
|
|
$ |
|
|
|
|
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date
fair
value for options granted
during
2007 |
|
$ |
5.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic
value, based on our closing stock price of $6.90 as of December 31, 2008, which would have been
received by the option holders had all option holders exercised options and sold the underlying
shares on that date. The aggregate intrinsic value for options exercisable during 2007 and 2006
was $1,921,292 and $4,187,616, respectively.
88
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the status of outstanding stock options as of December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
Range of |
|
Number of |
|
|
Remaining |
|
|
Exercise |
|
|
Number of |
|
|
Exercise |
|
Exercise |
|
Options |
|
|
Contractual |
|
|
Price Per |
|
|
Options |
|
|
Price Per |
|
Prices |
|
Outstanding |
|
|
Life (in years) |
|
|
Share |
|
|
Exercisable |
|
|
Share |
|
$13.00 18.53 |
|
|
733,716 |
|
|
|
1.91 |
|
|
$ |
17.66 |
|
|
|
599,633 |
|
|
$ |
17.64 |
|
18.54 19.72 |
|
|
642,160 |
|
|
|
0.98 |
|
|
$ |
19.22 |
|
|
|
642,160 |
|
|
$ |
19.22 |
|
19.79 19.90 |
|
|
516,100 |
|
|
|
0.87 |
|
|
$ |
19.90 |
|
|
|
516,100 |
|
|
$ |
19.90 |
|
20.00 21.25 |
|
|
568,529 |
|
|
|
0.51 |
|
|
$ |
20.85 |
|
|
|
568,529 |
|
|
$ |
20.85 |
|
21.30 41.00 |
|
|
76,168 |
|
|
|
1.45 |
|
|
$ |
25.78 |
|
|
|
76,168 |
|
|
$ |
25.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,536,673 |
|
|
|
1.14 |
|
|
$ |
19.47 |
|
|
|
2,402,590 |
|
|
$ |
19.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for Restricted Stock
We have issued shares of restricted common stock and RSUs as incentives to certain officers
and teammates. We recognize compensation expense associated with the issuance of such shares and
RSUs over the vesting period for each respective share and RSU. Compensation expense related to
service-based RSUs is recognized on a straight-line basis over the requisite service period for the
entire award. Compensation expense related to performance-based RSUs is recognized on a
straight-line basis over the requisite service period for each separately vesting portion of the
award as if the award was, in-substance, multiple awards (i.e., a graded vesting basis). The total
compensation expense associated with restricted stock represents the value based upon the number of
shares or RSUs awarded multiplied by the closing price of our common stock
on the date of grant. Recipients of restricted stock shares are entitled to receive any dividends
declared on our common stock and have voting rights, regardless of whether such shares have vested.
Recipients of RSUs do not have voting or dividend rights until the vesting conditions are
satisfied and shares are released.
Starting in 2006, we have elected to primarily issue service-based and performance-based RSUs
instead of stock options and restricted stock shares. The number of RSUs ultimately awarded under
the performance-based RSUs will vary based on whether we achieve certain financial results. We
will record compensation expense each period based on the market price of our common stock on the
grant date and our estimate of the most probable number of RSUs that will be issued under the
grants of performance-based RSUs. Additionally, the compensation expense is adjusted for our
estimate of forfeitures.
For the years ended December 31, 2008, 2007 and 2006, we recorded in continuing operations
stock-based compensation expense, net of estimated forfeitures, related to restricted stock shares
and RSUs of $7,461,000, $10,834,000 and $6,911,000, respectively. In 2006, we recorded $748,000 of
stock-based compensation related to RSUs in discontinued operations. As of December 31, 2008,
total compensation cost related to nonvested restricted stock shares and RSUs not yet recognized is
$11,308,000, which is expected to be recognized over the next 1.65 years on a weighted-average
basis.
On January 23, 2008, the Compensation Committee of our Board of Directors approved a special
long-term incentive award for the Chief Executive Officer, the President of our North America/APAC
operating segments and the President of our EMEA operating segment. The approved grant level
targets were as follows:
|
|
|
Richard A. Fennessy, President and Chief Executive Officer 300,000 RSUs; |
|
|
|
|
Mark T. McGrath, President, North America/APAC 150,000 RSUs; and |
|
|
|
|
Stuart A. Fenton, President, EMEA 100,000 RSUs. |
The plan provided for the award of RSUs that were to be issued based upon achievement of
specific stock price hurdles within specific timeframes (the 20-day average closing price of
Insight stock must be at or above a stock price hurdle and within the defined timeframes for any
tranche to be awarded). For the year ended December 31, 2008, we recorded stock-based compensation
expense related to these RSUs of $961,000, which is included in the stock-based compensation
expense amount discussed above. As of December 31, 2008, total compensation cost not yet
recognized related to these RSUs was $5,478,000 of the $11,308,000 total discussed above. Due to
the current economic climate and the decrease in Insights stock price, on February 19, 2009,
Messrs. Fennessy, Fenton and McGrath agreed to forfeit the awards, resulting in the termination of
the awards. Accordingly, no shares were, or will be, issued under these awards. A non-cash charge
of $5,478,000 will be recognized in the first quarter of 2009 as a result of the cancellation of
these awards.
89
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes our restricted stock activity, including restricted stock
shares and RSUs, during the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Number |
|
|
Grant Date Fair Value |
|
|
Fair Value |
|
Nonvested at the beginning of period |
|
|
1,108,857 |
|
|
$ |
20.29 |
|
|
|
|
|
Granted |
|
|
1,029,865 |
|
|
$ |
10.43 |
|
|
|
|
|
Vested, including shares withheld
to cover taxes |
|
|
(445,396 |
) |
|
$ |
20.36 |
|
|
$ |
7,733,859 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(173,170 |
) |
|
$ |
19.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at the end of period |
|
|
1,520,156 |
|
|
$ |
13.71 |
|
|
$ |
10,489,076 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
Expected to vest |
|
|
1,405,215 |
|
|
$ |
|
|
|
$ |
9,695,984 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of vested restricted stock shares and RSUs represents the
total pre-tax fair value, based on the closing
stock price on the day of vesting, which would have been received by holders of restricted
stock shares and RSUs had all such holders sold their underlying shares on that date. The
aggregate intrinsic value for vested restricted stock shares and RSUs during 2007 was $5,319,942. |
|
(b) |
|
The aggregate fair value of the nonvested restricted stock shares and the RSUs
expected to vest represents the total pre-tax fair value, based on our closing stock price
of $6.90 as of December 31, 2008, which would have been received by holders of restricted
stock shares and RSUs had all such holders sold their underlying shares on that date. |
During the year ended December 31, 2008, the restricted stock shares and RSUs that vested for
teammates in the United States were net-share settled such that we withheld shares with value
equivalent to the teammates minimum statutory United States tax obligation for the applicable
income and other employment taxes and remitted the cash to the appropriate taxing authorities. The
total shares withheld during the year ended December 31, 2008 of 120,492 was based on the value of
the restricted stock shares or RSUs on their vesting dates as determined by our closing stock price
on such dates. For the year ended December 31, 2008, total payments for the employees tax
obligations to the taxing authorities were $2,120,000 and are reflected as a financing activity
within the Consolidated Statements of Cash Flows. These net-share settlements had the effect of
repurchases of our common stock as they reduced and retired the number of shares that would have
otherwise been issued as a result of the vesting and did not represent an expense to us.
(13) Benefit Plans
We have adopted a defined contribution benefit plan (the Defined Contribution Plan) which
complies with section 401(k) of the Internal Revenue Code. In 2008, we made discretionary matching
contributions at the rate of 25% of the teammates pre-tax contributions up to a maximum of 6% of
eligible compensation per pay period. Contribution expense under this plan, including amounts
recorded in discontinued operations, was $2,014,000, $1,691,000 and $2,230,000 for the years ended
December 31, 2008, 2007 and 2006, respectively.
In November 2007, we established the Insight Nonqualified Deferred Compensation Plan
(Deferred Compensation Plan) with an effective date of January 1, 2008. The Deferred
Compensation Plan permits a select group of management or highly compensated employees as defined
by the Employee Retirement Income Security Act of 1974, as amended, to voluntarily defer receipt of
compensation and earn a rate of return on their deferred amounts based on their selection from a
variety of independently managed funds. We do not provide a guaranteed rate of return on these
deferred amounts nor do we make any contributions to the Deferred Compensation Plan. All recorded
amounts were immaterial as of and for the year ended December 31, 2008.
(14) Share Repurchase Program
On December 5, 2005, our Board of Directors authorized the repurchase of up to $50,000,000 of
our common stock. During the year ended December 31, 2007, we purchased 1,955,646 shares of our
common stock on the open market at an average price of $25.57 per share, which represented the full
amount authorized under the repurchase program. All shares repurchased were retired.
90
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On November 13, 2007, our Board of Directors authorized the repurchase of up to $50,000,000 of
our common stock through September 30, 2008. During the year ended December 31, 2008, we purchased
3,493,500 shares of our common stock on the open market at an average price of $14.31 per share,
which represented the full amount authorized under the repurchase program. All shares repurchased
were retired.
(15) Stockholder Rights Agreement
On December 14, 2008, the stockholder rights plan expired in accordance with its terms.
(16) Commitments and Contingencies
Contractual
We have entered into a sponsorship agreement through 2013 with the Valley of the Sun Bowl
Foundation, d/b/a Insight Bowl, which is the not-for-profit entity that conducts the Insight Bowl
post-season intercollegiate football game. We have committed to pay an aggregate amount of
approximately $7,050,000 through 2013 for sponsorship arrangements, ticket purchases and
miscellaneous expenses.
We have committed to pay the Arizona Cardinals an aggregate amount of approximately $7,700,000
through February 2014 for advertising and marketing events at the University of Phoenix stadium.
In July 2007, we signed a statement of work with a third party that was engaged to assist us
in a company-wide integration of our hardware, services and software distribution operations into
our IT systems. During the quarter ended March 31, 2008, we renegotiated the contract to include a
new scope of work, whereby we agreed to engage the third party on current and future IT related
projects. As a result of this renegotiation, previously reported commitments as of December 31,
2007 totaling $14,400,000, to be paid in 2008 and 2009, were settled with a $3,100,000 payment made
in April 2008. The remaining commitments at December 31, 2008 approximate $3,139,000 to be
incurred over 18 to 24 months.
In the ordinary course of business, we issue performance bonds to secure our performance under
certain contracts or state tax requirements. As of December 31, 2008 and December 31, 2007, we had
approximately $24,623,000 and $794,000, respectively, of performance bonds outstanding. These bonds
are issued on our behalf by a surety company on an unsecured basis; however, if the surety company
is ever required to pay out under the bonds, we have contractually agreed to reimburse the surety
company.
Employment Contracts
We have employment contracts with certain officers and management teammates under which
severance payments would become payable and accelerated vesting of stock-based compensation would
occur in the event of specified terminations without cause or terminations under certain
circumstances after a change in control. If such persons were terminated without cause or under
certain circumstances after a change of control, and the severance payments under the current
employment agreements were to become payable, the severance payments would generally range from
three months of the teammates salary up to two times the teammates annual salary and bonus.
Guaranties
In the ordinary course of business, we may guarantee the indebtedness of our subsidiaries to
vendors and clients. We have not recorded specific liabilities for these guaranties in the
consolidated financial statements because we have recorded the underlying liabilities associated
with
the guaranties. In the event we are required to perform under the related contracts, we
believe the cost of such performance would not have a material adverse effect on our consolidated
financial position or results of operations.
91
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Indemnifications
From time to time, in the ordinary course of business, we enter into contractual arrangements
under which we agree to indemnify either our clients or third-party service providers from certain
losses incurred relating to services performed on our behalf or for losses arising from defined
events, which may include litigation or claims relating to past performance. These arrangements
include, but are not limited to, the indemnification of our landlords for certain claims arising
from our use of leased facilities and the indemnification of the lenders that provide our credit
facilities for certain claims arising from their extension of credit to us. Such indemnification
obligations may not be subject to maximum loss clauses.
In connection with our sale of Direct Alliance in June 2006, the sale agreement contains
certain indemnification provisions pursuant to which we are required to indemnify the buyer for a
limited period of time for liabilities, losses or expenses arising out of breaches of covenants and
certain breaches of representations and warranties relating to the condition of the business prior
to and at the time of sale.
Management believes that payments, if any, related to these indemnifications are not probable
at December 31, 2008 and, if incurred, would not be material. Accordingly, we have not accrued any
liabilities related to such indemnifications in our consolidated financial statements.
Legal Proceedings
We are party to various legal proceedings arising in the ordinary course of business,
including preference payment claims asserted in client bankruptcy proceedings, claims of alleged
infringement of patents, trademarks, copyrights and other intellectual property rights, claims of
alleged non-compliance with contract provisions and claims related to alleged violations of laws
and regulations.
In accordance with Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for
Contingencies (SFAS 5), we make a provision for a liability when it is both probable that a
liability has been incurred and the amount of the loss can be reasonably estimated. These
provisions are reviewed at least quarterly and are adjusted to reflect the effects of negotiations,
settlements, rulings, advice of legal counsel and other information and events pertaining to a
particular claim. Although litigation is inherently unpredictable, we believe that we have
adequate provisions for any probable and estimable losses. It is possible, nevertheless, that the
results of our operations or cash flows could be materially and adversely affected in any
particular period by the resolution of a legal proceeding. Legal expenses related to defense,
negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.
On March 10, 2008, TeleTech Holdings, Inc. (Teletech) sent us a demand for arbitration
pursuant to the Stock Purchase Agreement (SPA) pursuant to which TeleTech acquired Direct
Alliance Corporation (DAC), a former subsidiary of Insight, effective June 30, 2006. TeleTech
claims that it is entitled to a $5,000,000 clawback under the SPA relating to the non-renewal of
an agreement between DAC and one of its clients. We disputed TeleTechs allegations and are
defending this matter in arbitration. In recording the disposition of DAC on June 30, 2006, we
deferred $5,000,000 as a contingent gain on sale related to this clawback.
On April 1, 2008, we completed the acquisition of Calence pursuant to an agreement and plan of
merger (the Merger Agreement), a related support agreement (the Support Agreement) and other
ancillary agreements. In April 2008, in connection with an investigation being conducted by the
United States Department of Justice (the DOJ), Calence received a subpoena from the Office of the
Inspector General of the Federal Communications Commission (the FCC) requesting documents related
to the award, by the Universal Service Administration Company (USAC), of funds under the E-Rate
program to a participating school district. The E-Rate program provides schools and libraries with
discounts to obtain affordable telecommunications and internet access. No allegations were made
against Calence, and we have responded to the subpoena. Pursuant to the Merger Agreement and the
Support Agreement, the former owners of Calence have agreed to indemnify us for certain losses and
damages that may arise out of or result from this matter, including our fees and expenses for
responding to the subpoena.
Beginning in March 2009, three purported class action lawsuits were filed in the U.S. District
Court for the District of Arizona against us and certain of our current and former directors and
officers on behalf of purchasers of our securities during the period April 22, 2004 to February 6,
2009 (the period specified in the first complaint is January 30, 2007 to February 6, 2009). The
complaints, which seek unspecified damages, assert claims under the federal securities laws
relating to our February 9, 2009 announcement that we expected to restate our financial statements
for the year ended December 31, 2007 and for the first three quarters of 2008 and that the
restatement would include a material reduction of retained earnings. The complaints also allege
that we issued false and misleading financial statements and issued misleading public statements
about our results of operations. None of the defendants have responded to the complaints at this
time.
92
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On March 19, 2009, we received a letter of informal inquiry from the Securities and Exchange
Commission (the SEC) requesting certain documents and information relating to the Companys
historical accounting treatment of aged trade credits. We are cooperating with the SEC. We cannot
predict the outcome of this investigation.
Management believes that the ultimate outcome of these legal proceedings will not have a
material effect on our results of operations.
Contingencies Related to Third-Party Review
From time to time, we are subject to potential claims and assessments from third parties. We
are also subject to various governmental, client and vendor audits. We continually assess whether
or not such claims have merit and warrant accrual under the probable and estimable criteria of
SFAS 5. Where appropriate, we accrue estimates of anticipated liabilities in the consolidated
financial statements. Such estimates are subject to change and may affect our results of operations
and our cash flows.
(17) Supplemental Financial Information
A summary of additions and deductions related to the allowances for doubtful accounts
receivable for the years ended December 31, 2008, 2007 and 2006 follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Year |
|
|
Additions |
|
|
Deductions |
|
|
End of Year |
|
Allowance for doubtful accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 |
|
$ |
22,831 |
|
|
$ |
3,452 |
|
|
$ |
(6,127 |
) |
|
$ |
20,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007 |
|
$ |
23,211 |
|
|
$ |
2,646 |
|
|
$ |
(3,026 |
) |
|
$ |
22,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
$ |
15,892 |
|
|
$ |
10,238 |
* |
|
$ |
(2,919 |
) |
|
$ |
23,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes $7,206,000 resulting from the Software Spectrum acquisition. |
(18) Segment and Geographic Information
We operate in three reportable geographic operating segments: North America; EMEA; and APAC.
Currently, our offerings in North America and the United Kingdom include IT hardware, software and
services. Our offerings in the remainder of our EMEA segment and in APAC currently only include
software and select software-related services. We have not disclosed net sales amounts by product
or service type for the years ended December 31, 2008, 2007 and 2006, as it is impracticable for us
to do so.
SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information
(SFAS 131), requires disclosures of certain information regarding operating segments, products
and services, geographic areas of operation and major clients. The method for determining what
information to report under SFAS 131 is based upon the management approach, or the way that
management organizes the operating segments within a company, for which separate financial
information is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how
to allocate resources. Our CODM is our Chief Executive Officer.
All intercompany transactions are eliminated upon consolidation, and there are no differences
between the accounting policies used to measure profit and loss for our segments and on a
consolidated basis. Net sales are defined as net sales to external clients. None of our clients
exceeded ten percent of consolidated net sales for the year ended December 31, 2008.
A portion of our operating segments selling and administrative expenses arise from shared
services and infrastructure that we have historically provided to them in order to realize
economies of scale and to use resources efficiently. These expenses, collectively identified as
corporate charges, include senior management expenses, internal audit, legal, tax, insurance
services, treasury and other corporate infrastructure expenses. Charges are allocated to our
operating segments, and the allocations have been determined on a basis that we considered to be a
reasonable reflection of the utilization of services provided to or benefits received by the
operating segments.
93
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tables below present information about our reportable operating segments as of and for the
years ended December 31, 2008, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Net sales |
|
$ |
3,362,544 |
|
|
$ |
1,309,365 |
|
|
$ |
153,580 |
|
|
$ |
4,825,489 |
|
Costs of goods sold |
|
|
2,913,358 |
|
|
|
1,118,692 |
|
|
|
129,856 |
|
|
|
4,161,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
449,186 |
|
|
|
190,673 |
|
|
|
23,724 |
|
|
|
663,583 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
391,629 |
|
|
|
152,617 |
|
|
|
17,741 |
|
|
|
561,987 |
|
Goodwill impairment |
|
|
323,422 |
|
|
|
59,852 |
|
|
|
13,973 |
|
|
|
397,247 |
|
Severance and restructuring expenses |
|
|
4,633 |
|
|
|
3,923 |
|
|
|
39 |
|
|
|
8,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations |
|
$ |
(270,498 |
) |
|
$ |
(25,719 |
) |
|
$ |
(8,029 |
) |
|
$ |
(304,246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,281,768 |
|
|
$ |
446,929 |
|
|
$ |
49,422 |
|
|
$ |
1,778,119 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 - As Restated (1) |
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Net sales |
|
$ |
3,367,998 |
|
|
$ |
1,329,682 |
|
|
$ |
107,794 |
|
|
$ |
4,805,474 |
|
Costs of goods sold |
|
|
2,904,835 |
|
|
|
1,154,916 |
|
|
|
87,097 |
|
|
|
4,146,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
463,163 |
|
|
|
174,766 |
|
|
|
20,697 |
|
|
|
658,626 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
383,390 |
|
|
|
143,611 |
|
|
|
15,321 |
|
|
|
542,322 |
|
Severance and restructuring expenses |
|
|
2,960 |
|
|
|
(429 |
) |
|
|
64 |
|
|
|
2,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations |
|
$ |
76,813 |
|
|
$ |
31,584 |
|
|
$ |
5,312 |
|
|
$ |
113,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,387,773 |
|
|
$ |
577,190 |
|
|
$ |
52,013 |
|
|
$ |
3,016,976 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 - As Restated (1) |
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
EMEA |
|
|
APAC |
|
|
Consolidated |
|
Net sales |
|
$ |
2,859,678 |
|
|
$ |
710,294 |
|
|
$ |
29,965 |
|
|
$ |
3,599,937 |
|
Costs of goods sold |
|
|
2,497,197 |
|
|
|
611,489 |
|
|
|
25,065 |
|
|
|
3,133,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
362,481 |
|
|
|
98,805 |
|
|
|
4,900 |
|
|
|
466,186 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
289,788 |
|
|
|
83,111 |
|
|
|
3,823 |
|
|
|
376,722 |
|
Severance and restructuring expenses |
|
|
508 |
|
|
|
221 |
|
|
|
|
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations |
|
$ |
72,185 |
|
|
$ |
15,473 |
|
|
$ |
1,077 |
|
|
$ |
88,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,107,207 |
|
|
$ |
461,084 |
|
|
$ |
37,809 |
|
|
$ |
2,606,100 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
|
* |
|
Consolidated total assets are shown net of intercompany eliminations and corporate
assets of $170,479, $1,127,414, and $805,637 at December 31, 2008, 2007 and 2006,
respectively. |
94
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of our geographic continuing operations net sales and long-lived
assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United |
|
|
|
|
|
|
|
|
|
States |
|
|
Foreign |
|
|
Total |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
3,163,758 |
|
|
$ |
1,661,731 |
|
|
$ |
4,825,489 |
|
Total long-lived assets |
|
$ |
296,645 |
|
|
$ |
60,587 |
|
|
$ |
357,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
3,160,992 |
|
|
$ |
1,644,482 |
|
|
$ |
4,805,474 |
|
Total long-lived assets |
|
$ |
384,555 |
|
|
$ |
174,473 |
|
|
$ |
559,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,706,970 |
|
|
$ |
892,967 |
|
|
$ |
3,599,937 |
|
Total long-lived assets |
|
$ |
376,625 |
|
|
$ |
175,582 |
|
|
$ |
552,207 |
|
Foreign net sales and total long-lived assets summarized above for 2008, 2007 and 2006 include
net sales and long-lived assets of $653,458,000 and $21,016,000; $718,286,000 and $38,738,000 and
$526,673,000 and $39,681,000, respectively, attributed to the United Kingdom. Net sales by
geographic area are presented by attributing net sales to external customers based on the domicile
of the selling location.
We recorded the following pre-tax amounts, by operating segment, for depreciation and
amortization, in the accompanying consolidated financial statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
33,675 |
|
|
$ |
26,992 |
|
|
$ |
19,529 |
|
EMEA |
|
|
6,882 |
|
|
|
6,954 |
|
|
|
3,861 |
|
APAC |
|
|
682 |
|
|
|
717 |
|
|
|
252 |
|
|
|
|
|
|
|
|
|
|
|
Total Continuing Operations |
|
$ |
41,239 |
|
|
$ |
34,663 |
|
|
$ |
23,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,733 |
|
|
|
|
|
|
|
|
|
|
|
(19) Acquisitions
MINX Limited
On July 10, 2008, we acquired MINX, a United Kingdom-based networking services company with
annual net sales of approximately $25,000,000, for an initial cash purchase price of approximately
$1,500,000 and the assumption of approximately $3,900,000 of existing debt. Up to an additional
$550,000 may be due if MINX achieves certain performance targets over a one-year period. Founded
in 2002, MINX is a network integrator with Cisco Gold Partner accreditation in the United Kingdom.
We believe this acquisition will significantly enhance our capabilities in the sale, implementation
and management of network infrastructure services and solutions in our EMEA operating segment and
will compliment our April 1, 2008 acquisition of Calence in our North America operating segment,
accelerating Insights transformation to a broad-based global technology solutions advisor and
provider.
95
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the purchase price and the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition (in thousands):
|
|
|
|
|
|
|
|
|
Purchase price paid as: |
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
$ |
1,497 |
|
Assumed debt |
|
|
|
|
|
|
3,895 |
|
Acquisition costs |
|
|
|
|
|
|
141 |
|
|
|
|
|
|
|
|
|
Total purchase price |
|
|
|
|
|
|
5,533 |
|
Fair value of net assets acquired: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
4,957 |
|
|
|
|
|
Identifiable intangible assets see description below |
|
|
2,874 |
|
|
|
|
|
Property and equipment |
|
|
196 |
|
|
|
|
|
Current liabilities |
|
|
(11,602 |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of net assets acquired |
|
|
|
|
|
|
(3,575 |
) |
|
|
|
|
|
|
|
|
Excess purchase price over fair value of net assets acquired (goodwill) |
|
|
|
|
|
$ |
9,108 |
|
|
|
|
|
|
|
|
|
Under the purchase method of accounting, the purchase price as shown in the table above is
allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based
on their estimated fair values. The excess purchase price over fair value of net assets acquired
was recorded as goodwill. The purchase price was allocated using the information currently
available, and we may adjust the purchase price allocation after obtaining more information
regarding, among other things, asset valuations, liabilities assumed, restructuring activities and
revisions of preliminary estimates.
The estimated values of current assets and liabilities were based upon their historical costs
on the date of acquisition due to their short-term nature. Property and equipment were also
estimated based upon unamortized costs as they most closely approximated fair value.
Identified intangible assets acquired in the acquisition of MINX totaled $2,874,000 and
consist primarily of customer relationships which are being amortized using the straight-line
method over their estimated economic life of 8.5 years. Amortization expense recognized for the
period from the acquisition date through December 31, 2008 was $215,000. Amortization expense is
estimated to be approximately $500,000 per year through 2010.
Goodwill of $9,108,000 represents the excess of the purchase price over the estimated fair
value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from
MINX. None of the goodwill is tax deductible. We have consolidated the results of operations for
MINX since its acquisition on July 10, 2008. Our historical results would not have been materially
affected by the acquisition of MINX and, accordingly, we have not presented pro forma information
as if the acquisition had been completed at the beginning of each period presented in our
statements of operations. As discussed in Note 5, we recorded non-cash goodwill impairment charges
during 2008, which represented the entire goodwill balance recorded in our EMEA operating segment,
including the entire amount of the goodwill recorded in connection with the MINX acquisition.
Calence, LLC
On April 1, 2008, we completed our acquisition of Calence for a cash purchase price of
$125,000,000 plus a preliminary working capital adjustment of $4,032,000, offset by a final
post-closing working capital adjustment of $383,000. Up to an additional $35,000,000 of purchase
price consideration may be due if Calence achieves certain performance targets over the next four
years. Founded in 1993 and headquartered in Tempe, Arizona, Calence is a leading provider of Cisco
networking solutions in the United States, with strong regional presence in the Southwest,
Northwest and Midwest, as well as New York, North Carolina and Texas. We believe this acquisition
significantly enhances Insights technical capabilities around networking and communications, as
well as managed services and security, accelerating Insights transformation to a broad-based
technology solutions advisor and provider.
96
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the purchase price and the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition (in thousands):
|
|
|
|
|
|
|
|
|
Purchase price paid as: |
|
|
|
|
|
|
|
|
Cash and borrowings on senior revolving credit facility |
|
|
|
|
|
$ |
128,649 |
|
Assumed debt |
|
|
|
|
|
|
7,311 |
|
Acquisition costs |
|
|
|
|
|
|
3,679 |
|
|
|
|
|
|
|
|
|
Total purchase price |
|
|
|
|
|
|
139,639 |
|
Fair value of net assets acquired: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
64,815 |
|
|
|
|
|
Identifiable intangible assets see description below |
|
|
29,190 |
|
|
|
|
|
Property and equipment |
|
|
6,192 |
|
|
|
|
|
Other assets |
|
|
946 |
|
|
|
|
|
Current liabilities |
|
|
(54,499 |
) |
|
|
|
|
Other liabilities |
|
|
(714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of net assets acquired |
|
|
|
|
|
|
45,930 |
|
|
|
|
|
|
|
|
|
Excess purchase price over fair value of net assets acquired (goodwill) |
|
|
|
|
|
$ |
93,709 |
|
|
|
|
|
|
|
|
|
Under the purchase method of accounting, the purchase price as shown in the table above is
allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based
on their estimated fair values. The excess purchase price over fair value of net assets acquired
was recorded as goodwill. During the year ended December 31, 2008, we accrued an additional
$9,830,000 of purchase price consideration and $532,000 of accrued interest thereon as a result of
Calence achieving certain performance targets during the year. Such amounts were recorded as
additional goodwill (see Note 5).
The estimated values of current assets and liabilities were based upon their historical costs
on the date of acquisition due to their short-term nature. Property and equipment were also
estimated based upon unamortized costs as they most closely approximated fair value. The estimated
value of deferred revenue, of which $3,359,000 is included in current liabilities and $652,000 is
included in other liabilities in the table above, was based upon the guidance in EITF Issue No.
01-03, Accounting in a Business Combination for Deferred Revenue of an Acquiree, and was
calculated as the estimated cost to fulfill the contractual obligations acquired under various
customer contracts plus a fair value profit margin.
Identified intangible assets acquired in the acquisition of Calence totaled $29,190,000 and
consist of the following (in thousands):
|
|
|
|
|
Customer relationships |
|
$ |
21,800 |
|
Backlog Managed services |
|
|
4,500 |
|
Backlog Consulting |
|
|
2,600 |
|
Trade name |
|
|
150 |
|
Non-compete agreements |
|
|
140 |
|
|
|
|
|
|
|
|
29,190 |
|
Accumulated amortization |
|
|
(4,759 |
) |
|
|
|
|
Intangible assets, net at December 31, 2008 |
|
$ |
24,431 |
|
|
|
|
|
Amortization is provided using the straight-line method over the following estimated economic
lives of the intangible assets from the date of acquisition:
|
|
|
|
|
|
|
Estimated Economic Life |
|
Customer relationships |
|
10.75 Years |
Backlog Managed services |
|
4.75 Years |
Backlog Consulting |
|
10 Months |
Trade name |
|
10 Months |
Non-compete agreements |
|
2 Years |
97
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amortization expense recognized for the period from the acquisition date through December 31,
2008 was $4,759,000. Future amortization expense is estimated to be as follows (in thousands):
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
2009 |
|
$ |
3,320 |
|
2010 |
|
|
2,993 |
|
2011 |
|
|
2,975 |
|
2012 |
|
|
2,975 |
|
2013 |
|
|
2,028 |
|
Thereafter |
|
|
10,140 |
|
|
|
|
|
Total estimated amortization expense |
|
$ |
24,431 |
|
|
|
|
|
Goodwill of $93,709,000 represents the excess of the purchase price over the estimated fair
value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from
Calence. During the year ended December 31, 2008, we accrued an additional $9,830,000 of purchase
price consideration and $532,000 of accrued interest thereon as a result of Calence achieving
certain performance targets during the year. Such amounts were recorded as additional goodwill,
and the entire amount is expected to be tax deductible. As discussed in Note 5, we recorded
non-cash goodwill impairment charges during 2008, which represented the entire goodwill balance
recorded in our North America operating segment, including the entire amount of the goodwill
recorded in connection with the Calence acquisition.
We have consolidated the results of operations for Calence since its acquisition on April 1,
2008. The following table reports pro forma information as if the acquisition of Calence had been
completed at the beginning of each period presented (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Net sales |
|
As reported |
|
$ |
4,825,489 |
|
|
$ |
4,805,474 |
|
|
|
Pro forma |
|
$ |
4,897,514 |
|
|
$ |
5,047,199 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
from continuing
operations |
|
As reported |
|
$ |
(239,727 |
) |
|
$ |
64,605 |
|
|
|
Pro forma |
|
$ |
(239,520 |
) |
|
$ |
58,987 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
As reported |
|
$ |
(239,727 |
) |
|
$ |
68,756 |
|
|
|
Pro forma |
|
$ |
(239,520 |
) |
|
$ |
63,138 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss)
earnings per share |
|
As reported |
|
$ |
(5.15 |
) |
|
$ |
1.37 |
|
|
|
Pro forma |
|
$ |
(5.14 |
) |
|
$ |
1.26 |
|
(20) Discontinued Operations
PC Wholesale
On March 1, 2007, we completed the sale of PC Wholesale, a division of our North America
operating segment that sells to other resellers. The sale of PC Wholesale is consistent with our
strategic plan as we concluded that selling IT products to other resellers is not a core element of
our strategy. The transaction generated proceeds of $28,631,000. In the fourth quarter of 2007,
we resolved certain post-closing contingencies and recognized an additional gain on the sale of PC
Wholesale of $350,000, $264,000 net of taxes. This resolution required a cash payment of $900,000
that was made in 2008.
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), we have reported the results of operations of PC Wholesale as a discontinued
operation in the consolidated statements of operations for all periods presented. We did not
allocate interest, general corporate overhead expense or non-specific partner funding to the
discontinued operation.
98
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following amounts for the years ended December 31, 2007 and 2006, respectively, represent
PC Wholesales results of operations and have been segregated from continuing operations and
reflected as a discontinued operation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
As |
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
Net sales |
|
$ |
30,142 |
|
|
$ |
223,829 |
|
Costs of goods sold |
|
|
29,092 |
|
|
|
215,423 |
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,050 |
|
|
|
8,406 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
768 |
|
|
|
5,134 |
|
|
|
|
|
|
|
|
Earnings from discontinued operation |
|
|
282 |
|
|
|
3,272 |
|
Gain on sale |
|
|
5,587 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from discontinued operation, including
gain on sale, before income tax expense
income taxes |
|
|
5,869 |
|
|
|
3,272 |
|
Income tax expense |
|
|
2,267 |
|
|
|
1,298 |
|
|
|
|
|
|
|
|
Net earnings from discontinued operation,
including gain on sale |
|
$ |
3,602 |
|
|
$ |
1,974 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
Direct Alliance
On June 30, 2006, we completed the sale of 100% of the outstanding stock of Direct Alliance
for a purchase price of $46,500,000, subject to a working capital adjustment. In addition to
payment of the purchase price, the buyer is obligated to make a one-time bonus payment to us if
Direct Alliance achieves certain gross profit levels for the year ended December 31, 2006 (Earn
Out). Additionally, the buyer is entitled to a claw back of the purchase price of up to
$5,000,000 if certain Direct Alliance client contracts are not renewed on terms prescribed in the
sale agreement. The Company is in the process of negotiating the final resolution of the Earn Out
and the claw back, which may result in additional gain recorded on the sale. See discussion of the
related legal proceeding with Teletech in Note 16. Additionally, on June 30, 2006, we paid
$2,696,000 to the holders of 1,997,500 exercised Direct Alliance stock options. If additional gain
is recorded on the sale as a result of final resolution of the Earn Out and clawback, additional
amounts will also be paid to the holders of 1,997,500 exercised Direct Alliance stock options.
In accordance with SFAS 144, we have reported the results of operations of Direct Alliance as
a discontinued operation in the consolidated statements of operations for all periods presented.
We did not allocate interest or general corporate overhead expense to the discontinued operation.
On June 30, 2006, in connection with the sale of Direct Alliance, we entered into a lease
agreement with Direct Alliance pursuant to which Direct Alliance will lease from us the facilities
it used prior to the sale. Lease income related to these buildings was $1,594,000, $1,257,000 and
$870,000 for the years ended December 31, 2008, 2007 and 2006, respectively, and is classified as
net sales. Depreciation expense related to the buildings was $687,000, $731,000 and $368,000 for
the years ended December 31, 2008, 2007 and 2006, respectively, and is classified as costs of goods
sold.
99
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following amounts for the year ended December 31, 2006, represent Direct Alliances
results of operations and have been segregated from continuing operations and reflected as a
discontinued operation (in thousands):
|
|
|
|
|
Net sales |
|
$ |
34,095 |
|
Costs of goods sold |
|
|
27,138 |
|
|
|
|
|
Gross profit |
|
|
6,957 |
|
Operating expenses: |
|
|
|
|
Selling and administrative expenses |
|
|
3,566 |
|
Severance and restructuring expenses |
|
|
|
|
|
|
|
|
Earnings from discontinued operation |
|
|
3,391 |
|
Gain on sale |
|
|
14,872 |
|
|
|
|
|
Earnings from discontinued operation, including
gain on sale, before income tax expense income taxes |
|
|
18,263 |
|
Income tax expense |
|
|
7,153 |
|
|
|
|
|
Net earnings from discontinued operation,
including gain on sale |
|
$ |
11,110 |
|
|
|
|
|
A tax benefit of $548,000 was recorded in 2007 related to a reduction in state taxes in
connection with sale of Direct Alliance.
100
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(21) Selected Quarterly Financial Information (unaudited)
As required by Item 302 of Regulation S-K, the following tables set forth selected unaudited
consolidated quarterly financial information for our two most recent years. The quarters ended
March 31, 2007 through September 30, 2008 have been restated from previously reported information
filed in the Companys Form 10-Qs and Form 10-K, as a result of the restatement of its financial
results discussed in Note 2 Restatement of Consolidated Financial Statements (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
Mar. 31, |
|
|
Dec. 31, |
|
|
Sept. 30, |
|
|
June 30, |
|
|
Mar. 31, |
|
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
|
|
|
|
|
Restated |
|
|
Restated |
|
|
Restated |
|
|
Restated |
|
|
Restated |
|
|
Restated |
|
|
Restated |
|
|
|
|
|
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
Net sales |
|
$ |
1,160,350 |
|
|
$ |
1,165,056 |
|
|
$ |
1,396,585 |
|
|
$ |
1,103,498 |
|
|
$ |
1,288,671 |
|
|
$ |
1,110,048 |
|
|
$ |
1,286,440 |
|
|
$ |
1,120,315 |
|
Costs of goods sold |
|
|
1,003,421 |
|
|
|
1,010,966 |
|
|
|
1,195,643 |
|
|
|
951,876 |
|
|
|
1,115,284 |
|
|
|
960,910 |
|
|
|
1,102,528 |
|
|
|
968,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
156,929 |
|
|
|
154,090 |
|
|
|
200,942 |
|
|
|
151,622 |
|
|
|
173,387 |
|
|
|
149,138 |
|
|
|
183,912 |
|
|
|
152,189 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
134,511 |
|
|
|
139,137 |
|
|
|
152,878 |
|
|
|
135,461 |
|
|
|
135,774 |
|
|
|
133,167 |
|
|
|
140,867 |
|
|
|
132,514 |
|
Goodwill Impairment |
|
|
83,471 |
|
|
|
|
|
|
|
313,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and restructuring
expenses |
|
|
3,187 |
|
|
|
|
|
|
|
3,508 |
|
|
|
1,900 |
|
|
|
(246 |
) |
|
|
|
|
|
|
2,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings(loss) from operations. |
|
|
(64,240 |
) |
|
|
14,953 |
|
|
|
(269,220 |
) |
|
|
14,261 |
|
|
|
37,859 |
|
|
|
15,971 |
|
|
|
40,204 |
|
|
|
19,675 |
|
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(646 |
) |
|
|
(440 |
) |
|
|
(700 |
) |
|
|
(601 |
) |
|
|
(592 |
) |
|
|
(432 |
) |
|
|
(396 |
) |
|
|
(658 |
) |
Interest expense |
|
|
3,839 |
|
|
|
3,062 |
|
|
|
3,912 |
|
|
|
2,666 |
|
|
|
3,144 |
|
|
|
2,773 |
|
|
|
2,907 |
|
|
|
4,028 |
|
Net foreign currency exchange
loss (gain) |
|
|
6,204 |
|
|
|
3,307 |
|
|
|
1,055 |
|
|
|
(937 |
) |
|
|
(1,080 |
) |
|
|
849 |
|
|
|
(3,002 |
) |
|
|
(654 |
) |
Other expense, net |
|
|
320 |
|
|
|
297 |
|
|
|
171 |
|
|
|
319 |
|
|
|
390 |
|
|
|
428 |
|
|
|
496 |
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before income taxes |
|
|
(73,957 |
) |
|
|
8,727 |
|
|
|
(273,658 |
) |
|
|
12,814 |
|
|
|
35,997 |
|
|
|
12,353 |
|
|
|
40,199 |
|
|
|
16,742 |
|
Income tax expense (benefit) |
|
|
5,465 |
|
|
|
2,130 |
|
|
|
(98,583 |
) |
|
|
4,641 |
|
|
|
13,568 |
|
|
|
4,935 |
|
|
|
15,373 |
|
|
|
6,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing
operations |
|
|
(79,422 |
) |
|
|
6,597 |
|
|
|
(175,075 |
) |
|
|
8,173 |
|
|
|
22,429 |
|
|
|
7,418 |
|
|
|
24,826 |
|
|
|
9,932 |
|
Net (loss) earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
3,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(79,422 |
) |
|
$ |
6,597 |
|
|
$ |
(175,075 |
) |
|
$ |
8,173 |
|
|
$ |
23,241 |
|
|
$ |
7,418 |
|
|
$ |
24,826 |
|
|
$ |
13,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing
operations |
|
$ |
(1.71 |
) |
|
$ |
0.14 |
|
|
$ |
(3.76 |
) |
|
$ |
0.17 |
|
|
$ |
0.46 |
|
|
$ |
0.15 |
|
|
$ |
0.51 |
|
|
$ |
0.20 |
|
Net (loss) earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
(1.71 |
) |
|
$ |
0.14 |
|
|
$ |
(3.76 |
) |
|
$ |
0.17 |
|
|
$ |
0.48 |
|
|
$ |
0.15 |
|
|
$ |
0.51 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing
operations |
|
$ |
(1.71 |
) |
|
$ |
0.14 |
|
|
$ |
(3.76 |
) |
|
$ |
0.17 |
|
|
$ |
0.45 |
|
|
$ |
0.15 |
|
|
$ |
0.50 |
|
|
$ |
0.20 |
|
Net (loss) earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
(1.71 |
) |
|
$ |
0.14 |
|
|
$ |
(3.76 |
) |
|
$ |
0.17 |
|
|
$ |
0.47 |
|
|
$ |
0.15 |
|
|
$ |
0.50 |
|
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 Restatement of Consolidated Financial Statements. |
101
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables present the effect of the financial statement restatement adjustments on
the Companys previously reported consolidated statements of operations for the three months ended
September 30, June 30, and March 31, 2008, respectively, and December 31, September 30, June 30,
and March 31, 2007, respectively, (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 |
|
|
Three Months Ended June 30, 2008 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Net sales |
|
$ |
1,168,916 |
|
|
$ |
(3,860 |
) |
|
$ |
1,165,056 |
|
|
$ |
1,397,722 |
|
|
$ |
(1,137 |
) |
|
$ |
1,396,585 |
|
Costs of goods sold |
|
|
1,014,844 |
|
|
|
(3,878 |
) |
|
|
1,010,966 |
|
|
|
1,195,980 |
|
|
|
(337 |
) |
|
|
1,195,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
154,072 |
|
|
|
18 |
|
|
|
154,090 |
|
|
|
201,742 |
|
|
|
(800 |
) |
|
|
200,942 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
139,198 |
|
|
|
(61 |
) |
|
|
139,137 |
|
|
|
151,909 |
|
|
|
969 |
|
|
|
152,878 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313,949 |
|
|
|
(173 |
) |
|
|
313,776 |
|
Severance and restructuring
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,508 |
|
|
|
|
|
|
|
3,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
14,874 |
|
|
|
79 |
|
|
|
14,953 |
|
|
|
(267,624 |
) |
|
|
(1,596 |
) |
|
|
(269,220 |
) |
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(440 |
) |
|
|
|
|
|
|
(440 |
) |
|
|
(700 |
) |
|
|
|
|
|
|
(700 |
) |
Interest expense |
|
|
3,085 |
|
|
|
(23 |
) |
|
|
3,062 |
|
|
|
3,948 |
|
|
|
(36 |
) |
|
|
3,912 |
|
Net foreign currency exchange loss
(gain) |
|
|
3,307 |
|
|
|
|
|
|
|
3,307 |
|
|
|
1,055 |
|
|
|
|
|
|
|
1,055 |
|
Other expense, net |
|
|
297 |
|
|
|
|
|
|
|
297 |
|
|
|
171 |
|
|
|
|
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
|
8,625 |
|
|
|
102 |
|
|
|
8,727 |
|
|
|
(272,098 |
) |
|
|
(1,560 |
) |
|
|
(273,658 |
) |
Income tax expense (benefit) |
|
|
1,912 |
|
|
|
218 |
|
|
|
2,130 |
|
|
|
(97,821 |
) |
|
|
(762 |
) |
|
|
(98,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
|
6,713 |
|
|
|
(116 |
) |
|
|
6,597 |
|
|
|
(174,277 |
) |
|
|
(798 |
) |
|
|
(175,075 |
) |
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
6,713 |
|
|
$ |
(116 |
) |
|
$ |
6,597 |
|
|
$ |
(174,277 |
) |
|
$ |
(798 |
) |
|
$ |
(175,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.15 |
|
|
$ |
(0.01 |
) |
|
$ |
0.14 |
|
|
$ |
(3.74 |
) |
|
$ |
(0.02 |
) |
|
$ |
(3.76 |
) |
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.15 |
|
|
$ |
(0.01 |
) |
|
$ |
0.14 |
|
|
$ |
(3.74 |
) |
|
$ |
(0.02 |
) |
|
$ |
(3.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.15 |
|
|
$ |
(0.01 |
) |
|
$ |
0.14 |
|
|
$ |
(3.74 |
) |
|
$ |
(0.02 |
) |
|
$ |
(3.76 |
) |
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.15 |
|
|
$ |
(0.01 |
) |
|
$ |
0.14 |
|
|
$ |
(3.74 |
) |
|
$ |
(0.02 |
) |
|
$ |
(3.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
45,569 |
|
|
|
|
|
|
|
45,569 |
|
|
|
46,594 |
|
|
|
|
|
|
|
46,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
45,719 |
|
|
|
210 |
|
|
|
45,929 |
|
|
|
46,594 |
|
|
|
|
|
|
|
46,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
|
Three Months Ended December 31, 2007 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Net sales |
|
$ |
1,107,789 |
|
|
$ |
(4,291 |
) |
|
$ |
1,103,498 |
|
|
$ |
1,283,302 |
|
|
$ |
5,369 |
|
|
$ |
1,288,671 |
|
Costs of goods sold |
|
|
954,634 |
|
|
|
(2,758 |
) |
|
|
951,876 |
|
|
|
1,110,048 |
|
|
|
5,236 |
|
|
|
1,115,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
153,155 |
|
|
|
(1,533 |
) |
|
|
151,622 |
|
|
|
173,254 |
|
|
|
133 |
|
|
|
173,387 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
132,954 |
|
|
|
2,507 |
|
|
|
135,461 |
|
|
|
133,490 |
|
|
|
2,284 |
|
|
|
135,774 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and restructuring
Expenses |
|
|
1,900 |
|
|
|
|
|
|
|
1,900 |
|
|
|
(246 |
) |
|
|
|
|
|
|
(246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
18,301 |
|
|
|
(4,040 |
) |
|
|
14,261 |
|
|
|
40,010 |
|
|
|
(2,151 |
) |
|
|
37,859 |
|
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(601 |
) |
|
|
|
|
|
|
(601 |
) |
|
|
(592 |
) |
|
|
|
|
|
|
(592 |
) |
Interest expense |
|
|
2,716 |
|
|
|
(50 |
) |
|
|
2,666 |
|
|
|
3,221 |
|
|
|
(77 |
) |
|
|
3,144 |
|
Net foreign currency exchange
(gain) loss |
|
|
(937 |
) |
|
|
|
|
|
|
(937 |
) |
|
|
(1,080 |
) |
|
|
|
|
|
|
(1,080 |
) |
Other expense, net |
|
|
319 |
|
|
|
|
|
|
|
319 |
|
|
|
390 |
|
|
|
|
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before income taxes |
|
|
16,804 |
|
|
|
(3,990 |
) |
|
|
12,814 |
|
|
|
38,071 |
|
|
|
(2,074 |
) |
|
|
35,997 |
|
Income tax expense (benefit) |
|
|
6,284 |
|
|
|
(1,643 |
) |
|
|
4,641 |
|
|
|
14,261 |
|
|
|
(693 |
) |
|
|
13,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
|
10,520 |
|
|
|
(2,347 |
) |
|
|
8,173 |
|
|
|
23,810 |
|
|
|
(1,381 |
) |
|
|
22,429 |
|
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
10,520 |
|
|
$ |
(2,347 |
) |
|
$ |
8,173 |
|
|
$ |
24,622 |
|
|
$ |
(1,381 |
) |
|
$ |
23,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.22 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
|
$ |
0.49 |
|
|
$ |
(0.03 |
) |
|
$ |
0.46 |
|
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.22 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
|
$ |
0.51 |
|
|
$ |
(0.03 |
) |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.22 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
|
$ |
0.48 |
|
|
$ |
(0.03 |
) |
|
$ |
0.45 |
|
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share |
|
$ |
0.22 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
|
$ |
0.50 |
|
|
$ |
(0.03 |
) |
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
48,540 |
|
|
|
|
|
|
|
48,540 |
|
|
|
48,582 |
|
|
|
|
|
|
|
48,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
48,905 |
|
|
|
190 |
|
|
|
49,095 |
|
|
|
49,635 |
|
|
|
164 |
|
|
|
49,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2007 |
|
|
Three Months Ended June 30, 2007 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Net sales |
|
$ |
1,109,705 |
|
|
$ |
343 |
|
|
$ |
1,110,048 |
|
|
$ |
1,283,449 |
|
|
$ |
2,991 |
|
|
$ |
1,286,440 |
|
Costs of goods sold |
|
|
959,859 |
|
|
|
1,051 |
|
|
|
960,910 |
|
|
|
1,098,636 |
|
|
|
3,892 |
|
|
|
1,102,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
149,846 |
|
|
|
(708 |
) |
|
|
149,138 |
|
|
|
184,813 |
|
|
|
(901 |
) |
|
|
183,912 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
130,820 |
|
|
|
2,347 |
|
|
|
133,167 |
|
|
|
138,323 |
|
|
|
2,544 |
|
|
|
140,867 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and restructuring
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,841 |
|
|
|
|
|
|
|
2,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
19,026 |
|
|
|
(3,055 |
) |
|
|
15,971 |
|
|
|
43,649 |
|
|
|
(3,445 |
) |
|
|
40,204 |
|
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(432 |
) |
|
|
|
|
|
|
(432 |
) |
|
|
(396 |
) |
|
|
|
|
|
|
(396 |
) |
Interest expense |
|
|
2,860 |
|
|
|
(87 |
) |
|
|
2,773 |
|
|
|
2,981 |
|
|
|
(74 |
) |
|
|
2,907 |
|
Net foreign currency exchange loss
(gain) |
|
|
849 |
|
|
|
|
|
|
|
849 |
|
|
|
(3,002 |
) |
|
|
|
|
|
|
(3,002 |
) |
Other expense, net |
|
|
428 |
|
|
|
|
|
|
|
428 |
|
|
|
496 |
|
|
|
|
|
|
|
496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes |
|
|
15,321 |
|
|
|
(2,968 |
) |
|
|
12,353 |
|
|
|
43,570 |
|
|
|
(3,371 |
) |
|
|
40,199 |
|
Income tax expense (benefit) |
|
|
6,225 |
|
|
|
(1,290 |
) |
|
|
4,935 |
|
|
|
16,761 |
|
|
|
(1,388 |
) |
|
|
15,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
|
9,096 |
|
|
|
(1,678 |
) |
|
|
7,418 |
|
|
|
26,809 |
|
|
|
(1,983 |
) |
|
|
24,826 |
|
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
9,096 |
|
|
$ |
(1,678 |
) |
|
$ |
7,418 |
|
|
$ |
26,809 |
|
|
$ |
(1,983 |
) |
|
$ |
24,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.18 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
$ |
0.55 |
|
|
$ |
(0.04 |
) |
|
$ |
0.51 |
|
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.18 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
$ |
0.55 |
|
|
$ |
(0.04 |
) |
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.18 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
$ |
0.54 |
|
|
$ |
(0.04 |
) |
|
$ |
0.50 |
|
Net earnings from a
discontinued operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share |
|
$ |
0.18 |
|
|
$ |
(0.03 |
) |
|
$ |
0.15 |
|
|
$ |
0.54 |
|
|
$ |
(0.04 |
) |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
49,530 |
|
|
|
|
|
|
|
49,530 |
|
|
|
49,099 |
|
|
|
|
|
|
|
49,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
50,711 |
|
|
|
323 |
|
|
|
51,034 |
|
|
|
49,402 |
|
|
|
631 |
|
|
|
50,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007 |
|
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
Net sales |
|
$ |
1,123,975 |
|
|
$ |
(3,660 |
) |
|
$ |
1,120,315 |
|
Costs of goods sold |
|
|
970,800 |
|
|
|
(2,674 |
) |
|
|
968,126 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
153,175 |
|
|
|
(986 |
) |
|
|
152,189 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
|
129,758 |
|
|
|
2,756 |
|
|
|
132,514 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
Severance and restructuring
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
|
23,417 |
|
|
|
(3,742 |
) |
|
|
19,675 |
|
Non-operating (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(658 |
) |
|
|
|
|
|
|
(658 |
) |
Interest expense |
|
|
4,305 |
|
|
|
(277 |
) |
|
|
4,028 |
|
Net foreign currency exchange
(gain) loss |
|
|
(654 |
) |
|
|
|
|
|
|
(654 |
) |
Other expense, net |
|
|
217 |
|
|
|
|
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing
operations before income taxes |
|
|
20,207 |
|
|
|
(3,465 |
) |
|
|
16,742 |
|
Income tax expense (benefit) |
|
|
7,911 |
|
|
|
(1,101 |
) |
|
|
6,810 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
|
12,296 |
|
|
|
(2,364 |
) |
|
|
9,932 |
|
Net earnings from a
discontinued operation |
|
|
4,972 |
|
|
|
(1,633 |
) |
|
|
3,339 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
17,268 |
|
|
$ |
(3,997 |
) |
|
$ |
13,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.25 |
|
|
$ |
(0.05 |
) |
|
$ |
0.20 |
|
Net earnings from a
discontinued operation |
|
|
0.10 |
|
|
|
(0.03 |
) |
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share |
|
$ |
0.35 |
|
|
$ |
(0.08 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from
continuing operations |
|
$ |
0.25 |
|
|
$ |
(0.05 |
) |
|
$ |
0.20 |
|
Net earnings from a
discontinued operation |
|
|
0.10 |
|
|
|
(0.03 |
) |
|
|
0.07 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share |
|
$ |
0.35 |
|
|
$ |
(0.08 |
) |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
49,010 |
|
|
|
|
|
|
|
49,010 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
49,291 |
|
|
|
323 |
|
|
|
49,614 |
|
|
|
|
|
|
|
|
|
|
|
105
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents balance sheet information as of September 30, June 30, and March
31, 2008, respectively, and December 31, September 30, June 30, and March 31, 2007, respectively,
as restated from previously reported information filed in the Companys Form 10-Qs, as a result of
the restatement of our financial results discussed in Note 2 Restatement of Consolidated Financial
Statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008 |
|
|
June 30, 2008 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
72,451 |
|
|
$ |
|
|
|
$ |
72,451 |
|
|
$ |
109,563 |
|
|
$ |
|
|
|
$ |
109,563 |
|
Accounts receivable, net |
|
|
892,910 |
|
|
|
(21,002 |
) |
|
|
871,908 |
|
|
|
1,222,860 |
|
|
|
(17,139 |
) |
|
|
1,205,721 |
|
Inventories |
|
|
89,374 |
|
|
|
19,461 |
|
|
|
108,835 |
|
|
|
98,924 |
|
|
|
15,720 |
|
|
|
114,644 |
|
Inventories not available for sale |
|
|
18,411 |
|
|
|
|
|
|
|
18,411 |
|
|
|
31,379 |
|
|
|
|
|
|
|
31,379 |
|
Deferred income taxes |
|
|
23,344 |
|
|
|
19,965 |
|
|
|
43,309 |
|
|
|
21,905 |
|
|
|
20,107 |
|
|
|
42,012 |
|
Other current assets |
|
|
28,166 |
|
|
|
|
|
|
|
28,166 |
|
|
|
33,499 |
|
|
|
|
|
|
|
33,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,124,656 |
|
|
|
18,424 |
|
|
|
1,143,080 |
|
|
|
1,518,130 |
|
|
|
18,688 |
|
|
|
1,536,818 |
|
Property and equipment |
|
|
165,883 |
|
|
|
1,268 |
|
|
|
167,151 |
|
|
|
166,864 |
|
|
|
1,284 |
|
|
|
168,148 |
|
Buildings held for lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
86,760 |
|
|
|
(2,487 |
) |
|
|
84,273 |
|
|
|
91,640 |
|
|
|
(2,794 |
) |
|
|
88,846 |
|
Intangible assets |
|
|
100,123 |
|
|
|
|
|
|
|
100,123 |
|
|
|
104,750 |
|
|
|
|
|
|
|
104,750 |
|
Deferred income taxes |
|
|
109,825 |
|
|
|
2,921 |
|
|
|
112,746 |
|
|
|
111,319 |
|
|
|
3,762 |
|
|
|
115,081 |
|
Other assets |
|
|
18,346 |
|
|
|
|
|
|
|
18,346 |
|
|
|
19,344 |
|
|
|
|
|
|
|
19,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,605,593 |
|
|
$ |
20,126 |
|
|
$ |
1,625,719 |
|
|
$ |
2,012,047 |
|
|
$ |
20,940 |
|
|
$ |
2,032,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
517,185 |
|
|
$ |
1,400 |
|
|
$ |
518,585 |
|
|
$ |
873,551 |
|
|
$ |
1,177 |
|
|
$ |
874,728 |
|
Accrued expenses and other current
liabilities |
|
|
113,393 |
|
|
|
56,283 |
|
|
|
169,676 |
|
|
|
114,660 |
|
|
|
55,832 |
|
|
|
170,492 |
|
Current portion of long-term debt |
|
|
168,374 |
|
|
|
|
|
|
|
168,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
25,652 |
|
|
|
|
|
|
|
25,652 |
|
|
|
54,376 |
|
|
|
|
|
|
|
54,376 |
|
Line of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
824,604 |
|
|
|
57,683 |
|
|
|
882,287 |
|
|
|
1,042,587 |
|
|
|
57,009 |
|
|
|
1,099,596 |
|
Long-term debt |
|
|
162,653 |
|
|
|
|
|
|
|
162,653 |
|
|
|
339,000 |
|
|
|
|
|
|
|
339,000 |
|
Deferred income taxes |
|
|
29,807 |
|
|
|
187 |
|
|
|
29,994 |
|
|
|
28,455 |
|
|
|
208 |
|
|
|
28,663 |
|
Other liabilities |
|
|
24,988 |
|
|
|
|
|
|
|
24,988 |
|
|
|
24,259 |
|
|
|
|
|
|
|
24,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,042,052 |
|
|
|
57,870 |
|
|
|
1,099,922 |
|
|
|
1,434,301 |
|
|
|
57,217 |
|
|
|
1,491,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
456 |
|
|
|
|
|
|
|
456 |
|
|
|
456 |
|
|
|
|
|
|
|
456 |
|
Additional paid in capital |
|
|
368,394 |
|
|
|
3,950 |
|
|
|
372,344 |
|
|
|
366,663 |
|
|
|
5,624 |
|
|
|
372,287 |
|
Retained earnings |
|
|
161,501 |
|
|
|
(41,789 |
) |
|
|
119,712 |
|
|
|
154,788 |
|
|
|
(41,674 |
) |
|
|
113,114 |
|
Accumulated other comprehensive
income- foreign currency translation
adjustment |
|
|
33,190 |
|
|
|
95 |
|
|
|
33,285 |
|
|
|
55,839 |
|
|
|
(227 |
) |
|
|
55,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
563,541 |
|
|
|
(37,744 |
) |
|
|
525,797 |
|
|
|
577,746 |
|
|
|
(36,277 |
) |
|
|
541,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,605,593 |
|
|
$ |
20,126 |
|
|
$ |
1,625,719 |
|
|
$ |
2,012,047 |
|
|
$ |
20,940 |
|
|
$ |
2,032,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
December 31, 2007 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
105,696 |
|
|
$ |
|
|
|
$ |
105,696 |
|
|
$ |
56,718 |
|
|
$ |
|
|
|
$ |
56,718 |
|
Accounts receivable, net |
|
|
812,371 |
|
|
|
(15,901 |
) |
|
|
796,470 |
|
|
|
1,072,612 |
|
|
|
(11,433 |
) |
|
|
1,061,179 |
|
Inventories |
|
|
88,869 |
|
|
|
14,574 |
|
|
|
103,443 |
|
|
|
98,863 |
|
|
|
10,694 |
|
|
|
109,557 |
|
Inventories not available for sale |
|
|
27,251 |
|
|
|
|
|
|
|
27,251 |
|
|
|
21,450 |
|
|
|
|
|
|
|
21,450 |
|
Deferred income taxes |
|
|
21,792 |
|
|
|
20,279 |
|
|
|
42,071 |
|
|
|
22,020 |
|
|
|
20,232 |
|
|
|
42,252 |
|
Other current assets |
|
|
36,975 |
|
|
|
|
|
|
|
36,975 |
|
|
|
38,916 |
|
|
|
|
|
|
|
38,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,092,954 |
|
|
|
18,952 |
|
|
|
1,111,906 |
|
|
|
1,310,579 |
|
|
|
19,493 |
|
|
|
1,330,072 |
|
Property and equipment |
|
|
158,541 |
|
|
|
1,286 |
|
|
|
159,827 |
|
|
|
158,467 |
|
|
|
1,273 |
|
|
|
159,740 |
|
Buildings held for lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
311,995 |
|
|
|
(2,806 |
) |
|
|
309,189 |
|
|
|
306,742 |
|
|
|
(2,169 |
) |
|
|
304,573 |
|
Intangible assets |
|
|
79,329 |
|
|
|
|
|
|
|
79,329 |
|
|
|
80,922 |
|
|
|
|
|
|
|
80,922 |
|
Deferred income taxes |
|
|
181 |
|
|
|
4,001 |
|
|
|
4,182 |
|
|
|
392 |
|
|
|
3,325 |
|
|
|
3,717 |
|
Other assets |
|
|
13,189 |
|
|
|
|
|
|
|
13,189 |
|
|
|
10,076 |
|
|
|
|
|
|
|
10,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,656,189 |
|
|
$ |
21,433 |
|
|
$ |
1,677,622 |
|
|
$ |
1,867,178 |
|
|
$ |
21,922 |
|
|
$ |
1,889,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
465,736 |
|
|
$ |
489 |
|
|
$ |
466,225 |
|
|
$ |
685,578 |
|
|
$ |
428 |
|
|
$ |
686,006 |
|
Accrued expenses and other current
liabilities |
|
|
113,057 |
|
|
|
55,564 |
|
|
|
168,621 |
|
|
|
113,891 |
|
|
|
54,716 |
|
|
|
168,607 |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
15,000 |
|
Deferred revenue |
|
|
40,004 |
|
|
|
|
|
|
|
40,004 |
|
|
|
42,885 |
|
|
|
|
|
|
|
42,885 |
|
Line of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
618,797 |
|
|
|
56,053 |
|
|
|
674,850 |
|
|
|
857,354 |
|
|
|
55,144 |
|
|
|
912,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
203,500 |
|
|
|
|
|
|
|
203,500 |
|
|
|
187,250 |
|
|
|
|
|
|
|
187,250 |
|
Deferred income taxes |
|
|
31,272 |
|
|
|
224 |
|
|
|
31,496 |
|
|
|
27,305 |
|
|
|
234 |
|
|
|
27,539 |
|
Other liabilities |
|
|
20,339 |
|
|
|
|
|
|
|
20,339 |
|
|
|
20,075 |
|
|
|
|
|
|
|
20,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873,908 |
|
|
|
56,277 |
|
|
|
930,185 |
|
|
|
1,091,984 |
|
|
|
55,378 |
|
|
|
1,147,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
482 |
|
|
|
|
|
|
|
482 |
|
|
|
485 |
|
|
|
|
|
|
|
485 |
|
Additional paid in capital |
|
|
384,386 |
|
|
|
6,247 |
|
|
|
390,633 |
|
|
|
386,139 |
|
|
|
5,241 |
|
|
|
391,380 |
|
Retained earnings |
|
|
343,086 |
|
|
|
(40,876 |
) |
|
|
302,210 |
|
|
|
340,641 |
|
|
|
(38,528 |
) |
|
|
302,113 |
|
Accumulated other comprehensive
income- foreign currency translation
adjustment |
|
|
54,327 |
|
|
|
(215 |
) |
|
|
54,112 |
|
|
|
47,929 |
|
|
|
(169 |
) |
|
|
47,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
782,281 |
|
|
|
(34,844 |
) |
|
|
747,437 |
|
|
|
775,194 |
|
|
|
(33,456 |
) |
|
|
741,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,656,189 |
|
|
$ |
21,433 |
|
|
$ |
1,677,622 |
|
|
$ |
1,867,178 |
|
|
$ |
21,922 |
|
|
$ |
1,889,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
June 30, 2007 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
53,086 |
|
|
$ |
|
|
|
$ |
53,086 |
|
|
$ |
46,144 |
|
|
$ |
|
|
|
$ |
46,144 |
|
Accounts receivable, net |
|
|
814,444 |
|
|
|
(16,818 |
) |
|
|
797,626 |
|
|
|
1,029,215 |
|
|
|
(17,068 |
) |
|
|
1,012,147 |
|
Inventories |
|
|
102,232 |
|
|
|
15,162 |
|
|
|
117,394 |
|
|
|
98,419 |
|
|
|
15,544 |
|
|
|
113,963 |
|
Inventories not available for sale |
|
|
17,414 |
|
|
|
|
|
|
|
17,414 |
|
|
|
20,040 |
|
|
|
|
|
|
|
20,040 |
|
Deferred income taxes |
|
|
19,550 |
|
|
|
19,868 |
|
|
|
39,418 |
|
|
|
13,812 |
|
|
|
18,930 |
|
|
|
32,742 |
|
Other current assets |
|
|
20,508 |
|
|
|
|
|
|
|
20,508 |
|
|
|
20,923 |
|
|
|
|
|
|
|
20,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,027,234 |
|
|
|
18,212 |
|
|
|
1,045,446 |
|
|
|
1,228,553 |
|
|
|
17,406 |
|
|
|
1,245,959 |
|
Property and equipment |
|
|
156,893 |
|
|
|
1,231 |
|
|
|
158,124 |
|
|
|
137,546 |
|
|
|
1,177 |
|
|
|
138,723 |
|
Buildings held for lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,139 |
|
|
|
|
|
|
|
16,139 |
|
Goodwill |
|
|
305,006 |
|
|
|
(1,658 |
) |
|
|
303,348 |
|
|
|
300,133 |
|
|
|
(1,552 |
) |
|
|
298,581 |
|
Intangible assets |
|
|
82,276 |
|
|
|
|
|
|
|
82,276 |
|
|
|
82,834 |
|
|
|
|
|
|
|
82,834 |
|
Deferred income taxes |
|
|
396 |
|
|
|
3,061 |
|
|
|
3,457 |
|
|
|
2,908 |
|
|
|
3,354 |
|
|
|
6,262 |
|
Other assets |
|
|
18,832 |
|
|
|
|
|
|
|
18,832 |
|
|
|
18,618 |
|
|
|
|
|
|
|
18,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,590,637 |
|
|
$ |
20,846 |
|
|
$ |
1,611,483 |
|
|
$ |
1,786,731 |
|
|
$ |
20,385 |
|
|
$ |
1,807,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
477,322 |
|
|
$ |
364 |
|
|
$ |
477,686 |
|
|
$ |
708,542 |
|
|
$ |
375 |
|
|
$ |
708,917 |
|
Accrued expenses and other current
liabilities |
|
|
93,385 |
|
|
|
52,961 |
|
|
|
146,346 |
|
|
|
116,797 |
|
|
|
50,638 |
|
|
|
167,435 |
|
Current portion of long-term debt |
|
|
15,000 |
|
|
|
|
|
|
|
15,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
15,000 |
|
Deferred revenue |
|
|
25,697 |
|
|
|
|
|
|
|
25,697 |
|
|
|
27,618 |
|
|
|
|
|
|
|
27,618 |
|
Line of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,000 |
|
|
|
|
|
|
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
611,404 |
|
|
|
53,325 |
|
|
|
664,729 |
|
|
|
909,957 |
|
|
|
51,013 |
|
|
|
960,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
152,000 |
|
|
|
|
|
|
|
152,000 |
|
|
|
84,500 |
|
|
|
|
|
|
|
84,500 |
|
Deferred income taxes |
|
|
26,121 |
|
|
|
232 |
|
|
|
26,353 |
|
|
|
17,787 |
|
|
|
227 |
|
|
|
18,014 |
|
Other liabilities |
|
|
28,911 |
|
|
|
|
|
|
|
28,911 |
|
|
|
25,574 |
|
|
|
|
|
|
|
25,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
818,436 |
|
|
|
53,557 |
|
|
|
871,993 |
|
|
|
1,037,818 |
|
|
|
51,240 |
|
|
|
1,089,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
495 |
|
|
|
|
|
|
|
495 |
|
|
|
491 |
|
|
|
|
|
|
|
491 |
|
Additional paid in capital |
|
|
391,571 |
|
|
|
4,609 |
|
|
|
396,180 |
|
|
|
371,424 |
|
|
|
4,739 |
|
|
|
376,163 |
|
Retained earnings |
|
|
335,219 |
|
|
|
(37,147 |
) |
|
|
298,072 |
|
|
|
341,741 |
|
|
|
(35,469 |
) |
|
|
306,272 |
|
Accumulated other comprehensive
income- foreign currency translation
adjustment |
|
|
44,916 |
|
|
|
(173 |
) |
|
|
44,743 |
|
|
|
35,257 |
|
|
|
(125 |
) |
|
|
35,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
772,201 |
|
|
|
(32,711 |
) |
|
|
739,490 |
|
|
|
748,913 |
|
|
|
(30,855 |
) |
|
|
718,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,590,637 |
|
|
$ |
20,846 |
|
|
$ |
1,611,483 |
|
|
$ |
1,786,731 |
|
|
$ |
20,385 |
|
|
$ |
1,807,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
INSIGHT ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
|
|
(unaudited) |
|
|
|
As Reported |
|
|
Adjustments |
|
|
As Restated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
32,160 |
|
|
$ |
|
|
|
$ |
32,160 |
|
Accounts receivable, net |
|
|
798,779 |
|
|
|
(19,615 |
) |
|
|
779,164 |
|
Inventories |
|
|
96,439 |
|
|
|
18,579 |
|
|
|
115,018 |
|
Inventories not available for sale |
|
|
28,132 |
|
|
|
|
|
|
|
28,132 |
|
Deferred income taxes |
|
|
15,908 |
|
|
|
18,039 |
|
|
|
33,947 |
|
Other current assets |
|
|
30,261 |
|
|
|
|
|
|
|
30,261 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,001,679 |
|
|
|
17,003 |
|
|
|
1,018,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
132,830 |
|
|
|
1,134 |
|
|
|
133,964 |
|
Buildings held for lease |
|
|
16,326 |
|
|
|
|
|
|
|
16,326 |
|
Goodwill Intangible assets |
|
|
297,906 |
|
|
|
(1,496 |
) |
|
|
296,410 |
|
Intangible assets |
|
|
84,354 |
|
|
|
|
|
|
|
84,354 |
|
Deferred income taxes |
|
|
2,789 |
|
|
|
3,155 |
|
|
|
5,944 |
|
Other assets |
|
|
19,079 |
|
|
|
|
|
|
|
19,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,554,963 |
|
|
$ |
19,796 |
|
|
$ |
1,574,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
456,249 |
|
|
$ |
267 |
|
|
$ |
456,516 |
|
Accrued expenses and other current
liabilities |
|
|
108,503 |
|
|
|
48,511 |
|
|
|
157,014 |
|
Current Portion of long-term debt |
|
|
15,000 |
|
|
|
|
|
|
|
15,000 |
|
Deferred revenue |
|
|
27,688 |
|
|
|
|
|
|
|
27,688 |
|
Line of credit |
|
|
8,000 |
|
|
|
|
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
615,440 |
|
|
|
48,778 |
|
|
|
664,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
178,500 |
|
|
|
|
|
|
|
178,500 |
|
Deferred income taxes |
|
|
20,448 |
|
|
|
225 |
|
|
|
20,673 |
|
Other liabilities |
|
|
21,913 |
|
|
|
|
|
|
|
21,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
836,301 |
|
|
|
49,003 |
|
|
|
885,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
491 |
|
|
|
|
|
|
|
491 |
|
Additional paid in capital |
|
|
367,914 |
|
|
|
4,374 |
|
|
|
372,288 |
|
Retained earnings |
|
|
314,932 |
|
|
|
(33,486 |
) |
|
|
281,446 |
|
Accumulated other comprehensive
income- foreign currency translation
adjustment |
|
|
35,325 |
|
|
|
(95 |
) |
|
|
35,230 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
718,662 |
|
|
|
(29,207 |
) |
|
|
689,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,554,963 |
|
|
$ |
19,796 |
|
|
$ |
1,574,759 |
|
|
|
|
|
|
|
|
|
|
|
109
INSIGHT ENTERPRISES, INC.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as such term is defined under Rules 13a-15(f) and 15d-15(f) of the Securities
Exchange Act of 1934, as amended (the Exchange Act)). Our management, including our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2008. In making this assessment, our
management used the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement
of a companys annual or interim financial statements will not be prevented or detected on a timely
basis. Management identified a material weakness in our internal control over financial reporting
related to the proper disposition, reconciliation, monitoring and consequent accounting of aged
trade credits. Inadequate understanding of the Companys unclaimed property obligations and
unsupported assumptions regarding trade credits resulted in the following control deficiencies
which, when considered in the aggregate, resulted in a material weakness in our internal control
over financial reporting:
|
|
|
Inadequate policies and procedures to timely determine the proper disposition of all
overpayments and duplicate payments received from clients; |
|
|
|
Inadequate policies and procedures to timely reconcile and determine the proper
disposition of all credit memos issued to clients in exchange for returned products,
billing errors and other customer service reasons; |
|
|
|
Inadequate policies and procedures to timely determine the proper disposition of all
goods received/accepted by the Company for which no invoice has been received; |
|
|
|
Inadequate policies and procedures to timely reconcile and determine the proper
disposition of all open purchase orders; and |
|
|
|
Ineffective monitoring of the effectiveness of our policies and procedures relating to
aged trade credits. |
The material weakness resulted in errors in the accounting for certain aged trade credits and
in the restatement of our historical consolidated financial statements. As a result of the
material weakness described above, management has concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2008.
The
Company acquired Calence, LLC during 2008, and management excluded
from its assessment of the effectiveness of the Companys
internal control over financial reporting as of December 31,
2008, Calence, LLCs internal control over financial reporting
associated with total assets of $120 million and total net sales
of $258 million included in the consolidated financial
statements of the Company as of and for the year ended
December 31, 2008.
KPMG LLP, the independent registered public accounting firm that audited the Consolidated
Financial Statements in Part II, Item 8 of this report, has issued an attestation report on the
Companys internal control over financial reporting as of December 31, 2008.
(b) Changes in Internal Control Over Financial Reporting
There was no change in the Companys internal control over financial reporting (as such term
is defined under Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended
December 31, 2008 that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
Subsequent to December 31, 2008, we have begun taking steps to remediate the material weakness
described in (a) above. We have implemented or are in the process of implementing internal control
improvements in several areas. Some of these improvements will require systems enhancements that
will take some time to implement. In the interim, the Company intends to use improved manual
controls to ensure that the aged trade credits are accounted for appropriately in compliance with
all legal and accounting requirements. The improvements are in the following areas:
|
|
|
Immediately discontinuing the practice of taking certain aged trade credits into the
income statement as a reduction to costs of goods sold unless we are legally released from
our obligation or it is determined to be an error such that no credit or other obligation
in fact exists; |
110
INSIGHT ENTERPRISES, INC.
|
|
|
Implementing and documenting policies and procedures to research and properly dispose of
customer credits and outstanding purchase orders, including an escalation procedure if a
credit remains unresolved for an extended period; |
|
|
|
Identifying and implementing system enhancements to strengthen control procedures,
reduce the volume of manual processes and increase the automated tools available to
accounting personnel including, (i) automating the issuance of credit memos to clients,
(ii) automating the matching of credit memos against related/applicable debits, (iii)
increasing communication and workflow between the operations group and the collections
department related to returned goods and (iv) streamlining and conforming policies and
procedures across all business units; |
|
|
|
Developing a training program to ensure appropriate personnel understand the systems
enhancements and the new policies, procedures and controls related to aged trade credits; |
|
|
|
Implementing a robust and comprehensive unclaimed property reporting methodology to
timely and accurately comply with all applicable state laws; and |
|
|
|
Enhancing our monitoring controls to more promptly identify and adequately respond to
changes in the Companys operations and business processes resulting from systems
improvements and/or upgrades, acquisitions or business mix. |
We believe that the foregoing actions will significantly improve our internal control over
financial reporting, as well as our disclosure controls and procedures. However, certain of the
actions that we expect to complete will require additional time to be implemented fully or to take
full effect. Accordingly, the remediation of the identified material weakness was not complete as
of the date of this report. There can be no assurance that the material weakness described above
will be remediated by December 31, 2009, the date as of which we will next report on managements
evaluation of the effectiveness of our internal control over financial reporting. Prior to the
remediation of our material weakness, there is a risk that material misstatements in our interim or
annual financial statements may occur. If the remedial measures described above are insufficient
to address our material weakness, or any additional deficiency that may arise in the future,
material misstatements in our interim or annual financial statements may occur in the future.
Further, any system of controls, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the system of controls are or will be met, and no
evaluation of controls can provide absolute assurance that all control issues within a company have
been detected or will be detected under all potential future conditions.
(c) Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that
information required to be disclosed in our reports to the SEC is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and that such
information is accumulated and communicated to our management, including our principal executive
officer and our principal financial and accounting officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered
by this report, evaluated the effectiveness of our disclosure controls and procedures (as such term
is defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) and determined that, as a
result of the material weakness in internal control over financial reporting described above, as of
December 31, 2008 our disclosure controls and procedures are not effective to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
(d) Inherent Limitations of Disclosure Controls and Internal Control Over Financial Reporting
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to risks that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
111
INSIGHT ENTERPRISES, INC.
Item 9B. Other Information
Item 5.02. Departure of Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
As previously reported by the Company on Form 8-K, filed on March 3, 2009, our Chief
Accounting Officer resigned effective March 31, 2009. Glynis A. Bryan, the Companys current Chief
Financial Officer, has assumed the duties of principal accounting officer.
Information about Ms. Bryans business experience, compensation and employment agreement is
set forth elsewhere in this Annual Report on Form 10-K and is incorporated by reference herein.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information Concerning Directors and Executive Officers
Our Board currently consists of nine persons, divided into three classes serving staggered
terms of three years. The terms of three Class III directors will expire at the 2009 annual
meeting to be held on June 23, 2009. The terms of the Class I and Class II directors will expire
at the 2010 and 2011 annual meetings, respectively. The names of our directors and executive
officers, and information about them, are set forth below.
|
|
|
Timothy A. Crown
(Age 45)
Chair of the Board
Class III Director
Chair of the Executive Committee
|
|
Mr. Crown has been a director
since 1994 and assumed the
position of Chair of the Board
in November 2004. Mr. Crown
has been a non-employee
director since 2004. Mr.
Crown, a co-founder of the
Company, stepped down from the
position of President and Chief
Executive Officer in November
2004, positions he had held
since January 2000 and October
2003, respectively. |
|
|
|
Bennett Dorrance
(Age 63)
Class I Director
Member of the Compensation and
Nominating and Governance Committees
|
|
Mr. Dorrance has been a
director since 2004. Mr.
Dorrance has been a Managing
Director of DMB Associates, a
real estate service company
based in Scottsdale, Arizona,
since 1984. Mr. Dorrance has
served on the Board of
Directors of Campbell Soup
Company since 1989. |
|
|
|
Richard A. Fennessy
(Age 44)
President and Chief Executive
Officer
Class II Director
Member of the Executive Committee
|
|
Mr. Fennessy was elected
President and Chief Executive
Officer effective November 2004
and was appointed director in
September 2005. From 1987 to
2004, Mr. Fennessy worked for
International Business Machines
Corporation (IBM), where he
held numerous domestic and
international executive
positions. His most recent
positions included: General
Manager, Worldwide, ibm.com;
Vice President, Worldwide
Marketing Personal Computer
Division; and General Manager,
Worldwide PC Direct
organization. |
|
|
|
Michael M. Fisher
(Age 63)
Class I Director
Chair of the Audit Committee
Member of the Executive Committee
|
|
Mr. Fisher has been a director
since 2001 and is the Audit
Committees designated
financial expert. Mr. Fisher
served as President of Power
Quality Engineering, Inc., a
manufacturer of specialty
filters, from 1995 to 2007.
Since 2007, Mr. Fisher has also
served as a Director of Open
Tech Alliance, Inc., a private
company engaged in the
development of kiosks for the
self-storage industry. |
112
INSIGHT ENTERPRISES, INC.
|
|
|
Larry A. Gunning
(Age 65)
Class II Director
Member of the Nominating and
Governance Committee
|
|
Mr. Gunning has been a director
since 1995. Mr. Gunning has
been Manager and Director of 3D
Petroleum LLC, a petroleum
company, since 2001. From 1988
to 2001, Mr. Gunning was
President and a Director of
Pasco Petroleum Corp., a
petroleum marketing company
that merged with 3D Petroleum
LLC in 2001. Mr. Gunning is
also a member and Director of
Cobblestone AutoSpa, which owns
and operates several
full-service carwashes. |
|
|
|
Anthony A. Ibargüen
(Age 50)
Class III Director
Member of the Audit and
Compensation Committees
|
|
Mr. Ibargüen was appointed a
director in July 2008. He is
Chairman of the Board of
Alliance Global Services and
Alliance Life Sciences
Consulting, privately-held IT
consulting firms which were
previously part of Alliance
Consulting Group, where Mr.
Ibargüen was President and CEO
from 2004 to 2008. From 2000
to 2004, he was a Managing
Director at Internet Capital
Group and then (from 2002)
Safeguard Scientifics, both
publicly-held investment
holding companies. From 1996
to 2000, Mr. Ibargüen was
President, Chief Operating
Officer and a director of Tech
Data Corporation, a Fortune 500
global technology distribution
company. |
|
|
|
Robertson C. Jones
(Age 64)
Class II Director
Chair of the Nominating and
Governance Committee
Member of the Audit Committee
|
|
Mr. Jones has been a director
since 1995. From 1992 through
2001, Mr. Jones was Senior Vice
President and General Counsel
of Del Webb Corporation, a
developer of master-planned
residential communities. |
|
|
|
Kathleen S. Pushor
(Age 51)
Class III Director
Member of the Audit and
Compensation Committees
|
|
Ms. Pushor has been a director
since September 2005. Since
January 2006, Ms. Pushor has
served as President and Chief
Executive Officer of the
Greater Phoenix Chamber of
Commerce. She has resigned
that position effective June
2009. From 2003 to 2005, Ms.
Pushor served as Chief
Executive Officer of the
Arizona Lottery. From 1999 to
2002, Ms. Pushor operated an
independent consulting practice
in the technology distribution
sector, and from 1998 to 2005
Ms. Pushor was a member of the
Board of Directors of Zones,
Inc., a direct marketer of IT
products. |
|
|
|
David J. Robino
(Age 49)
Class I Director
Chair of the Compensation
Committee
Member of the Nominating and
Governance Committee
|
|
Mr. Robino has been a director
since May 2007. Mr. Robino
served as a Non-Executive
Director of Memec Group
Holdings Limited, a global
distributor of specialty
semiconductors, from 2001 until
the sale of that business to
Avnet, Inc. in 2005. Mr.
Robino served Gateway, Inc.
first as Executive Vice
President and Chief
Administrative Officer and
later as Vice Chairman from
1998 to 2001. |
|
|
|
Steven R. Andrews
(Age 56)
General Counsel, Chief
Administrative Officer and Secretary
|
|
Mr. Andrews joined Insight in
September 2007 as our General
Counsel and was appointed
Secretary in November 2007. In
February 2009, in conjunction
with a corporate
reorganization, Mr. Andrews was
also appointed our Chief
Administrative Officer. Prior
to joining Insight, Mr. Andrews
was Senior Vice President, Law
and Human Resources of ShopKo
Stores, Inc. from 2002 to 2006.
Prior to joining ShopKo, Mr.
Andrews served as Senior Vice
President, General Counsel and
Secretary of PepsiAmericas,
Inc. from 1999 through 2001. |
113
INSIGHT ENTERPRISES, INC.
|
|
|
Glynis A. Bryan
(Age 50)
Chief Financial Officer
|
|
Ms. Bryan joined Insight in
December 2007 as our Chief
Financial Officer. Prior to
joining Insight, Ms. Bryan
served as Executive Vice
President and Chief Financial
Officer at Swift Transportation
Co., Inc. from April 2005 to
May 2007. Prior to joining
Swift, Ms. Bryan served as
Chief Financial Officer at APL
Logistics in Oakland, Calif.
and in various finance roles at
Ryder System, Inc., including
Chief Financial Officer of
Ryders largest business unit,
Ryder Transportation Services.
Ms. Bryan is a member of the
Board of Directors and the
Governance and Compensation Committees of
Pentair, Inc., a diversified
industrial manufacturing
company. |
|
|
|
Stuart A. Fenton
(Age 40)
President EMEA/APAC
|
|
Mr. Fenton joined Insight in
October of 2002 as Managing
Director of Insight Direct UK
Ltd. and was promoted to
President of our EMEA operating
segment in November 2006. In
February 2009, in conjunction
with a corporate
reorganization, Mr. Fenton also
assumed oversight
responsibility for our
Asia-Pacific operating segment.
From 1995 to 2002, Mr. Fenton
held various positions at Micro
Warehouse Inc., serving most
recently as the General Manager
of Micro Warehouse Canada. |
|
|
|
Helen K. Johnson
(Age 40)
Senior Vice President
Treasurer and Investor Relations
|
|
Ms. Johnson joined Insight in
October 2007 as Senior Vice
President, Treasurer and
Investor Relations. Prior to
joining Insight, Ms. Johnson
served from 2000 to 2007 at
eFunds Corporation, a publicly
held technology solutions
provider to the financial
institutions market, most
recently as Senior Vice
President, Treasurer and
Investor Relations. |
|
|
|
Stephen A. Speidel
(Age 44)
Chief Operating Officer and Chief
Information Officer
|
|
Mr. Speidel has served as Chief
Information Officer since
November 2007. In February
2009, in conjunction with a
corporate reorganization, Mr.
Speidel was also appointed our
Chief Operating Officer. From
June 2004 to November 2007, Mr.
Speidel served as Senior Vice
President, Operations of our
North America segment. Mr.
Speidel has been employed in
management positions with
Insight or one of its acquired
entities since November 1996.
Prior to joining Insight, Mr.
Speidel spent 12 years at IBM
working in IBMs Services
business. |
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, our directors, executive officers, and any
persons holding more than 10% of our common stock are required to report their initial ownership of
our common stock and any subsequent changes in that ownership to the SEC. Specific due dates for
these reports have been established, and we are required to disclose any known failure to file by
these dates. A total of twenty-three of seventy-four filings made during 2008 were considered
late, primarily as a result of turnover in Company personnel responsible for assisting our officers
and
directors with their filings during the first half of 2008, as follows: (i) six late filings
were made on February 19, 2008 (Ms. Eckstein, Mr. Fennessy, Mr. Fenton, Mr. Glandon, Karen McGinnis
and Mr. McGrath) with respect to withholding of shares to satisfy tax obligations; (ii) four late
filings were made on February 22, 2008 (Dave Rice) with respect to sales of shares; (iii) ten late
filings were made on February 25, 2008 (Mr. Andrews, Ms. Bryan, Ms. Eckstein, Mr. Fennessy, Mr.
Fenton, Mr. Glandon, Helen Johnson, Ms. McGinnis, Mr. McGrath and Steve Speidel) with respect to
RSU grants on February 20, 2008; (iv) two late filings were made on February 4, 2008 and February
20, 2008 (both, Mr. Speidel) with respect to an initial report on Form 3 and to withholding of
shares to satisfy tax obligations; and (v) one late filing was made on May 6, 2008 (Mr. Fennessy)
with respect to withholding of shares to satisfy tax obligations in January 2008.
114
INSIGHT ENTERPRISES, INC.
Code of Ethics
We have adopted a Code of Ethics that applies to directors and all employees, including our
Chief Executive Officer and our senior financial executives. The Code of Ethics may be viewed
online on our website at www.insight.com. We intend to satisfy the disclosure requirement under
Item 5.05 of Form 8-K regarding any amendments to, or waivers from, a provision of our Code of
Ethics by posting such information on our website at the location specified above, unless otherwise
required by Nasdaq Rules to disclose any such waiver on Form 8-K.
Policy on Stockholder Recommendations of Director Nominees
The Nominating and Governance Committee will consider and evaluate nominees recommended by
stockholders. Stockholders may propose director candidates for consideration by sending the name
of any recommended candidate, together with pertinent biographical information, a document
indicating the candidates willingness to serve if elected, and evidence of the nominating
stockholders ownership of our common stock to our Corporate Secretary at 6820 South Harl Avenue,
Tempe, Arizona 85283 See further information on this process in our Proxy Statement for our annual
meeting to be held on June 23, 2009.
Audit Committee
The Audit Committee consists of Mr. Fisher, Chair, Mr. Ibargüen, Mr. Jones and Ms. Pushor.
The Audit Committee met 13 times in 2008. Mr. Ibargüen joined the Audit Committee upon his
appointment to the Board on July 1, 2008. The Audit Committee assists the Board in fulfilling its
responsibilities for generally overseeing our financial reporting processes and the audit of
Insights consolidated financial statements, including the integrity of the consolidated financial
statements and the system of internal control over financial reporting established by management,
our compliance with legal and regulatory requirements, the qualifications and independence of our
independent registered public accounting firm, the performance of our internal audit function and
our independent registered public accounting firm, our financial risk assessment and financial risk
management, and our finance and investment functions. The Vice President of Internal Audit reports
directly to the Chair of the Audit Committee. In addition, the Audit Committee reviews and
discusses with the Chief Executive Officer and the Chief Financial Officer the procedures
undertaken in connection with their certifications included in the Companys annual and quarterly
reports filed with the Securities and Exchange Commission (SEC). The Audit Committee has the
authority to obtain advice and assistance from, and receive appropriate funding from us for,
outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its
duties. The Audit Committee operates pursuant to a written charter, reviewed annually, adopted by
the Audit Committee and approved by the Board. The charter may be viewed online on our website at
www.insight.com.
The Board has determined that the responsibilities of the Audit Committee, as reflected in its
charter, are in accordance with applicable SEC rules and NASDAQ Marketplace Rule(s) for audit
committees. Further, the composition and attributes of its members meets the requirements of
NASDAQ Marketplace Rule(s), including, without limitation, the independence requirements of NASDAQ
Marketplace Rule 5605(c)(2)(A). All Audit Committee members possess the required level of
financial literacy, at least one member of the Audit Committee meets the current standard of
requisite financial management expertise and our Board has determined that Mr. Fisher, the Chair of
the Audit Committee, is an audit committee financial expert as defined in Regulation S-K. Our
policy is to discourage related party transactions, and prior approval of the Audit Committee is
necessary for an officer or director to enter into a related party transaction.
Item 11. Executive Compensation
Compensation Discussion and Analysis
The purpose of this Compensation Discussion and Analysis (CD&A) is to provide information
about each material element of compensation that we pay or award to, or that is earned by, our
named executive officers. For 2008, our named executive officers were:
|
|
|
Richard A. Fennessy, President and Chief Executive Officer; |
|
|
|
Glynis A. Bryan, Chief Financial Officer; |
|
|
|
Stuart A. Fenton, President, EMEA/APAC; |
|
|
|
Mark T. McGrath, President, North America/APAC (resigned effective March 1,
2009); |
|
|
|
Gary M. Glandon, Chief People Officer (resigned effective April 2, 2009); and |
|
|
|
Catherine W. Eckstein, former Chief Marketing Officer (resigned effective July
18, 2008). |
115
INSIGHT ENTERPRISES, INC.
This CD&A addresses and explains the numerical and related information contained in the
summary compensation tables and includes a discussion of actions regarding executive compensation
that occurred after the end of 2008, including the award of bonuses related to 2008 performance,
and the adoption of our 2009 compensation programs.
Executive Compensation Philosophy and Objectives
Our long-term success depends on our ability to attract and retain individuals who are
committed to the Companys strategy and core values of client service, respect and integrity. Our
general philosophy of executive compensation is to offer competitive base salaries and emphasize
cash and equity-based incentive compensation which:
|
|
|
is competitive in the marketplace; |
|
|
|
permits us to attract and retain highly qualified executives; |
|
|
|
encourages extraordinary effort on behalf of the Company; |
|
|
|
rewards the achievement of specific financial, strategic and tactical goals by
the Company and the individual executive that aligns the interests of management
with the interests of our stockholders; and |
While the foregoing philosophy still guides the Committees actions, during 2008 the
Companys stockholders experienced a significant decline in the price for the Companys common
stock. Consistent with our results and the above philosophy, the Companys named executive
officers, on average, earned less than 40% of their total potential compensation for 2008.
Moreover, the Companys named executive officers, on average, earned less than 20% of their
potential incentive compensation for 2008, which consists of the cash incentive plans and the
equity incentive plans. These percentages (40% and 20%) were computed assuming 100% of target
Restricted Stock Units (RSUs) were awarded as a component of the potential incentive
compensation for 2008 and valuing those shares at the stock price of the Companys common stock on
the grant date ($18.87).
Against the backdrop of the global recession that began in 2008, the Compensation Committee
went to great lengths to develop an executive compensation program for 2009 that is fair and
motivating to our executives, while at the same time being mindful of stockholder interests and
expectations. Given the unpredictable economic environment and the difficulty of defining
appropriate performance standards at both the Company and the individual executive level in 2009,
the 2009 compensation program described in this CD&A is based in large part on (1) expectations
for the Companys performance in 2009 under challenging conditions, (2) an effort to continue to
align managements interests with those of our stockholders, and (3) the need to attract and
retain qualified individuals. For 2009, substantially less reliance was placed on historical
Insight and peer group results and metrics. Instead, the Compensation Committee approved a
compensation program that places more emphasis on individual actions and performance that guide or
benefit the Companys performance.
Compensation Consultants and Benchmarking
The Compensation Committee utilizes internal resources, including our People and Development
Group, to help it carry out its responsibilities, consults with other members of the Board in
connection with its decision making, as
appropriate, and has consistently over time engaged independent consultants to assist it in
fulfilling its responsibilities. The Compensation Committee has the authority to obtain advice
and assistance from, and receives appropriate funding from the Company for, outside advisors as
the Compensation Committee deems necessary to carry out its duties. As was done in 2006 and 2007,
in 2008 the Compensation Committee retained Towers Perrin, a global human resources consulting
firm, as its independent compensation consultant to advise the Compensation Committee on all
matters related to executive compensation. In contrast to prior years, however, in 2008 Towers
Perrin did not provide an updated competitive analysis of the compensation for the Companys most
senior executives, including its named executive officers. Looking forward, the Compensation
Committee plans to obtain competitive analyses at least every other year.
116
INSIGHT ENTERPRISES, INC.
The Compensation Committee began its process of setting executive compensation for 2009 in
August of 2008. While Towers Perrin advised the Compensation Committee on various issues, the
Compensation Committees conclusions and actions were not made in response to or in reference to
specific competitive market data because the Companys past performance and the performance of its
peers was deemed by the Compensation Committee to not be as relevant as in past years. This
determination was based in part on the significant economic events of 2008, which the Compensation
Committee believes makes the historical results and metrics less relevant benchmarks.
Towers Perrins 2007 study, which was used to set 2008 executive compensation levels,
measured the competitiveness of the Companys compensation relative to two groups of companies
(the comparison groups). The comparison groups were chosen by Towers Perrin and approved by the
Compensation Committee based upon primary characteristics such as similar business focus, labor
market and size. Comparison Group One, which was considered to be the primary peer group,
included 19 publicly-traded product and service competitors and suppliers and other enterprises
which may compete with the Company for executive talent. Comparison Group Two included 14
publicly-traded technology companies, many of which are significantly larger than Insight.
Because of the large variance in size among the companies in Comparison Group Two, Towers Perrin
adjusted the compensation data for Comparison Group Two to reflect the revenue size of the
Company. This size-adjusted data was used as a basis of comparison of compensation between
Insight and the companies in Comparison Group Two. As neither group was limited to companies that
are merely competitors or to those that are close comparisons in terms of sales and market
capitalization, the Company does not consider these groups to be peer groups for other purposes.
In 2007, the specific companies included in Comparison Group One, which represented the same peers
used in the 2006 comparison, were as follows:
Comparison Group One (the primary peer group)
|
|
|
|
|
Affiliated Computer Services, Inc.
Amazon.com, Inc.
Avnet Inc.
BearingPoint, Inc.
Bell Microproducts, Inc.
CACI International, Inc.
CDW Corp.
|
|
CGI Group, Inc.
IKON Office Solutions, Inc.
Ingram Micro, Inc.
Lexmark International, Inc.
Office Depot, Inc.
PC Connection, Inc.
Perot Systems Corp.
|
|
PetSmart, Inc.
SYNNEX Corp.
Tech Data Corp.
Tellabs, Inc.
Unisys Corp. |
In 2007, the specific companies included in Comparison Group Two, which represented the same
peers used in the 2006 comparison (except for the exclusion of Dendrite International, Inc.,
Electronic Data Systems Corp., HLTH Corp., Microsoft Corp., The Reynolds and Reynolds Co. and
Sabre Holdings Corp. in the 2007 comparison because these six companies did not participate in
Towers Perrins annual survey) were as follows:
Comparison Group Two
|
|
|
|
|
Apple, Inc.
Ceridian Corp.
Dell Inc.
EMC Corp. (Mass)
Hewlett-Packard Co.
|
|
International Business Machines Corp.
IKON Office Solutions, Inc.
Intel Corp.
Lexmark International, Inc.
National Semiconductor Corp.
|
|
Seagate Technology
Sun Microsystems, Inc.
Unisys Corp.
Xerox Corp.
|
The 2007 Towers Perrin study provided the Compensation Committee with compensation data for
base salary, annual cash incentives and long-term equity-based incentive compensation for each
comparison group. The study generally concluded that, with respect to total compensation, the
Company was positioned below the median of each of the comparison groups. With respect to total
cash compensation, which includes base salaries and incentive
compensation, the Towers Perrin study generally concluded that the Company was competitive
based on comparison group analyses. However, this conclusion was driven primarily by the
Companys above target performance in 2007 and resulting above target incentive compensation,
while base salaries were noted to be below market. With respect to long-term equity-based
incentive compensation, Towers Perrin generally concluded that the Companys equity-based
incentive compensation plan, including the use of performance-based RSUs and the target level of
grants to each executive, was competitive with market practices.
117
INSIGHT ENTERPRISES, INC.
The Compensation Committee used these past studies in addition to other relevant sources of
information, such as existing pay levels and other publicly available information about trends in
executive compensation, in setting compensation for executives for 2009. Additionally, Towers
Perrin advised the Compensation Committee and the Company regarding executive compensation
programs generally and provided advice on trends in compensation. The Committee anticipates that
it will undertake similar competitive reviews in the future and that it will use the services of
outside consultants for similar services in the future.
Compensation Programs Design
The principal components of compensation for the Companys named executive officers are:
|
|
|
base salary and benefits; |
|
|
|
short-term cash incentive compensation; and |
|
|
|
long-term equity-based incentive compensation. |
As a result of our executive compensation philosophy, a significant percentage of total
compensation is allocated to incentive compensation. There is no pre-established policy or target
for the allocation between either cash or equity or short-term or long-term incentive
compensation. Rather, the different elements of compensation are designed to support and
encourage varying behaviors that the Compensation Committee believes will contribute favorably to
Company performance.
As discussed in more detail below, the performance measures for the quarterly earnings from
operations (EFO) component of the 2008 cash incentive plan in the Company and in North America
were not met, although they were met to varying degrees in the first three quarters of 2008 in
EMEA. Similarly, the performance measures for the 2008 equity-based incentive plan were not met,
and, therefore, no performance-based RSUs were earned under the plan in 2008. In light of the low
actual performance levels compared to the performance targets set for the 2008 plan, and in light
of the decrease in the Companys stock price and the ongoing general economic decline, the
Compensation Committee determined that comparisons to other companies in its peer groups were of
less value with respect to establishing the 2009 compensation program than might normally be the
case. The Compensation Committee considered prior year results of the Company and worked with
management and with its consultant to develop a compensation program suitable for the
unpredictable environment facing the Company in 2009. As a result, base salaries remained the
same for senior executives in 2009, the value of equity awards was reduced, and the target cash
incentive compensation for the Companys Section 16 officers was reduced by 25%.
Base Salary and Benefits
Base salary and benefits are designed to attract and retain executives by providing a fixed
compensation based on competitive market practices. This component of compensation is designed to
reward an executives core competency in his or her position relative to skills, experience and
expected contributions to the Company and to provide the executive with a predictable and reliable
component of compensation for his or her services.
The Compensation Committee reviews base salaries annually and in 2008 and prior years
generally targeted base pay for executive officers at or nearly at the median of the comparison
groups, with adjustments, as appropriate, for tenure, performance and variations in actual
position responsibilities from position descriptions in the comparison groups. The 2007 Towers
Perrin study concluded that 2007 base salary levels for the Companys executive officers were
generally below the median levels of both comparison groups, and, based on this finding, the
Compensation Committee approved certain increases in executive base salaries for 2008. Because of
the difficult and continuing global economic conditions facing the Company, management
recommended, and the Compensation Committee agreed, that there would be no increases in base
salary for 2009 above 2008 levels. Those levels are as follows:
|
|
|
Richard A. Fennessy, President and Chief Executive Officer $750,000 (2009 and
2008); |
|
|
|
Glynis A. Bryan, Chief Financial Officer $400,000 (2009 and 2008); |
|
|
|
Stuart A. Fenton, President, EMEA/APAC $405,0001 (2008
$450,0002); |
|
|
|
Mark T. McGrath, President, North America/APAC $425,000 (2009 and 2008;
Resigned effective March 1, 2009); |
|
|
|
Gary M. Glandon, Chief People Officer $275,000 (2009 and 2008; Resigned
effective April 2, 2009); and |
|
|
|
Catherine Eckstein, former Chief Marketing Officer $295,000 (2008; Resigned
effective July 18, 2008). |
|
|
|
1 |
|
Mr. Fentons 2009 salary was translated into U.S. dollars using the British
Pound Sterling average exchange rate for the year ended December 31, 2008 of $1.80. |
|
2 |
|
Mr. Fentons 2008 salary was translated into U.S. dollars using the British
Pound Sterling
exchange rate in effect on December 18, 2007 of $2.02. |
118
INSIGHT ENTERPRISES, INC.
Our named executive officers participate in benefit plans generally available to all of our
teammates, including medical, health, life insurance and disability plans. Our named executive
officers are also eligible to participate in the Companys 401(k) plan, and receive Company
matching contributions, to the extent made by the Company, which are generally available to our
teammates. Beginning January 1, 2008, our named executive officers are also eligible to
participate in the Companys Nonqualified Deferred Compensation Plan, which is available to a
select group of management or highly compensated employees as defined by the Employee Retirement
Income Security Act of 1974, as amended. Currently, the Company does not make any contributions
to the Nonqualified Deferred Compensation Plan. Mr. Fenton also receives an automobile allowance,
which is a benefit generally available to executives in the United Kingdom, where Mr. Fenton
resides. These benefits are part of our broad-based total compensation programs offered in the
geography in which each of the executives resides.
Short-Term Cash Incentive Compensation
The Compensation Committee views cash incentive compensation as a means of closely tying a
significant portion of the total potential annual cash compensation for executives to the
financial and operational performance of the Company or the portion of the Company for which the
executive has management responsibility. Our cash incentive compensation plans are designed to
reward individuals for the achievement of certain defined financial objectives of the Company, as
well as annual individual or Company financial, strategic and tactical objectives. All officers
subject to Section 16(a) of the Exchange Act, including our named executive officers, have an
annual cash incentive plan. The financial objectives and performance goals are approved by the
Compensation Committee and are set at the beginning of the year. These objectives and goals are
integrated into the management cash incentive plans throughout the organization to foster a team
environment where the entire Company is focused on the same set of objectives and goals.
The Compensation Committee annually reviews financial objectives, performance goals and
target cash incentive compensation. In 2008 and prior years, the Compensation Committee generally
targeted cash incentive compensation for executive officers at or near the median of the
comparison groups and adjusted, as appropriate, for tenure, performance and variations in actual
position responsibilities from position descriptions in the comparison groups. The 2007 Towers
Perrin study utilized to set 2008 cash incentive targets generally concluded that the Companys
cash incentive compensation was competitive based on its comparison group analysis. For 2009,
however, as described more fully below, the Compensation Committee developed a program that
focuses on Company performance and individual executive performance in what the Compensation
Committee believes will be an unusually unpredictable year.
2008 Cash Incentive Plan
Under the 2008 cash incentive plan, the named executive officers earned cash incentive
compensation based on achievement of financial objectives against targeted amounts for the Company
or their respective business units, with payouts varying with financial performance levels below
and above target levels (awards were discretionary and outside of the plan over or below specified
levels). Annual and quarterly financial performance targets were set in conjunction with the 2008
annual budget process at the beginning of 2008 and were considered to be challenging but
achievable given the tactical and strategic plans that were in place at the time. The total
target cash incentive compensation for 2008 was based 60% on non-GAAP EFO (defined under the plan
as the actual 2008 EFO excluding charges for goodwill impairment and costs associated with the
stock option review, if any) of the Company, or the executives respective business units. For
this 60% component, performance was measured and paid quarterly on a sliding scale, with a minimum
payout of zero and a maximum payout of 175% of the EFO cash incentive target. The quarterly EFO
cash incentive was designed to pay out at 100% upon the achievement of consolidated EFO for 2008
of $167.7 million. The remaining 40% of the target cash incentive compensation was based on
achievement of annual individual performance goals, with the Compensation Committee determining
the actual amounts to be paid to the Chief Executive Officer and the other executive officers of
the Company.
119
INSIGHT ENTERPRISES, INC.
As previously noted, none of the EFO targets were met by the Company or its North America
operations in 2008. The EFO targets for EMEA were met to varying degrees and, accordingly, Mr.
Fenton was paid quarterly bonuses in each of the first three quarters of 2008. Cash incentive
awards were made by the Compensation Committee under the annual individual performance component
of the plan on February 17, 2009. The actual 2008 cash incentive compensation, as compared to
2008 targets, for the named executive officers was awarded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on EFO |
|
|
Based on Individual |
|
|
|
|
|
|
Goals |
|
|
Performance Goals |
|
|
Total |
|
Name |
|
Target |
|
|
Actual |
|
|
Target |
|
|
Actual |
|
|
Target |
|
|
Actual |
|
Richard A. Fennessy |
|
$ |
900,000 |
|
|
$ |
|
|
|
$ |
600,000 |
|
|
$ |
450,000 |
|
|
$ |
1,500,000 |
|
|
$ |
450,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glynis A. Bryan |
|
|
255,000 |
|
|
|
|
|
|
|
170,000 |
|
|
|
170,000 |
|
|
|
425,000 |
|
|
|
170,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart A. Fenton1 |
|
|
174,600 |
|
|
|
154,787 |
|
|
|
116,400 |
|
|
|
99,524 |
|
|
|
291,000 |
|
|
|
254,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark T. McGrath2 |
|
|
300,000 |
|
|
|
|
|
|
|
200,000 |
|
|
|
100,000 |
|
|
|
500,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary M. Glandon2 |
|
|
93,000 |
|
|
|
|
|
|
|
62,000 |
|
|
|
58,900 |
|
|
|
155,000 |
|
|
|
58,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine W. Eckstein2 |
|
|
123,000 |
|
|
|
|
|
|
|
82,000 |
|
|
|
|
|
|
|
205,000 |
|
|
|
|
|
|
|
|
1 |
|
Mr. Fentons 2008 target incentive compensation was translated into U.S. dollars
using the British
Pound Sterling exchange rate in effect on December 18, 2007 of $2.02, and actual incentive
compensation was translated into U.S. dollars using the British Pound Sterling average
exchange rate for the year ended December 31, 2008 of $1.80. |
|
2 |
|
Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective
March 1, 2009, April 2, 2009 and July 18, 2008, respectively. |
The Compensation Committee also had the authority to approve discretionary awards outside of
the plan; however, no discretionary cash bonuses were approved by the Compensation Committee for
the named executive officers during 2008.
2009 Cash Incentive Plan
For 2009, the Compensation Committee continued its emphasis on cash incentive compensation by
setting cash incentive plans for executive officers so that a significant portion of total
compensation will be awarded through cash incentives if performance measures are met, although, as
previously noted, the target cash incentive levels for executive officers have been reduced by 25%
for 2009.
The 2009 cash incentive plan (the 2009 Plan) provides incentive award opportunities for
select employees, including executive officers. The 2009 Plan was adopted pursuant to the
Companys 2007 Omnibus Plan, which was approved by the Companys stockholders at the Companys
2007 annual meeting of stockholders, and is intended to permit the Company to deduct annual
incentive payments under Section 162(m) of the Code (Section 162(m)). Under the 2009 Plan, the
Company established for each executive officer a performance goal (the 162(m) performance goal)
for the 2009 Plan. The 162(m) performance goal is based on actual diluted earnings per share
(EPS) for 2009, on a consolidated non-GAAP basis, with non-GAAP EPS being defined as the actual
2009 EPS from continuing operations excluding certain items, specified in advance and approved in
advance by the Compensation Committee, that are not considered to be part of ongoing business,
such as goodwill impairment charges. The 162(m) performance goal for 2009 requires that the
Company achieve a certain percentage of its budgeted 2009 EPS. The budgeted 2009 EPS was set in
conjunction with the Companys overall annual budget process and is considered to be challenging,
but achievable, given the uncertain economic environment and the tactical and strategic plans that
have been developed for 2009. In order for the 2009 Plan to be funded so that an executive can
receive up to the maximum payment of his or her cash incentive award (200% of his or her annual
cash incentive target), the Company must achieve at least 80% of its budgeted EPS for 2009. If
the Company achieves less than 80% but at least 50% of its budgeted 2009 EPS, the 2009 Plan will
be funded so that an executive can receive up to a maximum of 100% of his or her annual cash
incentive target. If the Company does not achieve at least 50% of its budgeted 2009 EPS, the 2009
Plan will not be funded and executive officers will not be eligible for any cash incentive
payments.
120
INSIGHT ENTERPRISES, INC.
The Compensation Committee will determine the actual bonus award paid to each executive
officer by reducing or eliminating (but not increasing) the maximum cash incentive award based on
the Compensation Committees evaluation of the executives performance against individual
performance goals. The individual performance goals, which were established by the Compensation
Committee in early 2009, are based 50% on EFO performance for the Company or the
executive officers operating segment(s) and 50% on a variety of qualitative/subjective
performance goals and quantitative/objective performance goals. The Compensation Committee
reserves the right to establish the actual cash incentive award for each executive officer at the
level it deems appropriate based on the performance of the Company, the performance of the
executive officers operating segment(s), and the performance of the individual executive officer
(but not greater than the maximum). Although the performance goals are tailored for each
executive officer, the goals are generally designed to reward individuals for the achievement of
defined financial, strategic and tactical objectives, including: operational metrics, such as
profitability, stockholder value, liquidity and return on invested capital; building stronger
client relationships and differentiation within the Companys value proposition to clients;
establishing and maintaining effective internal controls, risk management and corporate
governance; developing and retaining key employees and executives; and building and maintaining
strong stockholder relationships.
Given the overall economic environment in 2009, management recommended, and the Compensation
Committee approved, a 25% reduction in the target and maximum cash incentive payments for the
Companys executive officers. The approved 2009 target and maximum cash incentive compensation for
each of our current named executive officers1 are as follows:
|
|
|
Richard A. Fennessy, President and Chief Executive Officer Target $1,125,000;
Maximum $2,250,000; |
|
|
|
Glynis A. Bryan, Chief Financial Officer Target $318,750; Maximum $637,500;
and |
|
|
|
Stuart A. Fenton, President, EMEA/APAC Target $196,4292; Maximum
$392,8582. |
|
|
|
1 |
|
As discussed elsewhere, Messrs. McGrath and Glandon resigned effective
March 1, 2009 and April 2, 2009, respectively. |
|
2 |
|
Mr. Fentons 2009 target and maximum cash incentive compensation were
translated into U.S. dollars at the British Pound Sterling average exchange rate for
the year ended December 31, 2008 of $1.80. |
Long-Term Equity-Based Incentive Compensation
The Compensation Committee views long-term equity-based compensation as a critical component
of the overall executive compensation program. The principal objectives for long-term
equity-based compensation are to:
|
|
|
enhance the link among Company performance, the creation of stockholder value
and long-term incentive compensation; |
|
|
|
facilitate increased equity ownership by executives; |
|
|
|
encourage executive retention through use of multiple-year vesting periods; and |
|
|
|
provide competitive levels of total compensation to executive officers if
expected levels of performance are achieved. |
Long-term equity-based incentives are currently issued in the form of service and
performance-based RSUs. Performance-based RSUs are issued only if predetermined annual financial
performance goals (diluted EPS for 2008 and 2009) are achieved and are subject to a three-year
vesting period. To encourage overachievement of targets, significant upside potential exists
related to the number of RSUs ultimately issued. The three-year vesting period is designed to
encourage continued employment with the Company and enhancement of stockholder investments in the
Company. The number of performance-based RSUs ultimately issued varies based on the achievement
of threshold levels of financial performance, with greater numbers of shares awarded for higher
levels of financial performance. If the Companys financial performance does not meet or exceed a
set performance threshold, no performance-based RSUs are issued. All grants of equity-based
compensation are currently made under the Companys 2007 Omnibus Plan, as amended.
121
INSIGHT ENTERPRISES, INC.
For 2008 and prior years, the Compensation Committee reviewed target equity-based incentive
compensation annually and targeted equity-based incentive compensation for executive officers at
or near the median of the comparison groups. In 2008, with respect to long-term incentive
compensation, Towers Perrin generally concluded that our equity-based incentive compensation plan,
including the use of performance-based RSUs and the target level of grants to each executive, was
competitive with market practices. As explained above, none of the performance measures under the
2008 equity-based incentive compensation plan were met due to the Companys decline in EPS in the
difficult
market we encountered in 2008. For 2009, the Compensation Committee did not believe the
performance of the Companys peer groups was as important of a factor to consider for 2009.
In order to link equity-based incentive compensation more closely to annual performance and
to continue to align the interests of management and stockholders and, in part, in light of
changing stockholder expectations, in December 2005 the Compensation Committee adopted a practice
of initiating annual grants of equity-based incentive compensation awards to executives early in
the year (as opposed to later in the year or periodically throughout the year) in connection with
the annual budgeting process. Also, early in the year, the Compensation Committee will approve
the annual RSU program grants as well as a pool of shares from which the Chief Executive Officer
may make discretionary or new hire RSU grants throughout the year, or both, to individuals other
than individuals who are subject to the reporting requirements of Section 16(a) of the Exchange
Act. The pool of RSUs is based on the recommendation of management and review of the overall
equity compensation expense expected to be recorded in current and future years in the
consolidated financial statements.
2008 Equity-Based Incentive Plan
For 2008, RSUs granted to executive officers were 100% performance-based. The number of RSUs
to be issued under these performance-based grants was designed to increase or decrease depending
on whether actual EPS for the fiscal year ended December 31, 2008, on a consolidated non-GAAP
diluted basis, with non-GAAP EPS being defined under the plan as the actual 2008 EPS from
continuing operations excluding charges for goodwill impairment and costs associated with the
stock option review (if any), was greater or less than target EPS. The minimum number of RSUs
that could be issued was zero, and the maximum number was 130% of the target award. The annual
financial performance targets were set in conjunction with the annual budget process and were
considered to be challenging, but achievable, given the tactical and strategic plans that were in
place at the time. The target EPS range approved by the Compensation Committee for equity-based
incentive compensation for 2008 was $1.70 to $2.26 with 100% of target RSUs awarded for actual
2008 EPS of $2.00 $2.12.
As previously noted, the minimum EPS goals for 2008 were not met, and none of the 2008
performance-based RSUs were earned by the named executive officers or by any plan participants.
The Compensation Committee also has the ability to make discretionary awards outside of the
plan; however, no discretionary awards were made to the named executive officers during 2008.
2009 Equity-Based Incentive Plan
The 2009 pool of RSUs, which are 40% service-based and 60% performance-based, was established
for executive officers on February 20, 2009 and will vest in three equal installments beginning on
February 20, 2010. The number of RSUs to be issued under the performance-based grants will
increase or decrease depending on the Companys actual diluted EPS for the fiscal year ending
December 31, 2009, on a consolidated non-GAAP diluted basis, with non-GAAP EPS being defined as
actual 2009 EPS from continuing operations, excluding certain items not considered to be part of
the ongoing business, such as goodwill impairment charges, as approved in advance by the
Compensation Committee. For the performance-based RSUs: if the Company achieves less than 50% of
its budgeted 2009 EPS, no RSUs will be issued; if the Company achieves at least 50% of its 2009
budgeted EPS, 25% of the target number of RSUs will be issued; if the Company achieves 68% of its
2009 budgeted EPS, 50% of the target number of RSUs will be issued; if the Company achieves 100%
of its 2009 budgeted EPS, 100% of the target number of RSUs will be issued; and if the Company
achieves 138% or greater of its 2009 budgeted EPS goal, 200% of the target number of RSUs will be
issued (without duplication). The budgeted EPS target was set in conjunction with the Companys
overall annual budget process and is considered to be challenging, but achievable, given the
tactical and strategic plans that have been developed for 2009.
122
INSIGHT ENTERPRISES, INC.
In determining the amount of equity-based incentive compensation for 2009, the Compensation
Committee considered the fact that no awards were ultimately made under the 2008 equity-based
incentive plan because the performance measures were not met. Moreover, the Compensation
Committee considered that even though the number of RSUs granted to senior executives under the
2009 plan was greater than the target number granted under the 2008 plan, the value of the award,
at date of grant, was substantially lower (roughly 30% of the value of the 2008 target awards)
because of the significant decrease in the Companys stock price. One of the Compensation
Committees goals in setting higher target awards for senior executives under the 2009 plan is to
provide retention value for senior executives through stock price improvement, which the
Compensation Committee believes aligns the interests of
management and the stockholders. The 2009 total service-based and performance-based RSUs,
granted on February 20, 2009, included the following target awards for our current named executive
officers:
|
|
|
Richard A. Fennessy, President and Chief Executive Officer 131,004; |
|
|
|
Glynis A. Bryan, Chief Financial Officer 89,766; and |
|
|
|
Stuart A. Fenton, President, EMEA/APAC 74,151. |
2008 Performance-Awarded RSU Retention Plan
In 2008, in order to provide a long-term incentive and retention mechanism for our Chief
Executive Officer and the Presidents of our operating segments, and to provide an incentive tied
to stockholder value, the Chair of the Board of Directors and the Chair of the Compensation
Committee worked with Towers Perrin to develop an additional long-term incentive plan based upon
specific levels of stock price improvement.
The plan provided for the award of RSUs based upon achievement of specific stock price
hurdles within specific timeframes over a three-year period from 2009 2011. If all or some
hurdles were not achieved, 33% of the remaining award (i.e., any shares not issued for achievement
of the specific stock price hurdles in the specific timeframes) would have been made on February
15, 2013, assuming continued employment. However, due to the current economic climate and the
decrease in Insights stock price, on February 19, 2009, Messrs. Fennessy, Fenton and McGrath
agreed to forfeit the awards, resulting in the termination of the plan. Accordingly, no shares
were, or will be, issued under these awards.
Nonqualified Deferred Compensation Plan
Named executive officers (as well as other eligible employees) may participate in the Insight
Nonqualified Deferred Compensation Plan (Deferred Compensation Plan), a nonqualified deferred
compensation plan adopted and approved by the Compensation Committee and ratified by the Board of
Directors. The Deferred Compensation Plan permits participants to voluntarily defer receipt of
compensation, and participants earn a rate of return on their deferred amounts based on their
selection from a variety of independently managed funds. The Company does not provide a guaranteed
rate of return on these deferred amounts, and the rate of return realized depends on the
participants fund selections and market performance of these funds. The Company does not
currently make any contributions to the Deferred Compensation Plan.
Severance and Change in Control Plans
Severance and change in control plans are designed to facilitate the Companys ability to
attract and retain executives as the Company competes for talented employees in a marketplace
where such protections are commonly offered. Severance benefits are designed to provide benefits
to ease an executives transition due to an unexpected employment termination by the Company due
to changes in the Companys employment needs. Change in control benefits are intended to
encourage executives to remain focused on the Companys business in the event of rumored or actual
fundamental corporate changes. See further detail under the section entitled Employment
Agreements, Severance and Change in Control Plans.
Perquisites
We provide our executive officers with relatively limited perquisites that we believe are
reasonable and in the best interests of the Company. In 2008, Mr. Fenton was provided with an
automobile allowance, which is a benefit generally available to management in the United Kingdom,
where Mr. Fenton resides. These benefits are part of our broad-based total compensation programs
offered in the geography in which each of the executives resides. The value of aggregate
perquisites to named executive officers did not exceed $10,000 for any individual named officer,
except Mr. Fenton.
123
INSIGHT ENTERPRISES, INC.
Stock Ownership Guidelines
On February 15, 2007, the Board, upon the recommendation of the Compensation Committee,
adopted stock ownership guidelines that:
|
|
|
are designed to align the interests of key executives, Board members and
stockholders; |
|
|
|
provide a five-year transition period for each new executive and each new Board
member to reach ownership guidelines; and |
|
|
|
define which ownership interests will count towards the guidelines. |
The guidelines specify that, subsequent to the five-year transition period, as of each
January 1, each executive and each Board member is expected to hold Insight shares at least equal
to a specified multiple of his or her annual base salary or retainer. For the President and Chief
Executive Officer, two times annual base salary is required, for all other Executives, one times
annual base salary is required, and for Board members, two times the annual base retainer is
required. Failure to meet or to show sustained progress toward meeting the Stock Ownership
Guidelines may result in a
reduction in future long-term incentive grants and also may result in a requirement to retain
some or all stock attained through Company grants of equity until the Stock Ownership Guidelines
are attained.
Role of Executives in the Compensation Setting Process
The Compensation Committee has the overall responsibility for approving the cash-based
incentive compensation for the officers that are subject to the reporting requirements of Section
16(a) of the Exchange Act. To facilitate this process, the Chief Executive Officer and People and
Development Group prepare and present information and recommendations to the Compensation
Committee for review, consideration and approval, but they do not recommend their own cash-based
incentive compensation.
With respect to compensation of all other teammates, the Compensation Committee functions in
an oversight role as these decisions are considered the responsibility of management. With
respect to equity-based compensation, the Compensation Committee approves the annual RSU program
grants as well as the pool of available shares from which the Chief Executive Officer may make
discretionary or new hire RSU grants throughout the year, or both, to individuals other than
individuals who are subject to the reporting requirements of Section 16(a) of the Exchange Act.
Similar to cash-based incentive compensation, for all officers subject to the reporting
requirements of Section 16(a) of the Exchange Act, the Chief Executive Officer and People and
Development Group prepare and present information and recommendations to the Compensation
Committee for review, consideration and approval of the equity-based awards by the Compensation
Committee. For all other teammates, management is responsible for recommending to the
Compensation Committee the teammates to receive grants and the nature and size of the proposed
equity-based awards.
The Chief Executive Officer does not have the ability to call Compensation Committee meetings
and does not attend those portions of the Compensation Committee meetings when his compensation is
discussed. During 2008, the Chief Executive Officer did not meet with Towers Perrin outside of
Compensation Committee meetings or retain any other compensation consultant.
Chief Executive Officer Compensation
The Compensation Committee determines compensation for the Chief Executive Officer using the
same criteria it uses for other executives, placing relatively less emphasis on base salary and,
instead, creating greater performance-based opportunities for short-term and long-term incentive
compensation (cash and equity, respectively). The Compensation Committee met in executive session
to evaluate the performance of the Chief Executive Officer in 2008, and the Compensation Committee
set the compensation of the Chief Executive Officer in conjunction with the performance review
process.
Executive Compensation Recovery
We have an incentive compensation recovery policy that applies to our executive officers.
Under this policy, in the event of a material restatement of our financial results, we may recover
from an executive officer any incentive compensation that was based on having met or exceeded
performance targets if an executive officer engaged in fraud or intentional misconduct that
resulted in an increase in his or her incentive compensation.
124
INSIGHT ENTERPRISES, INC.
Tax and Accounting Considerations
Deductibility of Executive Compensation
Code Section 162(m) generally prohibits a public company from taking an income tax deduction
for compensation over $1 million paid to the Chief Executive Officer and its four other highest
paid executive officers unless certain conditions are met. While the anticipated tax treatment of
compensation is given some weight in making compensation decisions, the Compensation Committee has
not adopted a policy of limiting awards of compensation to amounts that would be deductible under
Section 162(m) because the Compensation Committee believes that awards of compensation which would
not comply with the Section 162(m) requirements may at times further the long-term interests of
the Company and its stockholders. The Compensation Committee believes that it is important to
maximize the corporate tax deductibility of executive compensation. Therefore, to help maximize
the deductibility of payments made beginning in 2008, the Company sought and received stockholder
approval of its 2007 Omnibus Plan.
Accounting for Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123R, Share-Based Payment (SFAS No. 123R). Under the fair
value recognition provisions of SFAS No. 123R, we recognize stock-based compensation based on the
fair value at the grant date net of an estimated forfeiture rate and only recognize compensation
expense for those shares expected to vest over the requisite service period of the award.
Compensation Committee Report
Based on the Compensation Committees review of the above Compensation Discussion and Analysis
and discussions with management, the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this annual report.
COMPENSATION COMMITTEE:
|
|
|
|
|
|
|
|
|
|
David J. Robino, Chair
|
|
Bennett Dorrance Kathleen S. Pushor
|
|
Anthony A. Ibargüen |
Notwithstanding anything to the contrary set forth in any of our previous filings under the
Securities Act of 1933, as amended, or the Exchange Act, as amended, that incorporate future
filings, including this annual report, in whole or in part, the foregoing Compensation Committee
Report does not constitute soliciting material and shall not be deemed filed or incorporated by
reference into any such filings.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was at any time during 2008 or at any other time an
officer or employee of Insight, and no member had any relationship with Insight requiring
disclosure under Item 404 of Regulation S-K. No executive officer of Insight has served on the
Board or Compensation Committee of any other entity that has or has had one or more executive
officers who served as a member of the Board or the Compensation Committee of Insight during 2008.
125
INSIGHT ENTERPRISES, INC.
Summary Compensation Table
The table below sets forth the total compensation for services rendered to us by our
principal executive officer, our principal financial officer and our four other most highly
compensated executive officers. We refer to these persons as named executive officers. The
amounts shown include both amounts paid and amounts deferred.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
All Other |
|
|
|
|
Name and Principal |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Stock Awards |
|
|
Option Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Total |
|
Position |
|
Year |
|
|
($) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($)(2) |
|
|
($)(3) |
|
|
($)(4) |
|
|
($) |
|
Richard A. Fennessy |
|
|
2008 |
|
|
|
750,000 |
|
|
|
|
|
|
|
1,073,931 |
|
|
|
40,378 |
|
|
|
450,000 |
|
|
|
5,639 |
|
|
|
2,319,948 |
|
President and |
|
|
2007 |
|
|
|
700,000 |
|
|
|
|
|
|
|
1,404,708 |
|
|
|
988,560 |
|
|
|
1,209,180 |
|
|
|
4,586 |
|
|
|
4,307,034 |
|
Chief Executive Officer |
|
|
2006 |
|
|
|
695,000 |
|
|
|
150,000 |
|
|
|
962,790 |
|
|
|
2,313,872 |
|
|
|
1,397,553 |
|
|
|
4,812 |
|
|
|
5,524,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glynis A. Bryan (5) |
|
|
2008 |
|
|
|
400,000 |
|
|
|
|
|
|
|
78,151 |
|
|
|
369,607 |
|
|
|
170,000 |
|
|
|
3,593 |
|
|
|
1,021,351 |
|
Chief Financial Officer |
|
|
2007 |
|
|
|
16,667 |
|
|
|
|
|
|
|
|
|
|
|
14,138 |
|
|
|
4,815 |
|
|
|
|
|
|
|
35,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart A. Fenton (6) |
|
|
2008 |
|
|
|
417,318 |
|
|
|
|
|
|
|
475,582 |
|
|
|
22,717 |
|
|
|
254,311 |
|
|
|
41,072 |
|
|
|
1,211,000 |
|
President EMEA/APAC |
|
|
2007 |
|
|
|
423,809 |
|
|
|
|
|
|
|
492,501 |
|
|
|
173,031 |
|
|
|
353,720 |
|
|
|
64,743 |
|
|
|
1,507,804 |
|
|
|
|
2006 |
|
|
|
370,430 |
|
|
|
78,341 |
|
|
|
248,024 |
|
|
|
360,340 |
|
|
|
179,880 |
|
|
|
55,361 |
|
|
|
1,292,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark T. McGrath (5) |
|
|
2008 |
|
|
|
425,000 |
|
|
|
|
|
|
|
710,154 |
|
|
|
91,373 |
|
|
|
100,000 |
|
|
|
2,189 |
|
|
|
1,328,716 |
|
President North |
|
|
2007 |
|
|
|
375,000 |
|
|
|
26,250 |
|
|
|
770,287 |
|
|
|
349,783 |
|
|
|
390,195 |
|
|
|
1,482 |
|
|
|
1,912,997 |
|
America/APAC |
|
|
2006 |
|
|
|
325,000 |
|
|
|
50,000 |
|
|
|
438,852 |
|
|
|
723,222 |
|
|
|
528,418 |
|
|
|
1,512 |
|
|
|
2,067,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary M. Glandon (5) |
|
|
2008 |
|
|
|
275,000 |
|
|
|
|
|
|
|
204,624 |
|
|
|
30,579 |
|
|
|
58,900 |
|
|
|
5,837 |
|
|
|
574,940 |
|
Chief People Officer |
|
|
2007 |
|
|
|
255,000 |
|
|
|
|
|
|
|
335,889 |
|
|
|
160,058 |
|
|
|
136,974 |
|
|
|
3,720 |
|
|
|
891,641 |
|
|
|
|
2006 |
|
|
|
235,000 |
|
|
|
15,000 |
|
|
|
170,171 |
|
|
|
340,953 |
|
|
|
163,546 |
|
|
|
3,476 |
|
|
|
928,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine W. Eckstein (5) |
|
|
2008 |
|
|
|
163,006 |
|
|
|
|
|
|
|
217,809 |
|
|
|
|
|
|
|
|
|
|
|
526,543 |
|
|
|
907,358 |
|
Chief Marketing Officer |
|
|
2007 |
|
|
|
285,000 |
|
|
|
|
|
|
|
368,625 |
|
|
|
66,496 |
|
|
|
177,059 |
|
|
|
30,139 |
|
|
|
927,319 |
|
|
|
|
2006 |
|
|
|
275,000 |
|
|
|
20,000 |
|
|
|
202,908 |
|
|
|
134,135 |
|
|
|
214,805 |
|
|
|
2,620 |
|
|
|
849,468 |
|
|
|
|
(1) |
|
On February 13, 2008 and February 15, 2007, the Compensation Committee approved discretionary
cash bonuses for 2007 and 2006, respectively, for the named executive officers. |
|
(2) |
|
These amounts reflect the dollar amount of compensation expense recognized in accordance with
SFAS No. 123R for financial statement purposes for the years ended December 31, 2008, 2007 and
2006, respectively. These amounts include awards pursuant to the 2007 Plan and the 1998 LTIP
and thus may include amounts from awards granted in and prior to the respective years
presented. Assumptions used in the calculations of these amounts are included in the
footnotes to the our audited consolidated financial statements for the fiscal years ended
December 31, 2008, 2007 and 2006, which are included in Item 8 of this report. No estimate of
forfeitures is included in these amounts, nor were any actual forfeitures included in these
amounts. The amounts for the years ended December 31, 2007 and 2006 have been adjusted as a
result of the restatement of our consolidated financial statements included in this report.
The restatements reflect adjustments to recognize stock based compensation expense related to
performance-based RSUs on a straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in substance, multiple awards
(i.e., a graded vesting basis) instead of on a straight-line basis over the requisite service
period for the entire award. |
|
(3) |
|
Non-Equity Incentive Plan Compensation represents bonuses earned by executives under the 2008
and 2007 cash incentive plans, respectively, as described in the Compensation Discussion and
Analysis section of Part III, Item 11 of this report. The incentive plan compensation for
2008 was paid to the named executive officers prior to March 15, 2009. |
126
INSIGHT ENTERPRISES, INC.
|
|
|
(4) |
|
All Other Compensation represents payments to: |
|
|
|
Mr. Fennessy for matching contributions to his 401(k) and value received related to an
annual sales incentive trip of $3,450 and $2,189, respectively in 2008. |
|
|
|
Ms. Bryan for matching contributions to her 401(k) and value received related to an
annual sales incentive trip of $3,450 and $143, respectively in 2008. |
|
|
|
Mr. Fenton for auto allowances and retirement plan contribution of $34,279 and $6,793,
respectively, in 2008. We consider the cost of the auto allowance for Mr. Fenton a
perquisite. |
|
|
|
Mr. McGrath for value received related to an annual sales incentive trip of $2,189 in
2008. |
|
|
|
Mr. Glandon for matching contributions to his 401(k), value received related to an
annual sales incentive trip and health club dues of $3,450, $2,189 and $198, respectively
in 2008. |
|
|
|
Ms. Eckstein for severance, payout of accrued vacation, matching contributions to her
401(k) and value received related to an annual sales incentive trip of $500,000, $21,558,
$2,796 and $2,189, respectively in 2008. Ms. Ecksteins employment with the Company ended
on July 18, 2008, with Ms. Eckstein receiving severance equal to one year of base salary
($295,000) and one times her annual target incentive compensation ($205,000). |
|
|
|
(5) |
|
Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective March 1, 2009,
April 2, 2009 and July 18, 2008, respectively. Ms. Bryan was appointed Chief Financial
Officer effective December 16, 2007. |
|
(6) |
|
Mr. Fenton is a resident of the United Kingdom. He is paid in British Pounds Sterling. The
2008 amounts above were determined by multiplying the average quarterly exchange rates
applicable at March 31, June 30, September 30, and December 31, of 2008 by the compensation
earned during the quarter. The 2007 amounts above were determined by multiplying the average
annual exchange rate by the compensation earned during the year. |
Except for the car allowance provided to Mr. Fenton, the cost of certain perquisites and other
personal benefits are not included because in the aggregate they did not exceed, in the case of
any named executive officer, $10,000.
127
INSIGHT ENTERPRISES, INC.
Grants of Plan-Based Awards
The following table sets forth information regarding grants of plan-based awards made during
the year ended December 31, 2008 to the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non- |
|
|
Estimated Future Payouts Under Equity |
|
|
of Stock |
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan Awards (1) |
|
|
Incentive Plan Awards (2) |
|
|
and Option |
|
|
|
Grant |
|
|
Approval |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Awards |
|
Name |
|
Date |
|
|
Date |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
($)(3) |
|
Richard A. Fennessy |
|
|
2/20/2008 |
|
|
|
2/13/2008 |
|
|
|
|
|
|
|
1,500,000 |
|
|
|
2,175,000 |
|
|
|
|
|
|
|
65,502 |
|
|
|
85,153 |
|
|
|
1,236,024 |
|
|
|
|
1/23/2008 |
|
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
300,000 |
|
|
|
3,512,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glynis A. Bryan |
|
|
2/20/2008 |
|
|
|
2/13/2008 |
|
|
|
|
|
|
|
425,000 |
|
|
|
616,250 |
|
|
|
|
|
|
|
44,883 |
|
|
|
58,348 |
|
|
|
846,942 |
|
|
|
|
1/10/2008 |
|
|
|
11/12/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
15,000 |
|
|
|
240,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart A. Fenton (4) |
|
|
2/20/2008 |
|
|
|
2/13/2008 |
|
|
|
|
|
|
|
291,000 |
|
|
|
421,950 |
|
|
|
|
|
|
|
32,956 |
|
|
|
42,843 |
|
|
|
621,880 |
|
|
|
|
1/23/2008 |
|
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
1,170,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark T. McGrath (5) |
|
|
2/20/2008 |
|
|
|
2/13/2008 |
|
|
|
|
|
|
|
500,000 |
|
|
|
725,000 |
|
|
|
|
|
|
|
44,883 |
|
|
|
58,348 |
|
|
|
846,942 |
|
|
|
|
1/23/2008 |
|
|
|
1/23/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
1,756,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary M. Glandon (5) |
|
|
2/20/2008 |
|
|
|
2/13/2008 |
|
|
|
|
|
|
|
155,000 |
|
|
|
224,750 |
|
|
|
|
|
|
|
22,284 |
|
|
|
28,969 |
|
|
|
420,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine W. Eckstein (5) |
|
|
2/20/2008 |
|
|
|
2/13/2008 |
|
|
|
|
|
|
|
205,000 |
|
|
|
297,250 |
|
|
|
|
|
|
|
22,284 |
|
|
|
28,969 |
|
|
|
420,499 |
|
|
|
|
(1) |
|
Represents awards under the 2008 cash incentive plan discussed under the heading 2008 Cash
Incentive Plan of the Compensation Discussion and Analysis section of Part III, Item 11 of
this report. The maximum estimated future payouts under non-equity incentive plan awards was
computed as 175% of the target cash incentive compensation component that was based on
non-GAAP earnings from operations goals (60%) and 100% of the target cash incentive
compensation component that was based on individual performance goals (40%), although the
Compensation Committee could award greater than 100% of target for individual performance
goals under the plan, with no defined maximum. Actual amounts are reflected in the Summary
Compensation Table, and there are no future payouts related to these awards. |
|
(2) |
|
Pursuant to the 2008 performance-based equity-based incentive compensation program, grants of
performance-based RSUs to our named executive officers were made on February 20, 2008. The
number of actual RSUs ultimately awarded was zero, determined by non-achievement of minimum
targeted consolidated non-GAAP diluted EPS of the Company for the fiscal year ending December
31, 2008. Pursuant to the 2008 Performance-Awarded RSU Retention Plan, Messrs. Fennessy,
Fenton and McGrath received an award of 300,000, 100,000 and 150,000 RSUs, respectively, to be
issued based upon achievement of specific stock price hurdles within specific timeframes. No
shares were issued under this plan in 2008 and on February 19, 2009, Messrs Fennessy, McGrath
and Fenton forfeited these awards. Pursuant to her employment agreement effective December
16, 2007, Ms Bryan received an award of 15,000 serviced-based RSUs on January 10, 2008. |
|
(3) |
|
The grant date fair value of the stock awards granted to our named executive officers was
calculated based on the closing price of the Companys stock on February 20, 2008 of $18.87
multiplied by the target number of equity awards. The grant date fair value of the stock
award that Ms. Bryan received in connection with the commencement of her employment was
calculated based on the closing price of the Companys stock on January 10, 2008 of $16.04.
Because the performance-awarded RSUs to Messrs. Fennessy, Fenton and McGrath have a market
condition, a custom Monte Carlo simulation model was used to estimate the awards fair value
at the grant date. |
|
(4) |
|
Mr. Fentons cash incentive threshold, target and maximum amounts for the 2008 cash incentive
plan were translated into U.S. dollars using the average British Pound Sterling exchange rate
in effect on December 18, 2007 ($2.02). |
|
(5) |
|
Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective March 1, 2009,
April 2, 2009 and July 18, 2008, respectively. |
128
INSIGHT ENTERPRISES, INC.
Employment Agreements, Severance and Change in Control Plans
Our employment agreements with executives and our incentive compensation plans reflect our
compensation philosophy. The employment agreements for Mr. Fennessy, Ms. Bryan, and Mr. Fenton
provide for continually renewing terms (two years for Mr. Fennessy and Ms. Bryan and until
terminated for Mr. Fenton). Under our 1998 LTIP, all outstanding options and other awards become
fully exercisable and all restrictions on outstanding awards shall lapse upon a change in control.
Under the 2007 Plan, upon a change in control:
|
|
|
any options and SARs become fully exercisable and vested to the full extent of the
original grant; |
|
|
|
all performance shares, performance units and deferred amounts will be earned and
payable in full at target levels and any restrictions shall lapse; and |
|
|
|
other conditions applicable to any other awards lapse, and such other awards become
free of all restrictions, limitations or conditions and become fully vested and
transferable to the full extent of the original grant. |
All other change in control benefits are double trigger (which means that they are
triggered by two events: a change in control; plus a triggering termination under the change of
control agreement), rather than single trigger (triggered only by a change in control).
In 2008, the Company and its executives (other than Mr. Fenton, who resides in the United
Kingdom) entered into Amended and Restated Employment Agreements to comply with the final
regulations issued under Section 409A of the Code. Certain other changes were made to provide
more consistency in language in the Companys employment agreements, but the economic terms of the
agreements remain consistent with the previous agreements, such that there are not any new or
materially amended arrangements for the payment of tax gross-ups. The material terms of the
employment agreements with our current named executive officers are as follows:
Richard A. Fennessy
|
(i) |
|
effective as of January 1, 2009; |
|
|
(ii) |
|
a severance payment upon termination without cause or termination by Mr. Fennessy for
good reason, as those terms are defined in the agreement, payable upon termination, equal
to two times Mr. Fennessys annual base salary, plus two times the annual bonus during the
one of the two immediately preceding fiscal years that would produce the higher award, plus
a prorated portion of any current quarterly or annual bonus, plus benefits (life,
disability, accident, group health and dental) continuation for 24 months; |
|
|
(iii) |
|
a severance payment following a change in control of the Company if Mr. Fennessy
terminates his employment for good reason or the Company terminates his employment
without cause, as those terms are defined in the agreement, prior to the expiration of 24
months after the change in control occurs, equal to two times his highest annual base
salary in effect during the term of the agreement and two times the higher annual bonus
during the one of the two immediately preceding fiscal years which would produce the higher
award, plus a prorated portion of any current quarterly or annual bonus, plus benefits
continuation through the earlier of 42 months following termination or eligibility for new
benefits. As was provided in Mr. Fennessys previous Employment Agreement, all payments
made following a change in control are to be grossed-up for Mr. Fennessys excise taxes
if the payment exceeds prescribed limits; |
|
|
(iv) |
|
in the event of Mr. Fennessys death, his estate will be entitled to his annual base
salary due through the date of his death and a prorated portion of any incentive
compensation to which he would have been entitled for the year had he not died. Mr.
Fennessys agreement also provides for a life insurance policy in an amount equal to two
times his annual base salary; |
|
|
(v) |
|
Mr. Fennessys agreement also provides a disability insurance benefit; and |
|
|
(vi) |
|
the agreement also provides for non-disclosure by Mr. Fennessy of our confidential
information and includes covenants by Mr. Fennessy not to compete with the Company for a
period of two years following termination of employment and not to solicit the employees,
suppliers and customers for two years following termination of employment. |
129
INSIGHT ENTERPRISES, INC.
The table below outlines the potential payments to Mr. Fennessy upon the occurrence of
certain termination triggering events assuming a hypothetical effective date of termination of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Based |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
Triggering Event |
|
Severance |
|
|
Awards(1) |
|
|
Benefits |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause or
for Good Reason as defined in
the employment agreement |
|
$ |
5,045,106 |
|
|
$ |
|
|
|
$ |
32,059 |
|
|
$ |
5,077,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary Termination
Change in Control |
|
|
5,045,106 |
|
|
|
177,846 |
|
|
|
56,104 |
|
|
|
5,279,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
450,000 |
|
|
|
177,846 |
|
|
|
|
|
|
|
627,846 |
|
|
|
|
(1) |
|
Represents the unamortized expense related to outstanding RSUs at December 31,
2008. Assuming a hypothetical date of termination of December 31, 2008, the intrinsic
value of the stock awards available to Mr. Fennessy is $360,636, which represents the value
based on the closing price of the Companys common stock on December 31, 2008 of $6.90 per
share. |
Glynis A. Bryan
|
(i) |
|
effective as of January 1, 2009; |
|
(ii) |
|
a severance payment upon termination without cause or termination by Ms. Bryan for
good reason, as those terms are defined in the agreement, payable upon termination, equal
to two times Ms. Bryans annual base salary, plus one times the annual bonus during the one
of the two immediately preceding fiscal years that would produce the higher award, plus a
prorated portion of any current quarterly or annual bonus, plus benefits continuation for
24 months; |
|
|
(iii) |
|
a severance payment following a change in control of the Company if Ms. Bryan
terminates her employment for good reason, or the Company terminates her employment
without cause, as those terms are defined in the agreement, prior to the expiration of 24
months after the change in control occurs, equal to two times her highest annual base
salary in effect during the term of the agreement and two times the higher annual bonus
during the one of the two immediately preceding fiscal years which would produce the higher
award, plus a prorated portion of any current quarterly or annual bonus, plus benefits
continuation through the earlier of 42 months following termination or eligibility for new
benefits. As with her previous agreement, all payments made following a change in control
are to be grossed-up for Ms. Bryans excise taxes if the payment exceeds prescribed limits; |
|
|
(iv) |
|
in the event of Ms. Bryans death, her estate will be entitled to her base salary for a
period of ninety days following the date of her death and a prorated portion of any
incentive compensation earned for the quarter in which her death occurred, plus a prorated
bonus for the year in which her death occurs for any incentive compensation plan with
annual objectives; |
|
|
(v) |
|
in the event of Ms. Bryans Disability as such term is defined in the Agreement, Ms.
Bryan shall receive base salary for a period of ninety days following the date the
agreement is terminated due to Disability and a prorated portion of any incentive
compensation earned for the quarter in which the agreement is terminated due to Disability,
plus a prorated bonus for the year in which the termination takes place for any incentive
compensation plan with annual objectives; and |
|
|
(vi) |
|
the agreement also provides for non-disclosure by Ms. Bryan of our confidential
information and includes covenants by Ms. Bryan not to compete with Insight or solicit its
employees, suppliers or customers for a period of two years following termination of
employment. |
130
INSIGHT ENTERPRISES, INC.
The table below outlines the potential payments to Ms. Bryan upon the occurrence of certain
termination triggering events assuming a hypothetical effective date of termination of December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Based |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
Triggering Event |
|
Severance |
|
|
Awards(1) |
|
|
Benefits(2) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Without Cause or
for Good Reason as defined in
the employment agreement |
|
$ |
1,201,120 |
|
|
$ |
|
|
|
$ |
10,178 |
|
|
$ |
1,211,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary Termination
Change in Control |
|
|
1,201,120 |
|
|
|
885,504 |
|
|
|
52,636 |
|
|
|
2,139,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability |
|
|
270,000 |
|
|
|
|
|
|
|
|
|
|
|
270,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
270,000 |
|
|
|
|
|
|
|
|
|
|
|
270,000 |
|
|
|
|
(1) |
|
Represents the unamortized expense related to outstanding options and the
unamortized expense related to RSUs at December 31, 2008. Assuming a hypothetical date of
termination of December 31, 2008, the intrinsic value of the option awards and stock awards
available to Ms. Bryan is $0 and $103,500, respectively, which represents the value based
the closing price of the Companys common stock on December 31, 2008 of $6.90 per share. |
|
(2) |
|
Includes $34,825 related to a Section 280 tax gross-up in the event of an Involuntary
Termination following a Change in Control. |
Stuart A. Fenton
|
(i) |
|
effective date as of September 12, 2002, amended effective as of July 1, 2004; |
|
|
(ii) |
|
upon termination of employment for reasons other than those specifically defined in the
agreement, a lump-sum payment in an amount equal to 165,000 British Pounds Sterling, less
the amount paid in salary during the required statutory notice period; and |
|
|
(iii) |
|
the agreement also provides for non-disclosure by Mr. Fenton of our confidential
information and includes covenants by Mr. Fenton not to compete with the Company for a
period of twelve months following termination of employment and not to solicit the
employees, suppliers and customers for a period of eighteen months following termination of
employment. |
The table below outlines the potential payments to Mr. Fenton upon the occurrence of certain
termination triggering events assuming a hypothetical effective date of termination of December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Based |
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
Triggering Event |
|
Severance(1) |
|
|
Awards(2) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination |
|
$ |
239,250 |
|
|
$ |
|
|
|
$ |
239,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Following a Change in
Control |
|
|
239,250 |
|
|
|
97,887 |
|
|
|
337,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
|
|
|
|
97,887 |
|
|
|
97,887 |
|
|
|
|
(1) |
|
Severance payment translated into U.S. dollars using the British Pound Sterling
exchange rate in effect on December 31, 2008 of $1.45. |
|
(2) |
|
Represents the unamortized expense related to outstanding options and the
unamortized expense related to RSUs at December 31, 2008. Assuming a hypothetical date of
termination of December 31, 2008, the intrinsic value of the option awards and stock awards
available to Mr. Fenton is $0 and $198,258, respectively, which represents the value based
upon the closing price of the Companys common stock on December 31, 2008 of $6.90 per
share. |
131
INSIGHT ENTERPRISES, INC.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding equity awards at December 31,
2008 for the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
Market or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Payout |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
Value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Number of |
|
|
Unearned |
|
|
|
Number |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
|
Unearned |
|
|
Shares, |
|
|
|
of |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Shares or |
|
|
Shares, Units |
|
|
Units or |
|
|
|
Securities |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Units of |
|
|
or Other |
|
|
Other |
|
|
|
Underlying |
|
|
Unexercised |
|
|
|
|
|
|
|
|
|
|
Units of Stock |
|
|
Stock That |
|
|
Rights That |
|
|
Rights That |
|
|
|
Unexercised |
|
|
Options (#) |
|
|
Option |
|
|
Option |
|
|
That Have Not |
|
|
Have Not |
|
|
Have Not |
|
|
Have Not |
|
|
|
Options (#) |
|
|
Unexercisable |
|
|
Exercise Price |
|
|
Expiration |
|
|
Vested |
|
|
Vested |
|
|
Vested |
|
|
Vested |
|
Name |
|
Exercisable |
|
|
(1) |
|
|
($) |
|
|
Date |
|
|
(#)(2) |
|
|
($)(3) |
|
|
(#)(4) |
|
|
($)(3) |
|
Richard A. Fennessy |
|
|
500,000 |
|
|
|
|
|
|
|
19.90 |
|
|
|
11/15/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
20.36 |
|
|
|
1/3/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
18.53 |
|
|
|
5/6/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,333 |
|
|
|
36,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
66,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,333 |
|
|
|
257,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
2,070,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glynis A. Bryan |
|
|
66,667 |
|
|
|
133,333 |
|
|
|
17.77 |
|
|
|
12/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
103,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart A. Fenton |
|
|
20,000 |
|
|
|
|
|
|
|
18.53 |
|
|
|
5/6/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,500 |
|
|
|
|
|
|
|
21.25 |
|
|
|
2/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
20,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,200 |
|
|
|
35,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,533 |
|
|
|
141,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
690,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark T. McGrath(5) |
|
|
200,000 |
|
|
|
|
|
|
|
19.72 |
|
|
|
5/23/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
27,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200 |
|
|
|
49,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,000 |
|
|
|
193,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
1,035,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary M. Glandon(5) |
|
|
50,000 |
|
|
|
|
|
|
|
18.35 |
|
|
|
2/21/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
18.53 |
|
|
|
5/6/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
13,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,600 |
|
|
|
24,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000 |
|
|
|
96,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine W. Eckstein(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
INSIGHT ENTERPRISES, INC.
|
|
|
(1) |
|
Unvested options vest ratably over three years. |
|
(2) |
|
Under various service-based equity incentive compensation programs, our named executive
officers have received varying levels of grants of service-based RSUs and restricted stock
awards that vest ratably over three years. The awards to Ms. Bryan were made under the 2007
Plan. |
|
|
|
In addition, pursuant to the 2007 and 2006 performance-based equity incentive compensation
programs, grants of RSUs to our named executive officers were made in February 2007 and
January 2006, respectively, and the number of actual RSUs ultimately awarded was determined
by actual achievement of consolidated non-GAAP diluted EPS of the Company for the fiscal
years ending December 31, 2007 and 2006 against target consolidated non-GAAP diluted EPS.
On the vest date, the RSUs converted to service-based RSUs and one-third of the RSUs vested,
with the remainder vesting ratably over the following two years. All of these grants of
RSUs were made under the 1998 Plan. |
|
|
|
Pursuant to the 2008 performance-based equity-based incentive compensation program, grants
of performance-based RSUs to our named executive officers were made in February 2008. The
number of actual RSUs ultimately awarded was zero, determined by non-achievement of minimum
targeted consolidated non-GAAP diluted EPS of the Company for the fiscal year ending
December 31, 2008. |
|
(3) |
|
Represents the value based upon the number of shares awarded multiplied by the closing price
on December 31, 2008 ($6.90). |
|
(4) |
|
Pursuant to the 2008 Performance-Awarded RSU Retention Plan, Messrs. Fennessy, Fenton and
McGrath received an award of 300,000, 100,000 and 150,000 RSUs, respectively, to be issued
based upon achievement of specific stock price hurdles within specific timeframes. No shares
were issued under this plan in 2008, and no shares will be issued under this plan or in the
future. |
|
(5) |
|
Mr. McGrath, Mr. Glandon and Ms. Eckstein resigned from the Company effective March 1, 2009,
April 2, 2009 and July 18, 2008, respectively. |
Option Exercises and Stock Vested Table
The following table sets forth information with respect to shares of Insight Enterprises, Inc.
common stock acquired through exercises of stock options and vesting of restricted shares and units
and the number of shares acquired and value realized on exercise or vesting by the named executive
officers during 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
Number of |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Acquired |
|
|
Value Realized |
|
|
Acquired |
|
|
Value Realized |
|
Name |
|
on Exercise (#) |
|
|
on Exercise ($) |
|
|
on Vesting (#)(1) |
|
|
on Vesting ($)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Fennessy |
|
|
|
|
|
|
|
|
|
|
58,600 |
|
|
|
1,046,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glynis A. Bryan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart A. Fenton |
|
|
25,000 |
|
|
|
220,128 |
|
|
|
18,467 |
|
|
|
334,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark T. McGrath |
|
|
|
|
|
|
|
|
|
|
30,200 |
|
|
|
517,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary M. Glandon |
|
|
|
|
|
|
|
|
|
|
12,600 |
|
|
|
228,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine W. Eckstein |
|
|
|
|
|
|
|
|
|
|
14,266 |
|
|
|
248,504 |
|
|
|
|
(1) |
|
During 2008, the stock awards that vested for the named executive officers in the
United States were net-share settled such that the Company withheld shares with value
equivalent to the named executive officers minimum statutory United States tax
obligation for the applicable income and other employment taxes and remitted the cash
to the appropriate taxing authorities. The amounts in the table represent the gross
number of shares and value realized on vesting for each of the named executive
officers. The net number of shares acquired by Mr. Fennessy, Mr. McGrath, Mr. Glandon
and Ms. Eckstein on vesting were 38,565, 20,197, 8,262 and 9,397, respectively. |
133
INSIGHT ENTERPRISES, INC.
Nonqualified Deferred Compensation Table
Effective January 1, 2008, the Company established the Insight Nonqualified Deferred
Compensation Plan (Deferred Compensation Plan) with an effective date of January 1, 2008. The
Deferred Compensation Plan is a nonqualified deferred compensation plan maintained primarily to
provide deferred compensation benefits for a select group of management or highly compensated
employees as defined by the Employee Retirement Income Security Act of 1974, as amended, and was
designed to comply with Section 409A of the Code. The Deferred Compensation Plan permits
participants to voluntarily defer receipt of compensation including salary, bonuses and any other
cash compensation, up to 90% of base salary and up to 100% for other cash compensation.
Participants earn a rate of return on their deferred amounts based on their selection from a
variety of independently managed funds. Employees are fully vested in their deferrals, but
withdrawals at times other than deferral dates selected by participants are not permitted until
retirement, termination of employment, disability or death, except in case of unforeseen
emergencies. The Company does not provide a guaranteed rate of return on these deferred amounts,
and the rate of return realized depends on the participants fund selections and market performance
of these funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Company |
|
|
Aggregate |
|
|
Aggregate |
|
|
Aggregate |
|
|
|
Contributions |
|
|
Contributions |
|
|
Earnings |
|
|
Withdrawals/ |
|
|
Balance at |
|
|
|
in Last FY |
|
|
in Last FY |
|
|
in Last FY |
|
|
Distributions |
|
|
Last FYE |
|
Name |
|
($) (1) |
|
|
($)(2) |
|
|
($)(3) |
|
|
($)(4) |
|
|
($)(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Fennessy |
|
|
87,708 |
|
|
|
|
|
|
|
(19,204 |
) |
|
|
|
|
|
|
68,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary M. Glandon |
|
|
12,987 |
|
|
|
|
|
|
|
(2,332 |
) |
|
|
|
|
|
|
10,655 |
|
|
|
|
(1) |
|
The amounts reported in this column reflect, on a cash basis, named executive officer
contributions during 2008 to our Deferred Compensation Plan, a non-qualified deferred
compensation plan. All of the salary and non-equity compensation amounts voluntarily deferred
by the named executive officers are included in the salary and non-equity incentive
compensation amounts reported for the named executive officers in the Summary Compensation
Table. |
|
(2) |
|
The Company does not currently make any contributions to the Deferred Compensation Plan. |
|
(3) |
|
The amounts are deemed investment returns in 2008 on employee contributions. |
|
(4) |
|
No withdrawals or distributions were made to any named executive officers under the Deferred
Compensation Plan in 2008. |
|
(5) |
|
The balances are the balances of the named executive officers accounts as of the end of
2008. All of the salary and non-equity compensation amounts voluntarily deferred by the named
executive officers are included in the salary and non-equity incentive compensation amounts
reported for the named executive officers in the Summary Compensation Table. |
134
INSIGHT ENTERPRISES, INC.
Director Compensation
Mr. Fennessy does not receive any separate compensation for his Board service or activities.
In 2008, each non-employee director received $20,000 per quarter for serving on the Board. An
additional $1,250 per quarter was paid to the director serving as Chair of a committee. For 2009,
each non-employee director will again receive $20,000 per quarter for serving on the Board and
$2,500 per quarter for serving as Chair of a committee. For 2008, Mr. Crown, Chair of the Board,
was paid a retainer of $110,000 in lieu of standard compensation for directors because of his time
commitments to the Company as Chair of the Board. For 2009, the Compensation Committee has
recommended to the Board for approval and the Board has approved a $110,000 retainer for Mr. Crown
for service as Chair of the Board. We reimburse non-employee directors for their reasonable
expenses incurred in connection with service as directors, and non-employee directors may elect to
participate in the medical and dental benefit programs offered to all teammates at the rates paid
by teammates of the Company.
In 2008, non-employee directors received 2,000 RSUs upon joining the Board and all directors
received a grant of RSUs equal in value to $70,000 on the date of the approval of the award, which
amounted to 3,500 shares that will vest ratably over three years, subject to continued Board
service. For 2009, existing non-employee directors will continue to receive a grant of RSUs equal
to $70,000, but the valuation will be calculated at the closing price of the Companys shares on
the date of its annual meeting, in accordance with the Companys past practices. Upon joining the
Board, new non-employee directors will receive a pro-rata share of the last annual grant of RSUs to
the other non-employee directors, based on the number of whole months the new non-employee director
will serve before the next regularly scheduled annual meeting date. These awards will also vest
ratably over three years, subject to continued Board service.
The table below sets forth information concerning compensation of the Companys directors in
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
|
|
|
|
|
|
|
|
|
|
|
Paid in |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
Stock Awards |
|
|
Option Awards |
|
|
|
|
Name |
|
($) |
|
|
($)(1)(3) |
|
|
($)(2)(3) |
|
|
Total ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy A. Crown |
|
|
110,000 |
|
|
|
31,183 |
|
|
|
|
|
|
|
141,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bennett Dorrance |
|
|
80,000 |
|
|
|
31,183 |
|
|
|
868 |
|
|
|
112,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael M. Fisher |
|
|
85,000 |
|
|
|
31,183 |
|
|
|
868 |
|
|
|
117,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry A. Gunning |
|
|
80,000 |
|
|
|
31,183 |
|
|
|
868 |
|
|
|
112,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony A. Ibargüen |
|
|
40,000 |
|
|
|
4,024 |
|
|
|
|
|
|
|
44,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robertson C. Jones |
|
|
85,000 |
|
|
|
31,183 |
|
|
|
868 |
|
|
|
117,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kathleen S. Pushor |
|
|
80,000 |
|
|
|
31,183 |
|
|
|
3,329 |
|
|
|
114,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Robino |
|
|
85,000 |
|
|
|
44,032 |
|
|
|
|
|
|
|
129,032 |
|
|
|
|
(1) |
|
These amounts reflect the dollar amount recognized in accordance with SFAS No. 123R for
financial statement purposes for the year ended December 31, 2008. These amounts include
awards pursuant to the 2007 Plan and the 1998 Plan and thus may include amounts from awards
granted in and prior to 2008. Assumptions used in the calculations of these amounts are
included in the footnotes to the Companys audited consolidated financial statements for the
fiscal year ended December 31, 2008, which are included in
Item 8 of this report. An estimate of forfeitures is not included in these amounts nor were any
actual forfeitures included in these amounts. On July 1, 2008, Mr. Ibargüen was granted 2,000
restricted stock units related to the commencement of his Board service. The grant date fair
value of these awards was $24,080 (calculated by multiplying the number of shares by $12.04
per share, the closing price reported by The Nasdaq Global Select Market). On May 6, 2008,
each continuing non-employee director was granted 3,500 restricted stock units in connection
with their annual award. The grant date fair value of each of these awards was $42,525
(calculated by multiplying the number of shares by $12.15 per share, the closing price
reported by The Nasdaq Global Select Market). |
|
(2) |
|
These amounts reflect the dollar amount recognized in accordance with SFAS No. 123R for
financial statement purposes for the year ended December 31, 2008. These amounts include
awards pursuant to the 1998 Plan and the 1999 Broad Based Plan and thus include amounts from
awards granted prior to 2008. Assumptions used in the calculations of these amounts are
included in footnotes to the Companys audited consolidated financial statements for the
fiscal year ended December 31, 2008, which are included in
Item 8 of this report. An estimate of forfeitures is not included in these amounts nor were any
actual forfeitures included in these amounts. There were no option awards made to
non-employee directors during 2008. |
135
INSIGHT ENTERPRISES, INC.
|
|
|
(3) |
|
As of December 31, 2008, the aggregate number of stock awards and option awards outstanding
for each director was as follows: |
|
|
|
|
|
|
|
|
|
Name |
|
Stock Awards |
|
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
Timothy A. Crown |
|
|
7,000 |
|
|
|
186,000 |
|
|
|
|
|
|
|
|
|
|
Bennett Dorrance |
|
|
7,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
Michael M. Fisher |
|
|
7,000 |
|
|
|
12,593 |
|
|
|
|
|
|
|
|
|
|
Larry A. Gunning |
|
|
7,000 |
|
|
|
12,593 |
|
|
|
|
|
|
|
|
|
|
Anthony A. Ibargüen |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robertson C. Jones |
|
|
7,000 |
|
|
|
12,593 |
|
|
|
|
|
|
|
|
|
|
Kathleen S. Pushor |
|
|
7,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
David J. Robino |
|
|
8,000 |
|
|
|
|
|
The cost of certain perquisites and other personal benefits are not included because in the
aggregate they did not exceed, in the case of any director, $10,000..
|
|
|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table gives information with respect to our existing equity compensation plans
as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Number of Securities |
|
|
|
Securities to be |
|
|
Weighted |
|
|
Remaining Available for |
|
|
|
Issued upon |
|
|
Average |
|
|
Future Issuance under |
|
|
|
Exercise of |
|
|
Exercise Price |
|
|
Equity Compensation Plans |
|
|
|
Outstanding |
|
|
of Outstanding |
|
|
(Excluding Securities |
|
|
|
Options |
|
|
Options |
|
|
Reflected in Column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders |
|
|
2,444,379 |
(1) |
|
$ |
19.36 |
|
|
|
3,026,135 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved by
security holders |
|
|
92,294 |
(3) |
|
$ |
22.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,536,673 |
|
|
$ |
19.47 |
|
|
|
3,026,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of options that are outstanding under our 1998 Long Term Incentive Plan, our
1994 Stock Option Plan and our 2007 Omnibus Plan (the 2007 Plan). |
|
(2) |
|
Consists of shares of common stock remaining available for issuance under the 2007
Plan. |
|
(3) |
|
Consists of options that are outstanding under our 1999 Broad Based Plan. |
136
INSIGHT ENTERPRISES, INC.
On October 1, 2007, Insights Board of Directors approved the 2007 Plan, and it became
effective when it was approved by Insights stockholders at the annual meeting on November 12,
2007. The 2007 Plan is administered by the Compensation Committee of Insights Board of Directors.
Except as provided below, the Compensation Committee has the exclusive authority to administer the
2007 Plan, including the power to determine eligibility, the types of awards to
be granted, the price and the timing of awards. Under the 2007 Plan, the Compensation
Committee may delegate some of its authority to our Chief Executive Officer to grant awards to
individuals other than individuals who are subject to the reporting requirements of Section 16(a)
of the Exchange Act. Teammates, officers and members of the Board of Directors are eligible for
awards under the 2007 Plan, and consultants and independent contractors are also eligible if they
provide bona fide services to Insight that are not related to capital raising or promoting or
maintaining a market for Insights stock. The 2007 Plan allows for awards of options, stock
appreciation rights (SARs), restricted stock, restricted stock units (RSUs), performance awards as
well as grants of cash awards. A total of 4,250,000 shares of stock are reserved for awards issued
under the 2007 Plan. As of December 31, 2008, 3,026,135 shares of stock were available for grant
under the 2007 Plan.
In October 1997, the Companys stockholders approved the 1998 Long-Term Incentive Plan (the
1998 LTIP) for our officers, teammates, directors, consultants and independent contractors. The
1998 LTIP authorized grants of incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares, restricted common stock and performance-based awards. In
2000, the Companys stockholders approved an amendment to the 1998 LTIP increasing the number of
shares eligible for awards to 6,000,000 and allowing our Board of Directors to reserve (which it
did) additional shares such that the number of shares of common stock available for grant under the
1998 LTIP and any other option plans, plus the number of options to acquire shares of common stock
granted but not yet exercised, or in the case of restricted stock, granted but not yet vested,
under the 1998 LTIP and any other option plans, shall not exceed 20% of the outstanding shares of
our common stock at the time of calculation of the additional shares. With stockholder approval of
the 2007 Plan in November 2007, as discussed above, no more grants will be made under the 1998
LTIP.
In September 1999, we established the 1999 Broad Based Employee Stock Option Plan (the 1999
Broad Based Plan) for our teammates. The total number of stock options initially available for
grant under the 1999 Broad Based Plan was 1,500,000; provided, however, that no more than 20% of
the shares of stock available under the 1999 Broad Based Plan may be awarded to the officers of the
Company. With stockholder approval of the 2007 Plan in November 2007, as discussed above, no more
grants will be made under the 1999 Broad Based Plan.
137
INSIGHT ENTERPRISES, INC.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our
common stock as of April 30, 2009 (except as otherwise indicated) by (i) each person or entity
known to us own beneficially more than 5% of the outstanding shares of our common stock, (ii) each
of our directors, (iii) each of the named executive officers and (iv) all directors and executive
officers as a group.
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock Beneficially |
|
|
|
Owned (1) |
|
Name |
|
Number of Shares |
|
|
Percent |
|
FMR LLC |
|
|
5,109,196 |
(2) |
|
|
11.21 |
% |
|
|
|
|
|
|
|
|
|
AXA Financial, Inc. and affiliated entities |
|
|
4,927,778 |
(3) |
|
|
10.80 |
% |
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors LP |
|
|
3,649,089 |
(4) |
|
|
8.01 |
% |
|
|
|
|
|
|
|
|
|
Barclays Global Investors, N.A. and affiliated entities |
|
|
3,410,493 |
(5) |
|
|
7.48 |
% |
|
|
|
|
|
|
|
|
|
Jennison Associates LLC |
|
|
2,764,263 |
(6) |
|
|
6.06 |
% |
|
|
|
|
|
|
|
|
|
Richard A. Fennessy |
|
|
1,033,370 |
(7) |
|
|
2.21 |
% |
|
|
|
|
|
|
|
|
|
Timothy A. Crown |
|
|
352,667 |
(8) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Mark T. McGrath |
|
|
296,773 |
(9) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Glynis A. Bryan |
|
|
77,320 |
(10) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Gary M. Glandon |
|
|
77,118 |
(11) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Stuart A. Fenton |
|
|
53,467 |
(12) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Robertson C. Jones |
|
|
35,094 |
(13) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Catherine W. Eckstein |
|
|
18,331 |
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
Michael M. Fisher |
|
|
15,594 |
(14) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Larry A. Gunning |
|
|
13,094 |
(15) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Kathleen S. Pushor |
|
|
12,701 |
(16) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Bennett Dorrance |
|
|
10,001 |
(17) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
Anthony A. Ibargüen |
|
|
4,000 |
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
David J. Robino |
|
|
3,335 |
(18) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (17 persons) |
|
|
2,082,878 |
(19) |
|
|
4.41 |
% |
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Beneficial ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to securities. In accordance with SEC rules, a person
is deemed to own beneficially any shares that such person has the right to acquire within 60
days of the date of determination of beneficial ownership. Such shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of any other person.
Except as indicated by footnote, and subject to community property laws where applicable, to
our knowledge the persons or entities named in the table above have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by them. |
|
(2) |
|
Share data based on information in a Schedule 13G filed on March 10, 2009 with the SEC by FMR
LLC. As of February 28, 2009, the Schedule 13G indicates that FMR LLC had sole voting power
with respect to 2,600 shares, shared voting power with respect to 0 shares, sole dispositive
power with respect to 5,109,196 shares and shared dispositive power with respect to 0 shares.
The address of FMR LLC is 82 Devonshire Street, Boston, MA 02109. |
138
INSIGHT ENTERPRISES, INC.
|
|
|
(3) |
|
Share data based on information in an amendment to a Schedule 13G filed on February 13, 2009
with the SEC by AXA Financial, Inc., AXA, The Mutuelles AXA and certain of their affiliated
entities. As of December 31, 2008, the Schedule 13G indicates that AXA Rosenberg Investment
Management LLC, AllianceBernstein and AXA Equitable Life Insurance had sole voting power as to
1,136,652 shares, 2,492,338 shares and 2,900 shares, respectively, and sole dispositive power
as to 2,122,195 shares, 2,802,683 shares and 2,900 shares, respectively. The address for AXA
Financial, Inc. is 1290 Avenue of the Americas, New York, New York 10104, the address for AXA
is 25, avenue Matignon, 75008 Paris, France and the address for The Mutuelles AXA is 26, rue
Drouot, 75009 Paris, France. |
|
(4) |
|
Share data based on information in an amendment to a Schedule 13G filed on February 9, 2009
with the SEC by Dimensional Fund Advisors LP. As of December 31, 2008, the Schedule 13G
indicates that Dimensional Fund Advisors LP had sole voting power with respect to 3,536,434
shares and sole dispositive power with respect to 3,649,089 shares. The address of
Dimensional Fund Advisors LP is Palisades West, Building One. 6300 Bee Cave Road, Austin, TX
78746. |
|
(5) |
|
Share data based on information in a Schedule 13G filed on February 5, 2009 with the SEC by
Barclays Global Investors, NA (Barclays Investors), Barclays Global Fund Advisors (Barclays
Fund Advisors), Barclays Global Investors, LTD (Barclays Investors Ltd.), Barclays Global
Investors Japan Limited (Barclays Japan Limited), Barclays Global Investors Canada Limited
(Barclays Canada Limited), Barclays Global Investors Australia Limited (Barclays Australia
Limited) and Barclays Global Investors (Deutschland) AG (Barclays Global Investors AG). As
of December 31, 2008, the Schedule 13G indicates that Barclays Investors has sole voting power
as to 1,130,409 shares and sole dispositive power as to 1,322,211 shares, Barclays Fund
Advisors has sole voting power as to 1,538,275 shares and sole dispositive power as to
2,057,203 shares, Barclays Investors Ltd. has sole dispositive power as to 1,670 shares and
sole dispositive power as to 31,079 shares. The address for Barclays Investors and Barclays
Fund Advisors is 400 Howard Street, San Francisco, CA 94105, the address for Barclays
Investors Ltd. is Murray House, 1 Royal Mint Court, London, United Kingdom EC3N 4HH, the
address for Barclays Japan Limited is Ebisu Prime Square Tower 8th Floor, 1-1-39
Hiroo Shibuya-Ku, Tokyo 150-8402 Japan. The address for Barclays Canada Limited is Brookfield
Place 161 Bay Street, Suite 2500, PO Box 614, Toronto, Canada, Ontario M5J 2S1. The address
for Barclays Australia Limited is Level 43, Grosvenor Place, 225 George Street, PO Box N43,
Sydney, Australia, NSW 1220. The address for Barclays Global Investors AG is Apianstrasse 6,
D-85774, Unterfohring, Germany. |
|
(6) |
|
Share data based on information in a Schedule 13G filed on February 17, 2009 with the SEC by
Jennison Associates LLC. As of December 31, 2008, the Schedule 13G indicates that Jennison
Associates LLC had sole voting power with respect to 2,713,363 shares and shared dispositive
power with respect to 2,764,263 shares. The address of Jennison Associates LLC is 466
Lexington Avenue, New York, NY 10017. |
|
(7) |
|
Includes 850,000 shares subject to options exercisable within 60 days of April 30, 2009. |
|
(8) |
|
Includes 1,500 shares subject to restricted stock that will vest within 60 days of April 30,
2009. |
|
(9) |
|
Includes 200,000 shares subject to options exercisable within 60 days of April 30, 2009. |
|
(10) |
|
Includes 66,667 shares subject to options exercisable within 60 days of April 30, 2009. |
|
(11) |
|
Includes 60,000 shares subject to options exercisable within 60 days of April 30, 2009. |
|
(12) |
|
Includes 20,000 shares subject to options exercisable within 60 days of April 30, 2009. |
|
(13) |
|
Includes 11,593 shares subject to options exercisable or restricted stock that will vest
within 60 days of April 30, 2009. |
|
(14) |
|
Includes 11,593 shares subject to options exercisable or restricted stock that will vest
within 60 days of April 30, 2009. |
|
(15) |
|
Includes 11,593 shares subject to options exercisable or restricted stock that will vest
within 60 days of April 30, 2009. |
|
(16) |
|
Includes 6,500 shares subject to options exercisable or restricted stock that will vest
within 60 days of April 30, 2009. |
|
(17) |
|
Includes 4,000 shares subject to options exercisable or restricted stock that will vest
within 60 days of April 30, 2009. |
|
(18) |
|
Includes 1,834 shares subject to restricted stock that will vest within 60 days of April 30,
2009. |
|
(19) |
|
Includes 1,294,030 shares subject to options exercisable or restricted stock that will vest
within 60 days of April 30, 2009. |
139
INSIGHT ENTERPRISES, INC.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons, Promoters and Certain Control Persons
Our written policy provides that any transaction with respect to a director or executive
officer who is subject to the reporting requirements of Section 16(a) of the Exchange Act must be
reviewed and approved, in advance, by the Audit
Committee. Any such related party transactions will only be approved if the Audit Committee
determines that such transaction will not impair the involved persons service to, and exercise of
judgment on behalf of, the Company, or otherwise create a conflict of interest that would be
detrimental to the Company.
Director Independence
The Board has determined that all of our directors, except for Mr. Fennessy, our President and
Chief Executive Officer, meet the independence requirements of the Marketplace Rules of the NASDAQ
Stock Market. The independent directors hold executive sessions without management present on a
quarterly basis and more often as they determine appropriate.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm during the year ended December 31, 2008 was
KPMG. KPMG has audited our consolidated financial statements since 1988.
Fees and Independence
Audit Fees. KPMG billed us an aggregate of $4,109,000 and $4,372,000 for professional
services rendered for the audit of our consolidated financial statements, reviews of our
consolidated financial statements included in our quarterly reports on Form 10-Q and statutory
audits for foreign subsidiaries for the years ended December 31, 2008 and 2007, respectively.
Audit-Related Fees. Audit-related fees billed by KPMG for the year ended December 31, 2008
were $104,000 and included an audit in accordance with Statement on Auditing Standards No. 70 and a
compliance audit of a United Kingdom contract. No audit related fees were paid to KPMG for the
year ended December 31, 2007.
Tax Fees. Tax fees billed by KPMG for the years ended December 31, 2008 and 2007 of $104,000
and $84,000, respectively, include fees for services relating to tax compliance, expatriates and
tax planning and advice, including assistance with tax audits.
All Other Fees. There were no other fees paid to KPMG for the years ended December 31, 2008
and 2007.
The Audit Committee has determined that the provision of services by KPMG described in the
preceding paragraphs is compatible with maintaining KPMGs independence. All permissible non-audit
services provided by KPMG in 2008 were pre-approved by the Audit Committee. In addition, no audit
engagement hours were spent by people other than KPMGs full-time, permanent employees.
Pursuant to Section 202 of the Sarbanes-Oxley Act of 2002, our Audit Committee has approved
all auditing and non-audit services performed to date and currently planned to be provided related
to the fiscal year 2008 by our independent registered public accounting firm, KPMG. The services
include the annual audit, quarterly reviews, statutory audits for foreign subsidiaries, issuances
of consents related to SEC filings and certain tax compliance services.
The Audit Committee has adopted procedures for pre-approving all audit and permissible
non-audit services provided by KPMG. For each non-audit service, as defined in the policy,
performed by KPMG, an engagement letter confirming the scope and terms of the work to be performed
is submitted to the Audit Committee for pre-approval. Any modification to an executed engagement
letter must also be pre-approved by the Audit Committee. As permitted by Section 10A(i)(3) of the
Exchange Act, the Audit Committee has delegated pre-approval authority to the Chair of the Audit
Committee for all engagements under $100,000. The Chair of the Audit Committee must report any
pre-approval decisions to the Audit Committee at its next regular quarterly meeting. All
non-audit services provided by KPMG were pre-approved by the Audit Committee during 2008.
140
INSIGHT ENTERPRISES, INC.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements and Schedules
The Consolidated Financial Statements of Insight Enterprises, Inc. and subsidiaries and the
related Reports of Independent Registered Public Accounting Firm are filed herein as set forth
under Part II, Item 8 of this report.
Financial statement schedules have been omitted since they are either not required, not
applicable, or the information is otherwise included in the Consolidated Financial Statements or
notes thereto.
(b) Exhibits
The exhibits list in the Index to Exhibits immediately following the signature page is
incorporated herein by reference as the list of exhibits required as part of this report.
141
INSIGHT ENTERPRISES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
INSIGHT ENTERPRISES, INC.
|
|
|
By: |
/s/ Richard A. Fennessy
|
|
|
|
Richard A. Fennessy |
|
|
|
Chief Executive Officer |
|
Dated: May 11, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Richard A. Fennessy
Richard A. Fennessy
|
|
President, Chief Executive Officer and
Director
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Glynis A. Bryan
Glynis A. Bryan
|
|
Chief Financial Officer
(principal financial officer and
principal accounting officer)
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Timothy A. Crown*
Timothy A. Crown
|
|
Chairman of the Board
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Bennett Dorrance*
Bennett Dorrance
|
|
Director
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Michael M. Fisher*
Michael M. Fisher
|
|
Director
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Larry A. Gunning*
Larry A. Gunning
|
|
Director
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Robertson C. Jones*
Robertson C. Jones
|
|
Director
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Kathleen S. Pushor*
Kathleen S. Pushor
|
|
Director
|
|
May 11, 2009 |
|
|
|
|
|
/s/ David J. Robino*
David J. Robino
|
|
Director
|
|
May 11, 2009 |
|
|
|
|
|
/s/ Anthony A. Ibargüen*
Anthony Ibargüen
|
|
Director
|
|
May 11, 2009 |
|
|
|
|
|
* By:
|
|
/s/ Steven R. Andrews
Steven R. Andrews, Attorney in Fact
|
|
|
142
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
(Unless otherwise noted, exhibits are filed herewith.)
|
|
|
|
|
|
|
Exhibit No. |
|
|
|
Description |
|
3.1 |
|
|
|
|
Composite Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.1
of our annual report on Form 10-K for the year ended
December 31, 2005). |
|
|
|
|
|
|
|
|
3.2 |
|
|
|
|
Amended and Restated Bylaws of the Registrant
(incorporated by reference to Exhibit 3.1 of our
current report on Form 8-K filed on January 14,
2008). |
|
|
|
|
|
|
|
|
3.3 |
|
|
|
|
Form of Certificate of Designation of Series A
Preferred Stock (incorporated by reference to
Exhibit 5 of our Registration Statement on Form 8-A
(no. 00-25092) filed on March 17, 1999). |
|
|
|
|
|
|
|
|
4.1 |
|
|
|
|
Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 of our Registration
Statement on Form S-1 (No. 33-86142) declared
effective January 24, 1995). |
|
|
|
|
|
|
|
|
10.1 |
(1) |
|
|
|
Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.1 of our annual report on
Form 10-K for the year ended December 31, 2006). |
|
|
|
|
|
|
|
|
10.2 |
(2) |
|
|
|
1998 Long-Term Incentive Plan (incorporated by
reference to Exhibit 99.1 of our Registration
Statement on Form S-8 (No. 333-110915) declared
effective December 4, 2004). |
|
|
|
|
|
|
|
|
10.3 |
(2) |
|
|
|
1998 Employee Restricted Stock Plan (incorporated
by reference to Exhibit 99.3 of our Form S-8 (No.
333-69113) filed on December 17, 1998). |
|
|
|
|
|
|
|
|
10.4 |
(2) |
|
|
|
1998 Officer Restricted Stock Plan (incorporated
by reference to Exhibit 99.2 of our Form S-8 (No.
333-69113) filed on December 17, 1998). |
|
|
|
|
|
|
|
|
10.5 |
(2) |
|
|
|
1999 Broad Based Employee Stock Option Plan
(incorporated by reference to Exhibit 10.14 of our
annual report on Form 10-K for the year ended
December 31, 1999). |
|
|
|
|
|
|
|
|
10.6 |
(2) |
|
|
|
Executive Service Agreement between Insight Direct
UK Limited and Stuart Fenton dated September 12,
2002 (incorporated by reference to Exhibit 10.31 of
our annual report on Form 10-K for the year ended
December 31, 2002). |
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
Receivables Purchase Agreement dated as of
December 31, 2002 among Insight Receivables, LLC,
Insight Enterprises, Inc., Jupiter Securitization
Corporation, Bank One NA (main office Chicago),
and the entities party thereto from time to time as
financial institutions (incorporated by reference to
Exhibit 10.38 of our annual report on Form 10-K for
the year ended December 31, 2002). |
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
Amended and Restated Receivables Sale Agreement
dated as of September 3, 2003 by and among Insight
Direct USA, Inc. and Insight Public Sector, Inc. as
originators, and Insight Receivables, LLC, as buyer
(incorporated by reference to Exhibit 10.1 of our
quarterly report on Form 10-Q for the quarter ended
September 30, 2003). |
|
|
|
|
|
|
|
|
10.9 |
|
|
|
|
Amendment No. 1 to Receivables Purchase Agreement
dated as of September 3, 2003 among Insight
Receivables, LLC, Insight Enterprises, Inc. and
Jupiter Securitization Corporation, Bank One NA
(incorporated by reference to Exhibit 10.2 of our
quarterly report on Form 10-Q for the quarter ended
September 30, 2003). |
|
|
|
|
|
|
|
|
10.10 |
|
|
|
|
Amendment No. 2 to Receivables Purchase Agreement
dated as of December 23, 2003 among Insight
Receivables, LLC, Insight Enterprises, Inc. and
Jupiter Securitization Corporation, Bank One NA
(incorporated by reference to Exhibit 10.42 of our
annual report on Form 10-K for the year ended
December 31, 2003). |
|
|
|
|
|
|
|
|
10.11 |
(2) |
|
|
|
Employment Agreement between Insight Enterprises,
Inc. and Karen K. McGinnis dated as of and effective
October 15, 2004 (incorporated by reference to
Exhibit 10.2 of our quarterly report on Form 10-Q
for the quarter ended September 30, 2004). |
|
|
|
|
|
|
|
|
10.12 |
(2) |
|
|
|
Employment Agreement between Insight Enterprises,
Inc. and Richard A. Fennessy dated as of October 24,
2004, effective November 15, 2004 (incorporated by
reference to Exhibit 99.1 of our current report on
Form 8-K filed on October 28, 2004). |
|
|
|
|
|
|
|
|
10.13 |
(2) |
|
|
|
First Amendment to Employment Agreement between
Insight Enterprises, Inc. and Timothy A. Crown dated
as of March 4, 2005 and effective March 1, 2005
(incorporated by reference to Items 1.01 and 1.02 of
our current report on Form 8-K filed on March 10,
2005). |
|
|
|
|
|
|
|
143
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
|
|
|
|
|
|
|
Exhibit No. |
|
|
|
Description |
|
10.14 |
(2) |
|
|
|
Amendment to Executive Service Agreement between
Insight Direct (UK) and Stuart Fenton dated as of
March 1, 2005 and effective July 1, 2004
(incorporated by reference to Exhibit 10.25 of our
annual report on Form 10-K for the year ended
December 31, 2004). |
|
|
|
|
|
|
|
|
10.15 |
(2) |
|
|
|
First Amendment to Employment Agreement between
Insight Enterprises, Inc. and Karen K. McGinnis
dated as of April 26, 2005 and effective January 1,
2005 (incorporated by reference to Exhibit 10.3 of
our quarterly report on Form 10-Q for the quarter
ended March 31, 2005). |
|
|
|
|
|
|
|
|
10.16 |
|
|
|
|
Amendment No. 5 to Receivables Purchase Agreement
dated as of March 25, 2005 among Insight
Receivables, LLC (the Seller), Insight
Enterprises, Inc. (the Servicer), JP Morgan Chase
Bank N.A. (successor by merger to Bank One, NA (Main
Office Chicago)), as a Financial Institution and as
Agent (in its capacity as Agent, the Agent), and
Jupiter Securitization Corporation (Jupiter)
(incorporated by reference to Exhibit 10.4 of our
quarterly report on Form 10-Q for the quarter ended
March 31, 2005). |
|
|
|
|
|
|
|
|
10.17 |
(2) |
|
|
|
Employment Agreement between Insight Direct USA,
Inc. and Mark McGrath dated as of May 15, 2005 to be
effective May 23, 2005 (incorporated by reference to
Exhibit 10.1 of our current report on Form 8-K filed
on May 19, 2005). |
|
|
|
|
|
|
|
|
10.18 |
|
|
|
|
Amendment No. 6 to Receivables Purchase Agreement
dated as of December 19, 2005 among Insight
Receivables, LLC (the Seller), Insight
Enterprises, Inc. (the Servicer), JP Morgan Chase
Bank N.A. (successor by merger to Bank One, NA (Main
Office Chicago)), as a Financial Institution and as
Agent (in its capacity as Agent, the Agent), and
Jupiter Securitization Corporation (Jupiter)
(incorporated by reference to Exhibit 10.1 of our
current report on Form 8-K filed on December 22,
2005). |
|
|
|
|
|
|
|
|
10.19 |
|
|
|
|
Stock Purchase Agreement, dated as of June 14,
2006, by and among Teletech Holdings, Inc., Insight
Enterprises, Inc. and Direct Alliance Corporation
(incorporated by reference to Exhibit 10.1 of our
current report on Form 8-K filed on June 15, 2006). |
|
|
|
|
|
|
|
|
10.20 |
|
|
|
|
Stock Purchase Agreement, dated as of July 20,
2006, by and among Insight Enterprises, Inc., Level
3 Communications, Inc. and Technology Spectrum Inc.
(incorporated by reference to Exhibit 10.1 of our
current report on Form 8-K filed on July 21, 2006). |
|
|
|
|
|
|
|
|
10.21 |
|
|
|
|
Amendment No. 7 to Receivables Purchase Agreement,
dated as of September 7, 2006, among Insight
Receivables, LLC, Insight Enterprises, Inc.,
JPMorgan Chase Bank, N.A. (successor by merger to
Bank One, NA (Main Office Chicago)), as a Financial
Institution and as Agent, and Jupiter Securitization
Company LLC (formerly Jupiter Securitization
Corporation) (incorporated by reference to Exhibit
10.2 of our current report on Form 8-K filed on
September 8, 2006). |
144
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
|
|
|
|
|
|
|
Exhibit No. |
|
|
|
Description |
|
10.22 |
(2) |
|
|
|
Stanley Laybourne Retirement/Termination
Program Summary of Key Terms. (incorporated
by reference to Exhibit 10.30 of our annual
report on Form 10-K for the year ended
December 31, 2006). |
|
|
|
|
|
|
|
|
10.23 |
(2) |
|
|
|
Employment Agreement between Insight
Enterprises, Inc. and Steven R. Andrews dated
September 12, 2007 (incorporated by reference
to Exhibit 10.1 of our quarterly report on
Form 10-Q for the quarter ended September 30,
2007). |
|
|
|
|
|
|
|
|
10.24 |
(2) |
|
|
|
Employment Agreement between Insight
Enterprises, Inc. and Glynis A. Bryan dated
December 16, 2007 (incorporated by reference
to Exhibit 10.1 of our current report on Form
8-K filed on November 21, 2007). |
|
|
|
|
|
|
|
|
10.24.1 |
(2) |
|
|
|
Offer letter between Insight Enterprises,
Inc. and Glynis A. Bryan dated November 16,
2007 (incorporated by reference to Exhibit
10.2 of our current report on Form 8-K filed
on November 21, 2007). |
|
|
|
|
|
|
|
|
10.25 |
(2) |
|
|
|
2007 Omnibus Plan (incorporated by reference
to Annex A of our Proxy Statement filed on
October 9, 2007). |
|
|
|
|
|
|
|
|
10.26 |
|
|
|
|
Agreement and Plan of Merger, dated as of
January 24, 2008, by and among Insight
Enterprises, Inc., Insight Networking
Services, LLC, and Calence, LLC (incorporated
by reference to Exhibit 10.1 of our current
report on Form 8-K filed on January 28, 2008). |
|
|
|
|
|
|
|
|
10.27 |
|
|
|
|
Support Agreement, dated January 24, 2008
among Insight Enterprises, Inc., Avnet, Inc.,
Calence Holdings, Inc., Michael F. Fong,
Timothy J. Porthouse, Richard J. Lesniak, Jr.,
Mary Donna Rives Lesniak, The Richard J.
Lesniak Revocable Trust and the Mary Donna
Lesniak Irrevocable Trust (incorporated by
reference to Exhibit 10.2 of our current
report on Form 8-K filed on January 28, 2008). |
|
|
|
|
|
|
|
|
10.28 |
|
|
|
|
Second Amended and Restated Credit
Agreement, dated as of April 1, 2008, among
Insight Enterprises, Inc., the European
Borrowers from time to time party thereto, the
Lenders party thereto, J.P. Morgan Europe
Limited, as European Agent, Wells Fargo Bank,
National Association and U.S. Bank, National
Association, as Co-Syndication Agents, and
JPMorgan Chase Bank, National Association, as
Administrative Agent (incorporated by
reference to Exhibit 10.1 of our current
report on Form 8-K filed on April 4, 2008). |
|
|
|
|
|
|
|
|
10.29 |
|
|
|
|
Amendment No. 1 to Second Amended and
Restated Credit Agreement dated as of
September 17, 2008 (incorporated by reference
to Exhibit 10.2 of our current report on Form
8-K filed on September 23, 2008). |
|
|
|
|
|
|
|
|
10.30 |
|
|
|
|
Separation and General Release Agreement by
and between Insight Enterprises, Inc. and
Stanley Laybourne dated as of May 1, 2007
(incorporated by reference to Exhibit 10.1 of
our quarterly report on Form 10-Q for the
quarter ended June 30, 2008). |
|
|
|
|
|
|
|
|
10.31 |
|
|
|
|
Employment Agreement between Insight
Enterprises, Inc. and Catherine Eckstein,
effective as of January 12, 2007 (incorporated
by reference to Exhibit 10.2 of our quarterly
report on Form 10-Q for the quarter ended June
30, 2008). |
|
|
|
|
|
|
|
|
10.32 |
|
|
|
|
Release and Severance Agreement between
Insight Enterprises, Inc. and Catherine
Eckstein (incorporated by reference to Exhibit
10.3 of our quarterly report on Form 10-Q for
the quarter ended June 30, 2008). |
|
|
|
|
|
|
|
|
10.33 |
|
|
|
|
Employment Agreement between Insight
Enterprises, Inc. and Gary Glandon, effective
as of January 12, 2007 (incorporated by
reference to Exhibit 10.4 of our quarterly
report on Form 10-Q for the quarter ended June
30, 2008). |
|
|
|
|
|
|
|
|
10.34 |
|
|
|
|
Credit Agreement among Castle Pines Capital
LLC, as an Administrative Agent, Wells Fargo
Foothill, LLC as an Administrative Agent, as
Syndication Agent and as Collateral Agent and
Castle Pines Capital LLC and the other lenders
party thereto and Calence, LLC, Insight Direct
USA, Inc. as Resellers (incorporated by
reference to Exhibit 10.1 of our current
report on Form 8-K filed on September 23,
2008). |
|
|
|
|
|
|
|
|
10.35 |
|
|
|
|
Amendment No. 9 to Receivables Purchase
Agreement dated as of September 17, 2008 among
Insight Receivables, LLC, Insight Enterprises,
Inc., JPMorgan Chase Bank, N.A. as Agent and
JS Siloed Trust as assignee of Jupiter
Securitization Company LLC (incorporated by
reference to Exhibit 10.3 of our current
report on Form 8-K filed on September 23,
2008). |
145
INSIGHT ENTERPRISES, INC.
EXHIBITS TO FORM 10-K (continued)
YEAR ENDED DECEMBER 31, 2008
Commission File No. 0-25092
|
|
|
|
|
|
|
Exhibit No. |
|
|
|
Description |
|
10.36 |
|
|
|
|
First Amendment to 2007 Omnibus Plan (incorporated by
reference to Exhibit 10.4 of our quarterly report on Form 10-Q
for the quarter ended September 30, 2008). |
|
|
|
|
|
|
|
|
10.37 |
|
|
|
|
Executive Management Separation Plan effective as of January
1, 2008 (incorporated by reference to Exhibit 10.5 for our
current report on Form 10-Q for the quarter ended September
30, 2008). |
|
|
|
|
|
|
|
|
10.38 |
|
|
|
|
Amended and Restated Employment Agreement between Insight
Enterprises, Inc. and Richard A. Fennessy dated as of January
1, 2009 (incorporated by reference to Exhibit 10.1 of our
current report on Form 8-K filed on January 7, 2009). |
|
|
|
|
|
|
|
|
10.39 |
|
|
|
|
Amended and Restated Employment Agreement between Insight
Enterprises, Inc. and Mark T. McGrath dated as of January 1,
2009 (incorporated by reference to Exhibit 10.2 of our current
report on Form 8-K filed on January 7, 2009). |
|
|
|
|
|
|
|
|
10.40 |
|
|
|
|
Amended and Restated Employment Agreement between Insight
Enterprises, Inc. and Glynis A. Bryan dated as of January 1,
2009 (incorporated by reference to Exhibit 10.3 of our current
report on Form 8-K filed January 7, 2009). |
|
|
|
|
|
|
|
|
10.41 |
|
|
|
|
Amended and Restated Employment Agreement between Insight
Enterprises, Inc. and Steven R. Andrews dated as of January 1,
2009 (incorporated by reference to Exhibit 10.4 of our current
report on Form 8-K filed on January 7, 2009). |
|
|
|
|
|
|
|
|
10.42 |
|
|
|
|
Amended and Restated Employment Agreement between Insight
Enterprises, Inc. and Gary M. Glandon dated as of January 1,
2009 (incorporated by reference to Exhibit 10.5 of our current
report on Form 8-K filed on January 7, 2009). |
|
|
|
|
|
|
|
|
10.43 |
|
|
|
|
Amended and Restated Employment Agreement between Insight
Enterprises, Inc. and Karen K. McGinnis dated as of January 1,
2009 (incorporated by reference to Exhibit 10.6 of our current
report on Form 8-K filed on January 7, 2009). |
|
|
|
|
|
|
|
|
10.44 |
|
|
|
|
Amended and Restated Employment Agreement between Insight
Enterprises, Inc. and Stephen A. Speidel dated as of January
1, 2009 (incorporated by reference to Exhibit 10.7 of our
current report on Form 8-K filed on January 7, 2009). |
|
|
|
|
|
|
|
|
21 |
|
|
|
|
Subsidiaries of the Registrant. |
|
|
|
|
|
|
|
|
23.1 |
|
|
|
|
Consent of KPMG LLP. |
|
|
|
|
|
|
|
|
24.1 |
|
|
|
|
Power
of Attorney for Timothy A. Crown dated May 4, 2009. |
|
|
|
|
|
|
|
|
24.2 |
|
|
|
|
Power of Attorney for Bennett Dorrance dated May 4, 2009. |
|
|
|
|
|
|
|
|
24.3 |
|
|
|
|
Power of Attorney for Michael M. Fisher dated May 4, 2009. |
|
|
|
|
|
|
|
|
24.4 |
|
|
|
|
Power of Attorney for Larry A. Gunning dated May 4, 2009. |
|
|
|
|
|
|
|
|
24.5 |
|
|
|
|
Power of Attorney for Anthony A. Ibargüen dated May 4, 2009. |
|
|
|
|
|
|
|
|
24.6 |
|
|
|
|
Power of Attorney for Robertson C. Jones dated May 4, 2009. |
|
|
|
|
|
|
|
|
24.7 |
|
|
|
|
Power of Attorney for Kathleen S. Pushor dated May 4, 2009. |
|
|
|
|
|
|
|
|
24.8 |
|
|
|
|
Power of Attorney for David J. Robino dated May 4, 2009. |
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
Certification of Chief Executive Officer Pursuant to
Securities and Exchange Act Rule 13a-14, as Adopted Pursuant
to Section 302 of Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
Certification of Chief Financial Officer Pursuant to
Securities and Exchange Act Rule 13a-14, as Adopted Pursuant
to Section 302 of Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
32.1 |
|
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
(1) |
|
We have entered into a separate indemnification agreement with each of the following
directors and executive officers that differ only in names and dates: Steven R.
Andrews, Glynis A. Bryan, Timothy A. Crown, Bennett Dorrance, Richard A. Fennessy, Michael
M. Fisher, Larry A. Gunning, Anthony A. Ibargüen, Helen K. Johnson, Robertson C. Jones,
Kathleen S. Pushor, David J. Robino and Stephen A. Speidel. Pursuant to the instructions
accompanying Item 601 of Regulation S-K, the Registrant is filing the form of such
indemnification agreement. |
|
(2) |
|
Management contract or compensatory plan or arrangement. |
146