INSIGHT ENTERPRISES INC - Quarter Report: 2010 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

INSIGHT ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Delaware		86-0766246
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

6820 South Harl Avenue, Tempe, Arizona 85283
(Address of principal executive offices) (Zip Code)

(480) 902-1001
(Registrant’s telephone number, including area code)

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 a checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		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 Exchange Act).

Yes o          No þ

The number of shares outstanding of the issuer’s common stock as of October 29, 2010 was 46,274,027.

 

 

INSIGHT ENTERPRISES, INC.

TABLE OF CONTENTS

		Page
PART I — Financial Information
Item 1 — Financial Statements:
Consolidated Balance Sheets (unaudited) — September 30, 2010 and December 31, 2009			1
Consolidated Statements of Operations (unaudited) — Three and Nine Months Ended September 30, 2010 and 2009			2
Consolidated Statements of Cash Flows (unaudited) — Nine Months Ended September 30, 2010 and 2009			3
Notes to Consolidated Financial Statements (unaudited)			4
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3 — Quantitative and Qualitative Disclosures About Market Risk			30
Item 4 — Controls and Procedures			30
PART II — Other Information
Item 1 — Legal Proceedings			30
Item 1A — Risk Factors			31
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3 — Defaults Upon Senior Securities			32
Item 4 — [Removed and Reserved]			32
Item 5 — Other Information			32
Item 6 — Exhibits			33
Signatures			34
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

INSIGHT ENTERPRISES, INC.

FORWARD-LOOKING INFORMATION

Certain statements in this Quarterly Report on Form 10-Q, including statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 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, net earnings or cash flows, cash needs and the sufficiency of our capital resources and the payment of debt balances and accrued expenses and liabilities; detail of our business strategy and our strategic initiatives; projections of capital expenditures and trade credit liability settlements and payments; plans relating to our products and services; the effect of new accounting principles or changes in accounting policies; the effect of and our exposure to guaranty and indemnification obligations and other off-balance sheet arrangements; projections about the outcome of ongoing tax audits; statements related to accounting estimates, including estimated stock-based compensation award forfeitures and the realization of deferred tax assets; the timing of amortization of stock-based compensation expense and the payment of accrued severance and restructuring costs; projections of compliance with debt covenants; our intentions to reinvest undistributed earnings of foreign subsidiaries; our intentions concerning our use of cash generated from operations and the payment of dividends; our positions and strategies with respect to ongoing and threatened litigation, including those matters identified in “Legal Proceedings” in Part II, Item 1 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 the results discussed in the 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:

•

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

•

changes in the information technology industry and/or rapid changes in product standards;

•

general economic conditions, including concerns regarding our ability to collect our accounts receivable and credit constraints;

•

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;

•

stockholder litigation and regulatory proceedings related to the restatement of our consolidated financial statements;

•

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

•

the variability and seasonality of our net sales and gross profit;

•

the risks associated with international operations;

•

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

•

exposure to foreign currency exchange risks;

•

changes in the overall capital markets that could increase our borrowing costs or reduce future availability of financing;

•

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

•

our dependence on key personnel; 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 Securities and Exchange Commission. 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.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

INSIGHT ENTERPRISES, INC.

		September 30,				December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	93,764			$	68,066
Accounts receivable, net of allowances for doubtful accounts of $17,242 and $22,364, respectively			839,645				998,770
Inventories			122,685				77,694
Inventories not available for sale			30,296				47,722
Deferred income taxes			27,220				35,750
Other current assets			39,580				32,318
Total current assets			1,153,190				1,260,320
Property and equipment, net of accumulated depreciation and amortization of $178,126 and $160,904, respectively			142,973				150,103
Goodwill			16,474				15,829
Intangible assets, net of accumulated amortization of $50,127 and $39,187, respectively			72,449				82,483
Deferred income taxes			73,950				78,489
Other assets			18,163				16,097
		$	1,477,199			$	1,603,321
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	563,327			$	695,549
Accrued expenses and other current liabilities			158,667				212,276
Current portion of long-term debt			992				875
Deferred revenue			39,874				54,135
Total current liabilities			762,860				962,835
Long-term debt			166,370				149,349
Deferred income taxes			2,729				3,054
Other liabilities			25,319				20,509
			957,278				1,135,747
Commitments and contingencies
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; 46,271 shares at September 30, 2010 and 45,956 shares at December 31, 2009 issued and outstanding			463				460
Additional paid-in capital			375,920				372,021
Retained earnings			124,375				73,864
Accumulated other comprehensive income — foreign currency translation adjustments			19,163				21,229
Total stockholders’ equity			519,921				467,574
		$	1,477,199			$	1,603,321

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Net sales		$	1,172,227			$	969,935			$	3,499,225			$	2,958,257
Costs of goods sold			1,017,582				836,449				3,025,730				2,545,155
Gross profit			154,645				133,486				473,495				413,102
Operating expenses:
Selling and administrative expenses			129,511				117,623				385,052				374,831
Severance and restructuring expenses			298				3,994				1,687				12,471
Earnings from operations			24,836				11,869				86,756				25,800
Non-operating (income) expense:
Interest income			(161	)			(45	)			(467	)			(333	)
Interest expense			1,899				2,333				5,957				6,421
Net foreign currency exchange loss (gain)			130				93				743				(119	)
Other expense, net			348				217				1,097				697
Earnings from continuing operations before income taxes			22,620				9,271				79,426				19,134
Income tax expense			8,188				1,999				28,915				5,766
Net earnings from continuing operations			14,432				7,272				50,511				13,368
Net earnings from a discontinued operation			—				—				—				2,801
Net earnings		$	14,432			$	7,272			$	50,511			$	16,169
Net earnings per share — Basic:
Net earnings from continuing operations		$	0.31			$	0.16			$	1.09			$	0.29
Net earnings from a discontinued operation			—				—				—				0.06
Net earnings per share		$	0.31			$	0.16			$	1.09			$	0.35
Net earnings per share — Diluted:
Net earnings from continuing operations		$	0.31			$	0.16			$	1.08			$	0.29
Net earnings from a discontinued operation			—				—				—				0.06
Net earnings per share		$	0.31			$	0.16			$	1.08			$	0.35
Shares used in per share calculations:
Basic			46,268				45,875				46,193				45,812
Diluted			46,865				46,445				46,749				46,164

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

		Nine Months Ended September 30,
		2010				2009*
Cash flows from operating activities:
Net earnings		$	50,511			$	16,169
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			28,515				29,074
Provision for losses on accounts receivable			546				2,795
Write-downs of inventories			4,875				5,623
Non-cash stock-based compensation			5,139				7,974
Non-cash gain from arbitrated claim, net of tax			—				(2,801	)
Excess tax benefit from employee gains on stock-based compensation			(912	)			—
Deferred income taxes			11,762				1,706
Changes in assets and liabilities:
Decrease in accounts receivable			143,709				281,677
(Increase) decrease in inventories			(32,676	)			12,836
(Increase) decrease in other current assets			(6,558	)			615
(Increase) decrease in other assets			(1,557	)			3,935
Decrease in accounts payable			(110,705	)			(215,022	)
(Decrease) increase in deferred revenue			(11,414	)			9,409
Decrease in accrued expenses and other liabilities			(43,727	)			(34,410	)
Net cash provided by operating activities			37,508				119,580
Cash flows from investing activities:
Acquisition of Calence, net of cash acquired			(5,123	)			(12,834	)
Purchases of property and equipment			(12,631	)			(11,739	)
Net cash used in investing activities			(17,754	)			(24,573	)
Cash flows from financing activities:
Borrowings on senior revolving credit facility			910,136				833,373
Repayments on senior revolving credit facility			(892,636	)			(905,873	)
Borrowings on accounts receivable securitization financing facility			45,000				165,000
Repayments on accounts receivable securitization financing facility			(45,000	)			(165,000	)
Payments on capital lease obligation			(681	)			(113	)
Net repayments under inventory financing facility			(9,952	)			(4,446	)
Payment of deferred financing fees			(490	)			(1,565	)
Proceeds from sales of common stock under employee stock plans			49				—
Excess tax benefit from employee gains on stock-based compensation			912				—
Payment of payroll taxes on stock-based compensation through shares withheld			(1,260	)			(463	)
Net cash provided by (used in) financing activities			6,078				(79,087	)
Foreign currency exchange effect on cash flows			(134	)			3,873
Increase in cash and cash equivalents			25,698				19,793
Cash and cash equivalents at beginning of period			68,066				49,175
Cash and cash equivalents at end of period		$	93,764			$	68,968

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

1. Basis of Presentation and Recently Issued Accounting Pronouncements

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 are almost entirely software and select software-related services.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2010, our results of operations for the three and nine months ended September 30, 2010 and 2009 and our cash flows for the nine months ended September 30, 2010 and 2009. The consolidated balance sheet as of December 31, 2009 was derived from the audited consolidated balance sheet at such date. The accompanying unaudited consolidated financial statements and notes have been prepared in accordance with the rules and regulations promulgated by the Securities and Exchange Commission (“SEC”) and consequently do not include all of the disclosures normally required by United States generally accepted accounting principles (“GAAP”).

The results of operations for such interim periods are not necessarily indicative of results for the full year, due in part to the seasonal nature of the business. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the related notes thereto, in our Annual Report on Form 10-K for the year ended December 31, 2009.

The preparation of consolidated financial statements in conformity with 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 net sales and expenses during the reported 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 and contingencies, valuation allowances for deferred tax assets and impairment of long-lived assets, including purchased intangibles and goodwill, if indicators of potential impairment exist.

The consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. References to “the Company,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.

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

Reclassifications

We reclassified $4,686,000 of inventories in North America at December 31, 2009 to inventories not available for sale in the accompanying balance sheet as of December 31, 2009 to conform to the presentation at September 30, 2010.

Consistent with our presentation as of December 31, 2009, included in our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2009, we reclassified certain current asset and current liability amounts as of September 30, 2009 which affected the accompanying consolidated statement of cash flows for the nine months ended September 30, 2009 to conform to the presentation for the nine months ended September 30, 2010. Such reclassifications were required to conform presentation among all of our subsidiaries. Such reclassifications had no effect on previously reported net earnings or operating cash flow amounts.

Consistent with our presentation for the year ended December 31, 2009, we revised the classification of the net increase in book overdrafts of $12,538,000 for the nine months ended September 30, 2009 from a financing activity to an operating activity in our consolidated statements of cash flows. We concluded this classification is preferable as our book overdrafts, which are not directly linked to a credit facility or other bank overdraft arrangement, do not result in an actual bank financing, but rather constitute normal unpaid trade payables at the end of a reporting period. The revision in classification had no effect on our consolidated balance sheet or reported net earnings in any period.

Recently Issued Accounting Pronouncements

There have been no material changes or additions to the recently issued accounting pronouncements as previously reported in Note 1 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2009 which affect or may affect our financial statements.

2. Net Earnings from Continuing Operations Per Share (“EPS”)

Basic EPS is computed by dividing net earnings from continuing operations available to common stockholders by the weighted average number of common shares outstanding during each period. 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. Dilutive potential common shares include outstanding stock options (using the treasury stock method) and restricted stock units. A reconciliation of the denominators of the basic and diluted EPS calculations follows (in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator:
Net earnings from continuing operations		$	14,432			$	7,272			$	50,511			$	13,368
Denominator:
Weighted average shares used to compute basic EPS			46,268				45,875				46,193				45,812
Dilutive potential common shares due to dilutive options and restricted stock units, net of tax effect			597				570				556				352
Weighted average shares used to compute diluted EPS			46,865				46,445				46,749				46,164
Net earnings from continuing operations per share:
Basic		$	0.31			$	0.16			$	1.09			$	0.29
Diluted		$	0.31			$	0.16			$	1.08			$	0.29

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

The following weighted average outstanding stock options 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):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Weighted-average outstanding stock options excluded from the diluted EPS calculation			258				1,425				383				1,851

3. Goodwill

During the nine months ended September 30, 2010, we recorded $645,000 of additional purchase price consideration and the related accrued interest thereon as a result of Calence, LLC (“Calence”), acquired April 1, 2008, achieving certain performance targets during the first quarter of 2010. The additional goodwill was recorded as part of our North America reporting unit. The final payment of $5,123,000 for additional purchase price consideration and the related accrued interest thereon was paid to the former owners of Calence on April 1, 2010.

4. Debt, Capital Lease Obligation and Inventory Financing Facility

Debt

Our long-term debt consists of the following (in thousands):

		September 30,				December 31,
		2010				2009
Senior revolving credit facility		$	164,500			$	147,000
Accounts receivable securitization financing facility			—				—
Capital lease obligation			2,862				3,224
Total			167,362				150,224
Less: current portion of obligation under capital lease			(992	)			(875	)
Less: current portion of revolving credit facilities			—				—
Long-term debt		$	166,370			$	149,349

Our senior revolving credit facility has a maximum borrowing capacity of $300,000,000 and matures April 1, 2013.

Our accounts receivable securitization financing facility (the “ABS facility”) has a maximum borrowing capacity of $150,000,000. While the ABS facility has a stated maximum amount, the actual availability under the ABS facility is limited by the quantity and quality of the underlying accounts receivable. As of September 30, 2010, availability under the ABS facility was $150,000,000.

On July 1, 2010, we entered into an amendment to the ABS facility, which amends certain provisions of the ABS facility to improve availability in the Borrowing Base, as defined in the ABS facility, but did not change the $150,000,000 maximum borrowing capacity. Specifically, the amendment (i) excludes from the Borrowing Base receivables of a specified obligor that had a negative impact on availability under the facility, (ii) creates a basket to allow up to 10% of gross receivables with terms between 60 and 90 days to be eligible for borrowing, and (iii) increases to 35% from 25% the threshold above which the total amount of a particular obligor’s receivables are treated as ineligible if the percentage of such obligor’s receivables that are more than 60 days past due exceeds such threshold. In addition, the amendment extends the maturity date of the ABS facility, which was to have expired on July 23, 2010, to April 1, 2013, and decreases the variable interest rate by approximately 80 basis points for funds provided under the ABS facility, calculated as the specified Pooled Commercial Paper Rate, as defined in the ABS facility, plus a fixed 1.45% margin (the “CP Margin”). However, beginning on June 15, 2012 (the “Reset Date”), the CP Margin may increase (but in no event exceed 1.50%) based on percentage changes in high yield spreads comparing average index rates for the calendar month prior to the Reset Date against average index rates for the corresponding calendar month in the previous year. Finally, the amendment provides that, under certain circumstances, the Company may be required to obtain a public rating of the ABS facility from one or more credit rating agencies of at least “A” or its equivalent. Failure by the Company to obtain such rating would result in an Amortization Event under the ABS facility.

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

Our consolidated debt balance that can be outstanding at the end of any fiscal quarter under our senior revolving credit facility and our 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 sum of the Company’s trailing twelve month net earnings plus (i) interest expense, less non-cash imputed interest on our inventory financing facility, (ii) income tax expense, (iii) depreciation and amortization and (iv) non-cash stock-based compensation (referred to herein as “adjusted earnings”). The maximum leverage ratio permitted under the agreements is 2.75 times trailing twelve-month adjusted earnings as of September 30, 2010 and stepped down to 2.50 times effective October 1, 2010 through April 1, 2013. As a result of this limitation, of the $450,000,000 of aggregate maximum debt capacity available under our senior revolving credit facility and our ABS facility, the Company’s debt balance that could have been outstanding as of September 30, 2010 was limited to $428,300,000 based on 2.75 times the Company’s trailing twelve-month adjusted earnings. The maximum leverage, minimum fixed charge and asset coverage ratio financial covenant requirements under the ABS facility were not modified as part of the July 1, 2010 amendment to the ABS facility.

Our financing facilities contain various covenants. If we fail to comply with these covenants, the lenders would be able to demand payment within a specified period of time. At September 30, 2010, we were in compliance with all such covenants.

Capital Lease Obligation

In July 2009, we entered into a four-year lease for certain IT equipment. Subsequently, in November 2009 and again in July 2010, we amended this lease to include additional IT equipment to be used in the same manner as the equipment covered by the initial lease. The amendment in July 2010 added $319,000 to the value of the equipment held under the capitalized lease. The obligations under the capitalized lease are included in long-term debt in our consolidated balance sheet as of September 30, 2010. The current and long-term portions of the obligation are included in the table above.

The equipment held under the capitalized lease is included in property and equipment and is amortized on a straight-line basis over the lease term. The related amortization expense is included in selling and administrative expenses in our consolidated statements of operations for the three and nine months ended September 30, 2010. As of September 30, 2010, accumulated amortization on the capital lease assets was $1,032,000.

Inventory Financing Facility

On April 26, 2010, we entered into an amendment to our inventory financing facility to increase the aggregate availability for vendor purchases under the facility from $90,000,000 to $100,000,000. On August 12, 2010, we entered into a second amendment to the facility to further increase the aggregate availability for vendor purchases under the facility from $100,000,000 to $150,000,000. As of September 30, 2010 and December 31, 2009, $84,330,000 and $94,282,000, respectively, was included in accounts payable within the consolidated balance sheets related to our inventory financing facility, which matures on April 1, 2013.

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

5. Income Taxes

Our effective tax rate for the three and nine months ended September 30, 2010 was 36.2% and 36.4%, respectively. For the three and nine months ended September 30, 2010, our effective tax rate was higher than the United States federal statutory rate of 35.0% due primarily to state income taxes, net of federal tax, partially offset by lower taxes on earnings in foreign jurisdictions.

Our effective tax rate from continuing operations for the three and nine months ended September 30, 2009 was 21.6% and 30.1%, respectively. For the three and nine months ended September 30, 2009, our effective tax rate was lower than the United States federal statutory rate of 35.0% due primarily to lower taxes on income in foreign jurisdictions, total benefits of $1,544,000 recognized during the quarter primarily related to the true-up of foreign tax credits resulting from the filing of our 2008 United States federal tax return and the recognition of certain tax benefits resulting from the settlement of audits, partially offset by state income taxes, net of federal benefit.

As of September 30, 2010 and December 31, 2009, we had $5,427,000 and $5,923,000, respectively, of unrecognized tax benefits. Of these amounts, approximately $377,000 and $330,000 relate to accrued interest as of September 30, 2010 and December 31, 2009, respectively.

Several of our subsidiaries are currently under audit for tax years 2002 through 2009. It is reasonably possible that the examination phase of these audits may conclude in the next 12 months and that the related unrecognized tax benefits for uncertain tax positions may change, potentially having a material effect on our effective tax rate. However, based on the status of the various examinations in multiple jurisdictions, an estimate of the range of reasonably possible outcomes cannot be made at this time.

6. Severance, Restructuring and Acquisition Integration Activities

Severance Costs Expensed for 2010 Resource Actions

During the three months ended September 30, 2010, North America and EMEA recorded severance expense totaling $199,000 and $120,000, respectively, and during the nine months ended September 30, 2010, North America and EMEA recorded severance expense totaling $1,142,000 and $1,029,000, respectively. During the nine months ended September 30, 2010, the North America charge was part of the roll-out of our new sales engagement model and plans to add new leadership in key areas, and the EMEA charge was associated with the severance for ten former teammates. The outstanding obligations as of September 30, 2010 of $511,000 and $504,000 for North America and EMEA, respectively, are expected to be paid within the next twelve months and are therefore included in accrued expenses and other current liabilities.

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

Severance Costs Expensed for 2009 Resource Actions

During the year ended December 31, 2009, North America, EMEA and APAC recorded severance expense related to the departure of our former President and Chief Executive Officer from the Company and ongoing restructuring efforts to reduce operating expenses. As of December 31, 2009, all severance costs recorded by APAC in connection with 2009 resource actions had been paid. The following table details the changes in these liabilities in North America and EMEA during the nine months ended September 30, 2010 (in thousands):

		North America				EMEA				Consolidated
Balance at December 31, 2009		$	38			$	1,904			$	1,942
Foreign currency translation adjustments			—				(155	)			(155	)
Adjustments			—				(414	)			(414	)
Cash payments			(38	)			(742	)			(780	)
Balance at September 30, 2010		$	—			$	593			$	593

In EMEA, adjustments of $21,000 and $414,000 were recorded as a reduction to severance and restructuring expense during the three and nine months ended September 30, 2010, respectively, and a reduction of the related severance accrual due to changes in estimates as cash payments were made. All remaining outstanding obligations are expected to be paid within the next twelve months and are therefore included in accrued expenses and other current liabilities.

Severance Costs Expensed for 2008 Resource Actions

During the year ended December 31, 2008, North America, EMEA and APAC recorded severance expense related to ongoing restructuring efforts to reduce operating expenses related to support functions. As of December 31, 2009, all severance costs recorded by APAC in connection with the 2008 resource actions had been paid. During the first quarter of 2010, final cash payments totaling $19,000 were made on the remaining accrued severance costs in North America and an adjustment of $70,000 was recorded as a reduction to severance and restructuring expense and the related severance accrual in EMEA due to changes in estimates. As of September 30, 2010, there were no outstanding severance obligations associated with the 2008 resource actions.

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 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 have been or will be terminated in connection with integration plans. The facilities based costs relate to future lease payments or lease termination costs associated with vacating certain Software Spectrum facilities in EMEA.

As of December 31, 2009, all severance costs recorded by North America in connection with the integration of Software Spectrum had been paid.

The following table details the changes in the remaining EMEA liabilities during the nine months ended September 30, 2010 (in thousands):

		EMEA
Balance at December 31, 2009		$	1,358
Foreign currency translation adjustments			(62	)
Adjustments			(106	)
Cash payments			(479	)
Balance at September 30, 2010		$	711

All remaining outstanding obligations are expected to be paid within the next twelve months and are therefore included in accrued expenses and other current liabilities. An adjustment of $106,000 was recorded as a reduction of selling and administrative expenses recorded during the three and nine months ended September 30, 2010 and the related severance accrual due to changes in estimates of the costs of the integration plan.

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

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 related leases expired in October 2009, and the remaining balance in the accrual as of January 1, 2010 of $77,000 (related to certain service charges) was settled during the three and nine months ended September 30, 2010, leaving no accrual remaining as of September 30, 2010.

7. Stock-Based Compensation

We recorded the following pre-tax amounts for stock-based compensation, by operating segment, in our consolidated financial statements (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
North America		$	1,712			$	697			$	3,901			$	5,822
EMEA			508				68				1,105				2,000
APAC			57				44				133				152
Total		$	2,277			$	809			$	5,139			$	7,974

Stock Options

For the three months ended September 30, 2010 and 2009, we recorded stock-based compensation expense related to stock options, net of an estimate of forfeitures, of $93,000 and $72,000, respectively. For the nine months ended September 30, 2010 and 2009, we recorded stock-based compensation expense related to stock options, net of an estimate of forfeitures, of $276,000 and $207,000, respectively. As of September 30, 2010, total compensation cost not yet recognized related to nonvested stock options is $79,000, which is expected to be recognized through December 2010.

The following table summarizes our stock option activity during the nine months ended September 30, 2010:

														Weighted
										Aggregate				Average
						Weighted				Intrinsic Value				Remaining
		Number				Average				(in-the-money				Contractual
		Outstanding				Exercise Price				options)				Life (in years)
Outstanding at January 1, 2010			589,424			$	18.82
Granted			—				—
Exercised			(3,500	)			14.00			$	4,676
Forfeited or expired			(332,219	)			19.57
Outstanding at September 30, 2010			253,705				17.91			$	21,932				1.84
Exercisable at September 30, 2010			187,039				17.96			$	21,932				1.71
Vested and expected to vest			253,705				17.91			$	21,932				1.84

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $15.69 as of September 30, 2010, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date.

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

The following table summarizes the status of outstanding stock options as of September 30, 2010:

		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
$13.94 – 17.06			26,499				0.39			$	15.12				26,499			$	15.12
17.77			200,000				2.21				17.77				133,334				17.77
18.36 – 27.88			27,006				0.53				21.60				27,006				21.60
29.56			150				0.08				29.56				150				29.56
31.94			50				0.10				31.94				50				31.94
			253,705				1.84				17.91				187,039				17.96

Restricted Stock

For the three months ended September 30, 2010 and 2009, we recorded stock-based compensation expense, net of an estimate of forfeitures, related to restricted stock units (“RSUs”) of $2,184,000 and $737,000, respectively. For the nine months ended September 30, 2010 and 2009, we recorded stock-based compensation expense, net of an estimate of forfeitures, related to RSUs of $4,863,000 and $7,767,000, respectively. The expense for the nine months ended September 30, 2009 includes a non-cash charge of $5,478,000 that was recognized as a result of the cancellation of certain long-term incentive awards and is discussed further in our Annual Report on Form 10-K for the year ended December 31, 2009. As of September 30, 2010, total compensation cost not yet recognized related to nonvested RSUs is $11,341,000, which is expected to be recognized over the next 1.21 years on a weighted-average basis.

The following table summarizes our RSU activity during the nine months ended September 30, 2010:

						Weighted Average
		Number				Grant Date Fair Value				Fair Value
Nonvested at January 1, 2010			1,126,797			$	5.95
Granted			1,045,569				13.18
Vested, including shares withheld to cover taxes			(405,775	)			8.76			$	5,449,943	(a)
Forfeited			(122,628	)			7.41
Nonvested at September 30, 2010			1,643,963				9.75			$	25,793,779	(b)
Expected to vest			1,569,614							$	24,627,244	(b)

During the nine months ended September 30, 2010 and 2009, the 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 obligations for the applicable income and other employment taxes and remitted the corresponding cash amount to the appropriate taxing authorities. The total shares withheld during the nine months ended September 30, 2010 and 2009 of 94,353 and 107,041, respectively, were based on the value of the RSUs on their vesting date as determined by our closing stock price on such vesting date. For the nine months ended September 30, 2010 and 2009, total payments for the employees’ tax obligations to the taxing authorities were $1,260,000 and $463,000, respectively, and are reflected as a financing activity within the consolidated statements of cash flows. These net-share settlements had the economic effect of repurchases of common stock as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent a repurchase of shares or an expense to us.

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

8. Derivative Financial Instruments

We use derivatives to partially offset our exposure to fluctuations in certain foreign currencies. We do not enter into derivatives for speculative or trading purposes. Derivatives are recorded at fair value on the balance sheet and gains or losses resulting from changes in fair value of the derivative are recorded currently in income. The Company does not designate its hedges for hedge accounting.

Non-Designated Hedges

We use foreign exchange forward contracts to hedge certain non-functional currency assets and liabilities from changes in exchange rate movements. Our non-functional currency assets and liabilities are primarily related to foreign currency denominated payables, receivables, and cash balances. The foreign currency forward contracts, carried at fair value, typically have a maturity of one month or less. We currently enter into approximately three foreign exchange forward contracts per month with an average notional value of $9,300,000 and an average maturity of approximately two weeks. Additional information on our purpose for entering into derivatives is described in “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2009.

The counterparties associated with our foreign exchange forward contracts are large credit worthy commercial banks. The derivatives transacted with these institutions are short in duration, and therefore we do not consider counterparty concentration and non-performance to be material risks.

The following table summarizes our derivative financial instruments as of September 30, 2010 and December 31, 2009 (in thousands):

						September 30, 2010								December 31, 2009
						Asset				Liability				Asset				Liability
						Derivatives				Derivatives				Derivatives				Derivatives
		Balance Sheet Location				Fair Value				Fair Value				Fair Value				Fair Value
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts		Other current assets				$	—			$	—			$	105			$	—
Foreign exchange forward contracts		Accrued expenses and other current liabilities					—				75				—				65
Total derivatives not designated as hedging instruments						$	—			$	75			$	105			$	65

The following table summarizes the effect of our derivative financial instruments on our results of operations during the three and nine months ended September 30, 2010 and 2009 (in thousands):

						Amount of (Gain) Loss Recognized in
						Earnings on Derivatives
		Location of (Gain) Loss				Three Months Ended								Nine Months Ended
Derivatives Not Designated as		Recognized in				September 30,								September 30,
Hedging Instruments		Earnings on Derivatives				2010				2009				2010				2009
Foreign exchange forward contracts		Net foreign currency exchange loss (gain)				$	314			$	467			$	(1,147	)		$	2,284
Total						$	314			$	467			$	(1,147	)		$	2,284

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

9. Fair Value Measurements

The following table summarizes the valuation of our financial instruments by the following three categories as of September 30, 2010 and December 31, 2009 (in thousands):

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.

				September 30, 2010								December 31, 2009
				Foreign				Long-lived				Foreign
				Exchange				Asset Held				Exchange
Balance Sheet Classification				Derivatives				for Sale				Derivatives
Other current assets		Level 1		$	—			$	—			$	—
		Level 2			—				1,200				105
		Level 3			—				—				—
				$	—			$	1,200			$	105
Accrued expenses and other current liabilities		Level 1		$	—			$	—			$	—
		Level 2			75				—				65
		Level 3			—				—				—
				$	75			$	—			$	65

We have elected to use the income approach to value our 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. The fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments and did not have a material impact on the fair value of these derivative instruments. Both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments. We did not have any assets or liabilities measured at Level 1 or Level 3 or implement any changes in our valuation techniques as of and for the three and nine months ended September 30, 2010.

As of September 30, 2010, other than the asset held for sale discussed below, we have no nonfinancial assets or liabilities that are measured at fair value 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 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.

In accordance with the terms of our President and CEO’s employment agreement, which was effective January 1, 2010, the Company acquired his former residence on the Gulf Coast of Florida for $2,100,000 in May 2010. The price paid was based on two independent real estate appraisals performed in late January/early February of 2010, immediately subsequent to the President and CEO’s employment. The long-lived asset held for sale is included in other current assets in the accompanying balance sheet as of September 30, 2010 based on the Company’s current disposal plans. As of September 30, 2010, the asset was written down to its fair value, less estimated costs to sell, of approximately $1,200,000, resulting in a loss of approximately $900,000, which was included in selling and administrative expenses during the nine months ended September 30, 2010 ($600,000 during the second quarter and $300,000 during the third quarter of 2010). The Company closed the sale of the former residence on October 15, 2010 for $1,300,000, less costs to sell.

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

10. Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2010 and 2009 includes the following component (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Net earnings		$	14,432			$	7,272			$	50,511			$	16,169
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			13,097				2,714				(2,066	)			11,352
Total comprehensive income		$	27,529			$	9,986			$	48,445			$	27,521

11. Commitments and Contingencies

Contractual

In the ordinary course of business, we issue performance bonds to secure our performance under certain contracts or state tax requirements. As of September 30, 2010 and December 31, 2009, we had approximately $18,514,000 and $14,116,000, 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 them.

Employment Contracts and Severance Plans

We have employment contracts with, and plans covering, 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. In addition, vesting of stock based compensation would accelerate following a change in control. If severance payments under the current employment agreements or plan payments were to become payable, the severance payments would generally range from three to twenty-four months of salary.

Guaranties

In the ordinary course of business, we may guarantee the indebtedness or performance obligations of our subsidiaries to vendors and clients. We have not recorded specific liabilities for these guaranties in our consolidated financial statements because, to the extent applicable, 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, results of operations or liquidity. Our financing agreements generally limit the amount of guarantees that may be outstanding at a point in time related to client or vendor contracts where such guarantees are considered indebtedness, as defined in the financing agreements.

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

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 clients for certain claims arising out of our performance under our sales contracts, 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.

Management believes that payments, if any, related to these indemnifications are not probable at September 30, 2010. Accordingly, we have not accrued any liabilities related to such indemnifications in our consolidated financial statements.

We have entered into separate indemnification agreements with our executive officers and with each of our directors. These agreements require us, among other requirements, to indemnify such officers and directors against expenses (including attorneys’ fees), judgments and settlements paid by such individual in connection with any action arising out of such individual’s status or service as our executive officer or director (subject to exceptions such as where the individual failed to act in good faith or in a manner the individual reasonably believed to be in or not opposed to the best interests of the Company) and to advance expenses incurred by such individual with respect to which such individual may be entitled to indemnification by us. Other than the pending purported class action litigation and the State derivative actions discussed under “Legal Proceedings” below, there are no pending legal proceedings that involve the indemnification of any of the Company’s directors or officers.

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. 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.

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.

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 reasonably estimable losses. It is possible, nevertheless, that our financial position, the results of our operations or our liquidity 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.

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

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. Two plaintiffs voluntarily dismissed their complaints, and the District Court appointed a lead plaintiff and lead counsel. The plaintiff in the remaining action filed an amended complaint in September 2009, seeking unspecified damages, and the District Court dismissed the amended complaint on April 30, 2010. On June 1, 2010, the plaintiff filed a second amended complaint, which asserts claims under the federal securities laws relating to our February 9, 2009 announcement that we expected to restate our financial statements and also includes additional allegations regarding other purported accounting and revenue recognition issues during the class period. All defendants have filed motions to dismiss the second amended complaint, briefing on the motions to dismiss has been completed and oral argument on the motion to dismiss the second amended complaint will be heard in November 2010. In June 2009, we were notified that three shareholder derivative lawsuits had been filed, two in the Superior Court in Maricopa County, Arizona (the “State derivative actions”) and one in the U.S. District Court for the District of Arizona (the “Federal derivative action”), by persons identifying themselves as Insight shareholders and purporting to act on behalf of Insight, naming Insight as a nominal defendant and current and former officers and directors as defendants. Initially, the three derivative action complaints, like the purported class action complaint, primarily arose out of our February 9, 2009 announcement. The Federal derivative action has been dismissed with prejudice, and the plaintiff in that action has appealed the order of dismissal to the U.S. Court of Appeals for the Ninth Circuit. The two State derivative actions were consolidated into a single action, and the plaintiff filed an amended complaint in the consolidated action on October 30, 2009 that alleges breaches of fiduciary duties of loyalty and good faith, breach of fiduciary duties for insider selling and misappropriation of information, and unjust enrichment. The amount of damages sought by the plaintiffs is not specified in the consolidated complaint. We moved to dismiss the State derivative actions, and oral argument on the motion to dismiss was heard in August 2010. On October 18, 2010, the State derivative actions were dismissed with prejudice. The judgment of dismissal is not yet final and may still be appealed. We have tendered a claim to our D&O liability insurance carriers, and our carriers have acknowledged their obligations under these policies subject to a reservation of rights.

In August 2010, 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 OIG”) requesting documents related to the award, by the Universal Service Administration Company, of funds under the E-Rate program. The E-Rate program provides schools and libraries with discounts to obtain affordable telecommunications and internet access. We are cooperating with the DOJ and FCC OIG and are in the process of responding to the subpoena. Pursuant to the Calence acquisition agreements, the former owners of Calence have agreed to indemnify us for certain damages that may arise out of or result from this matter, including our fees and expenses for responding to the subpoena.

Aside from the matters discussed above, the Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations or liquidity.

12. Segment 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 are almost entirely software and select software-related services. Net sales by product or service type for North America, EMEA and APAC were as follows for the three and nine months ended September 30, 2010 and 2009 (in thousands):

		North America								EMEA								APAC
		Three Months Ended								Three Months Ended								Three Months Ended
		September 30,								September 30,								September 30,
Sales Mix		2010				2009				2010				2009				2010				2009
Hardware		$	572,427			$	427,832			$	103,326			$	101,963			$	408			$	159
Software			245,563				195,971				159,854				142,978				32,142				34,601
Services			53,214				62,193				4,633				3,496				660				742
		$	871,204			$	685,996			$	267,813			$	248,437			$	33,210			$	35,502

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

		North America								EMEA								APAC
		Nine Months Ended								Nine Months Ended								Nine Months Ended
		September 30,								September 30,								September 30,
Sales Mix		2010				2009				2010				2009				2010				2009
Hardware		$	1,555,173			$	1,214,278			$	322,888			$	282,214			$	818			$	835
Software			716,528				671,843				607,978				507,771				126,506				95,655
Services			153,298				173,507				13,450				10,418				2,586				1,736
		$	2,424,999			$	2,059,628			$	944,316			$	800,403			$	129,910			$	98,226

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 three and nine months ended September 30, 2010.

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. These expenses, collectively identified as corporate charges, include senior management expenses, internal audit, legal, tax, insurance services, treasury and other corporate infrastructure expenses. Charges are allocated to our operating segments, and the allocations have been determined on a basis that we considered to be a reasonable reflection of the utilization of services provided to or benefits received by the operating segments.

The tables below present information about our reportable operating segments as of and for the three months ended September 30, 2010 and 2009 (in thousands):

		Three Months Ended September 30, 2010
		North America				EMEA				APAC				Consolidated
Net sales		$	871,204			$	267,813			$	33,210			$	1,172,227
Costs of goods sold			760,668				229,681				27,233				1,017,582
Gross profit			110,536				38,132				5,977				154,645
Operating expenses:
Selling and administrative expenses			89,012				35,808				4,691				129,511
Severance and restructuring expenses			199				99				—				298
Earnings from operations		$	21,325			$	2,225			$	1,286				24,836
Non-operating expense, net															2,216
Earnings before income taxes															22,620
Income tax expense															8,188
Net earnings														$	14,432
Total assets at period end		$	1,329,004			$	362,576			$	46,743			$	1,738,323	*

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

		Three Months Ended September 30, 2009
		North America				EMEA				APAC				Consolidated
Net sales		$	685,996			$	248,437			$	35,502			$	969,935
Costs of goods sold			592,695				213,020				30,734				836,449
Gross profit			93,301				35,417				4,768				133,486
Operating expenses:
Selling and administrative expenses			79,354				34,402				3,867				117,623
Severance and restructuring expenses			4,468				(463	)			(11	)			3,994
Earnings from operations		$	9,479			$	1,478			$	912				11,869
Non-operating expense, net															2,598
Earnings from continuing operations before income taxes															9,271
Income tax expense															1,999
Net earnings from continuing operations															7,272
Net earnings from a discontinued operation															—
Net earnings														$	7,272
Total assets at period end		$	1,271,284			$	291,942			$	38,054			$	1,601,280	**

The tables below present information about our reportable operating segments as of and for the nine months ended September 30, 2010 and 2009 (in thousands):

		Nine Months Ended September 30, 2010
		North America				EMEA				APAC				Consolidated
Net sales		$	2,424,999			$	944,316			$	129,910			$	3,499,225
Costs of goods sold			2,095,892				818,440				111,398				3,025,730
Gross profit			329,107				125,876				18,512				473,495
Operating expenses:
Selling and administrative expenses			260,241				110,698				14,113				385,052
Severance and restructuring expenses			1,142				545				—				1,687
Earnings from operations		$	67,724			$	14,633			$	4,399				86,756
Non-operating expense, net															7,330
Earnings before income taxes															79,426
Income tax expense															28,915
Net earnings														$	50,511
Total assets at period end		$	1,329,004			$	362,576			$	46,743			$	1,738,323	*

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

		Nine Months Ended September 30, 2009
		North America				EMEA				APAC				Consolidated
Net sales		$	2,059,628			$	800,403			$	98,226			$	2,958,257
Costs of goods sold			1,773,536				687,309				84,310				2,545,155
Gross profit			286,092				113,094				13,916				413,102
Operating expenses:
Selling and administrative expenses			260,441				103,122				11,268				374,831
Severance and restructuring expenses			10,327				1,854				290				12,471
Earnings from operations		$	15,324			$	8,118			$	2,358				25,800
Non-operating expense, net															6,666
Earnings from continuing operations before income taxes															19,134
Income tax expense															5,766
Net earnings from continuing operations															13,368
Net earnings from a discontinued operation															2,801
Net earnings														$	16,169
Total assets at period end		$	1,271,284			$	291,942			$	38,054			$	1,601,280	**

We recorded the following pre-tax amounts, by operating segment, for depreciation and amortization, in the accompanying consolidated financial statements (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2010				2009				2010				2009
North America		$	7,696			$	7,964			$	23,179			$	23,927
EMEA			1,613				1,683				4,809				4,724
APAC			186				150				527				423
Total		$	9,495			$	9,797			$	28,515			$	29,074