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

For the quarterly period ended: September 30, 2007

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

For the transition period from                      to                     

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)

1305 West Auto Drive, Tempe, Arizona 85284
(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 check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o

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 November 2, 2007 was 48,435,172.

 

 

INSIGHT ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q
Three Months Ended September 30, 2007

TABLE OF CONTENTS

		Page
PART I — Financial Information
Item 1 – Financial Statements:
Consolidated Balance Sheets (unaudited) - September 30, 2007 and December 31, 2006			5
Consolidated Statements of Earnings (unaudited) - Three and Nine Months Ended September 30, 2007 and 2006			6
Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2007 and 2006			7
Notes to Consolidated Financial Statements (unaudited)			8
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3 – Quantitative and Qualitative Disclosures About Market Risk			32
Item 4 – Controls and Procedures			32
PART II — Other Information
Item 1 – Legal Proceedings			33
Item 1A – Risk Factors			34
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3 – Defaults Upon Senior Securities			34
Item 4 – Submission of Matters to a Vote of Security Holders			34
Item 5 – Other Information			35
Item 6 – Exhibits			35
Signatures			36
Certifications			37
EX-10.1
EX-31.1
EX-31.2
EX-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, earnings from discontinued operations, net earnings or cash flows, the payment of accrued expenses and liabilities and costs or gains that may result from post-closing adjustments pertaining to business acquisitions; effects of acquisitions or dispositions; projections of capital expenditures and growth; hiring plans; 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; 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. 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, which are discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K/A for the year ended December 31, 2006:

	•		changes in the information technology industry and/or the economic environment;
	•		our reliance on suppliers for product availability, marketing funds, purchasing incentives and competitive products to sell;
	•		disruptions in our information technology and voice and data networks, including migration of Software Spectrum to our information technology and voice and data networks;
	•		the integration and operation of Software Spectrum, including our ability to achieve the expected benefits of the acquisition;
	•		actions of our competitors, including manufacturers and publishers of products we sell;
	•		the informal inquiry from the Securities and Exchange Commission (“SEC”) and the fact that we could be subject to stockholder litigation related to our historical stock option granting practices and the related restatement of our consolidated financial statements;
	•		securities laws and regulations, including potential risk resulting from our evaluation of internal controls under the Sarbanes-Oxley Act of 2002;
	•		the risks associated with international operations;
	•		sales of software licenses are subject to seasonal changes in demand;
	•		increased debt and interest expense and lower availability on our financing facilities;
	•		increased exposure to currency exchange risks;
	•		our dependence on key personnel;
	•		risk that purchased goodwill or amortizable intangible assets become impaired;
	•		our failure to comply with the terms and conditions of our public sector contracts;
	•		risks associated with our very limited experience in outsourcing business functions to India;
	•		rapid changes in product standards; and
	•		intellectual property infringement claims.

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

     In addition, these forward-looking statements include statements regarding the informal inquiry commenced by the SEC and a stockholder’s demand to inspect our books and records pursuant to Section 220 of

INSIGHT ENTERPRISES, INC.

the Delaware General Corporation Law. There can be no assurances that forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. Important factors that could cause actual results to differ materially include: adjustments to the consolidated financial statements that may be required related to the SEC informal inquiry; and risks of litigation and governmental or other regulatory inquiries or proceedings arising out of or related to the Company’s historical stock option granting practices. Therefore, 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

INSIGHT ENTERPRISES, INC.

		September 30,				December 31,
		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	53,086			$	54,697
Accounts receivable, net of allowances for doubtful accounts of $22,884 and $23,211, respectively			814,444				994,892
Inventories			102,232				97,751
Inventories not available for sale			17,414				31,112
Deferred income taxes			19,550				20,770
Other current assets			20,508				32,359
Total current assets			1,027,234				1,231,581
Property and equipment, net of accumulated depreciation of $102,786 and $91,589, respectively			156,893				145,778
Goodwill			305,006				296,781
Intangible assets, net of accumulated amortization of $11,757 and $3,811, respectively			82,276				86,929
Deferred income taxes			396				927
Other long-term assets			18,832				18,269
		$	1,590,637			$	1,780,265
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	477,322			$	611,367
Accrued expenses and other current liabilities			93,385				136,401
Current portion of long-term debt			15,000				15,000
Deferred revenue			25,697				40,728
Line of credit			—				15,000
Total current liabilities			611,404				818,496
Long-term debt			152,000				224,250
Long-term deferred income taxes			26,121				25,517
Other long-term liabilities			28,911				21,652
			818,436				1,089,915
Commitments and contingencies (Note 9)
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; 49,503 shares at September 30, 2007 and 48,868 shares at December 31, 2006 issued and outstanding			495				489
Additional paid-in capital			391,571				363,308
Retained earnings			335,219				297,664
Accumulated other comprehensive income – foreign currency translation adjustment			44,916				28,889
Total stockholders’ equity			772,201				690,350
		$	1,590,637			$	1,780,265

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales		$	1,109,705			$	857,919			$	3,517,129			$	2,371,089
Costs of goods sold			959,859				744,590				3,029,295				2,058,508
Gross profit			149,846				113,329				487,834				312,581
Selling and administrative expenses			130,820				88,211				398,902				243,850
Severance and restructuring expenses			—				729				2,841				729
Earnings from operations			19,026				24,389				86,091				68,002
Non-operating (income) expense:
Interest income			(1,509	)			(1,650	)			(5,803	)			(3,658	)
Interest expense			3,937				1,264				14,463				2,333
Net foreign currency exchange loss (gain)			849				(214	)			(2,807	)			(190	)
Other expense, net			428				422				1,141				742
Earnings from continuing operations before income taxes			15,321				24,567				79,097				68,775
Income tax expense			6,225				7,857				30,896				23,454
Net earnings from continuing operations			9,096				16,710				48,201				45,321
Net earnings from discontinued operations, net of taxes of $0, $350, $111 and $2,174			—				530				171				3,486
Gain on sale of discontinued operations, net of taxes of $0, $0, $3,135 and $5,978			—				—				4,801				9,144
Net earnings from discontinued operations			—				530				4,972				12,630
Net earnings		$	9,096			$	17,240			$	53,173			$	57,951
Net earnings per share — Basic:
Net earnings from continuing operations		$	0.18			$	0.35			$	0.98			$	0.94
Net earnings from discontinued operations			—				0.01				0.10				0.26
Net earnings per share		$	0.18			$	0.36			$	1.08			$	1.20
Net earnings per share — Diluted:
Net earnings from continuing operations		$	0.18			$	0.34			$	0.97			$	0.94
Net earnings from discontinued operations			—				0.01				0.10				0.26
Net earnings per share		$	0.18			$	0.35			$	1.07			$	1.20
Shares used in per share calculations:
Basic			49,530				48,411				49,213				48,230
Diluted			50,711				48,658				49,801				48,375

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

		Nine Months Ended September 30,
		2007				2006
Cash flows from operating activities:
Net earnings from continuing operations		$	48,201			$	45,321
Plus: net earnings from discontinued operations			4,972				12,630
Net earnings			53,173				57,951
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			25,960				14,819
Provision for losses on accounts receivable			1,725				2,101
Write-downs of inventories			5,744				6,892
Non-cash stock-based compensation			8,927				10,101
Gain on sale of discontinued operations			(7,937	)			(15,122	)
Excess tax benefit from employee gains on stock-based compensation			(445	)			(1,035	)
Deferred income taxes			2,355				22,035
Changes in assets and liabilities:
Decrease (increase) in accounts receivable			186,033				(10,538	)
(Increase) decrease in inventories			(2,509	)			25,399
Decrease (increase) in other current assets			12,704				(16,627	)
Increase in other assets			(1,944	)			(20,953	)
(Decrease) increase in accounts payable			(142,794	)			20,885
Decrease in inventories financing facility			—				(11,819	)
Decrease in deferred revenue			(15,175	)			(3,193	)
(Decrease) increase in accrued expenses and other liabilities			(26,788	)			24,762
Net cash provided by operating activities			99,029				105,658
Cash flows from investing activities:
Proceeds from sale of discontinued operations			28,631				46,500
Acquisition of Software Spectrum, net of cash acquired			—				(323,009	)
Purchases of property and equipment			(27,611	)			(26,383	)
Net cash provided by (used in) investing activities			1,020				(302,892	)
Cash flows from financing activities:
Repayments on short-term financing facility			—				(45,000	)
Borrowings on long-term financing facility			540,000				202,000
Repayments on long-term financing facility			(601,000	)			(20,000	)
Borrowings on term loan			—				75,000
Repayments on term loan			(11,250	)			—
Net (repayments) borrowings on line of credit			(15,000	)			691
Excess tax benefit from employee gains on stock-based compensation			445				1,035
Proceeds from sales of common stock under employee stock plans			24,342				14,140
Repurchase of common stock			(22,336	)			—
Decrease in book overdrafts			(23,856	)			—
Net cash (used in) provided by financing activities			(108,655	)			227,866
Cash flows from discontinued operations:
Net cash used in operating activities			—				(8,885	)
Net cash provided by investing activities			—				11,710
Net cash used in financing activities			—				(2,696	)
Net cash provided by discontinued operations			—				129
Foreign currency exchange effect on cash flow			6,995				5,165
(Decrease) increase in cash and cash equivalents			(1,611	)			35,926
Cash and cash equivalents at beginning of period			54,697				35,145
Cash and cash equivalents at end of period		$	53,086			$	71,071

See accompanying notes to consolidated financial statements.

INSIGHT ENTERPRISES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and Recently Issued Accounting Pronouncements

     We are a leading provider of brand-name information technology (“IT”) hardware, software and services to large enterprises, small-to medium-sized businesses and public sector institutions in North America, Europe, the Middle East, Africa and Asia-Pacific. We operate in three reportable geographic operating segments: North America; EMEA (Europe, the Middle East and Africa); and APAC (Asia-Pacific). Currently, our offerings in North America and the United Kingdom include brand-name 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.

     The accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2007, our results of operations for the three and nine months ended September 30, 2007 and 2006 and our cash flows for the nine months ended September 30, 2007 and 2006. The consolidated balance sheet as of December 31, 2006 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/A for the year ended December 31, 2006.

     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.

     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,” “we,” “us,” “our” and other similar words refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context suggests otherwise.

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/A for the year ended December 31, 2006 which affect the Company’s financial statements.

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

2. Earnings 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 quarter. Diluted EPS includes the effect of stock options assumed to be exercised and restricted stock using the treasury stock method. A reconciliation of the denominators of the basic and diluted EPS calculations is as follows (in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Numerator:
Net earnings from continuing operations		$	9,096			$	16,710			$	48,201			$	45,321
Denominator:
Weighted-average shares used to compute basic EPS			49,530				48,411				49,213				48,230
Dilutive potential common shares due to dilutive options and restricted stock, net of tax effect			1,181				247				588				145
Weighted-average shares used to compute diluted EPS			50,711				48,658				49,801				48,375
Net earnings from continuing operations per share:
Basic		$	0.18			$	0.35			$	0.98			$	0.94
Diluted		$	0.18			$	0.34			$	0.97			$	0.94

     The following weighted-average outstanding stock options during the three and nine months ended September 30, 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):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Weighted-average outstanding stock options excluded from the diluted EPS calculation			82				4,794				1,365				4,345

3. Goodwill

     The changes in the carrying amount of goodwill for the nine months ended September 30, 2007 are as follows (in thousands):

		North America				EMEA				APAC				Consolidated
Balance at December 31, 2006		$	217,469			$	62,714			$	16,598			$	296,781
Adjustments			2,298				4,392				1,535				8,225
Balance at September 30, 2007		$	219,767			$	67,106			$	18,133			$	305,006

     Goodwill represents the excess of the purchase price over the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed from previous acquisitions. In accordance with current accounting standards, goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year, or more frequently if indicators of potential impairment exist. The adjustments to goodwill primarily consist of foreign currency translation adjustments.

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

4. Debt

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

		September 30,				December 31,
		2007				2006
Term loan		$	60,000			$	71,250
Accounts receivable securitization financing facility			107,000				168,000
Total			167,000				239,250
Less: current portion of term loan			(15,000	)			(15,000	)
Long-term debt		$	152,000			$	224,250

     Our financing facilities contain various covenants, including the requirement that we comply with leverage and minimum fixed charge ratios. If we fail to comply with these covenants, the lenders would be able to demand payment within a specified period of time. We are in compliance with all of our covenants at September 30, 2007.

5. Income Taxes

             

     Our effective tax rates from continuing operations for the three months ended September 30, 2007 and 2006 were 40.6% and 32.0%, respectively.  For the three months ended September 30, 2007, 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, as well as non-deductible expenses related to executive compensation.  For the three months ended September 30, 2006, the effective tax rate was less than the United States federal statutory rate because increases due primarily to state income taxes, net of federal tax, were more than offset by the reversal of accrued income taxes resulting from the determination that a reserve previously recorded for potential tax exposures was no longer necessary.

     Our effective tax rates from continuing operations for the nine months ended September 30, 2007 and 2006 were 39.1% and 34.1%, respectively.  For the nine months ended September 30, 2007, 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, as well as non-deductible expenses related to executive compensation.  For the nine months ended September 30, 2006, our effective tax rate was lower than the United States federal statutory rate of 35.0% due primarily to state income taxes, net of federal tax, which was more than offset by a decrease in tax reserves in the first quarter of 2006 due to the closing of an audit, a tax benefit recorded in the second quarter of 2006 for internal initiatives that reduced certain state income taxes, and the reversal of accrued income taxes in the third quarter of 2006 resulting from the determination that a reserve previously recorded for potential tax exposures was no longer necessary.

     Current deferred income tax assets, long-term deferred income tax assets and long-term deferred income tax liabilities as of December 31, 2006 were increased by $5.2 million, $0.9 million and $6.1 million, respectively, as compared to amounts reported in our audited consolidated balance sheet as of December 31, 2006. Such reclassification of deferred tax assets has no effect on previously reported income tax expense amounts.

     Financial Accounting Standards Board (“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 reclassified certain unrecognized tax benefits on our balance sheet from current assets to non-current assets.

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

       As of January 1, 2007 (the date we adopted FIN 48) and September 30, 2007, the Company had approximately $10,300,000 and $13,300,000, respectively, of unrecognized tax benefits.  Of these amounts, approximately $1,500,000 and $2,400,000, respectively, relate to accrued interest.     

     Our policy to classify interest and penalties relating to uncertain tax positions as a component of income tax expense in our consolidated statement of earnings did not change as a result of implementing the provisions of FIN 48.

     As of January 1, 2007, if recognized, $1,100,000 of the liability associated with uncertain tax positions would affect the Company’s effective tax rate.  The remaining $9,200,000 balance arose from business combinations that, if recognized, ultimately would be recorded as an adjustment to goodwill or a receivable with no effect on the Company’s effective tax rate. 

     Several of our subsidiaries, including most U.S. subsidiaries, are currently under audit for various tax years between 2002 and 2005.  It is reasonably possible that the examination phase of some of these audits may conclude in the next 12 months and that the related unrecognized tax benefits for certain tax positions will significantly 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 and 2005 are currently under examination. Any subsequent years 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 10 years. 

6. Restructuring and Acquisition Integration Activities

Acquisition-Related Cost Capitalized as a Cost of Acquisition of Software Spectrum

     During the year ended December 31, 2006, we recorded $9,738,000 of employee termination costs and $1,676,000 of facility based costs in connection with our integration of Software Spectrum, of which $10,525,000 was still accrued at December 31, 2006. 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 have been 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 purchase price to acquire Software Spectrum.

     The employee termination costs 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 Software Spectrum facilities in EMEA.

     The following table details the changes in these liabilities during the nine months ended September 30, 2007 (in thousands):

		North America				EMEA				Consolidated
Balance at December 31, 2006		$	997			$	9,528			$	10,525
Foreign currency translation adjustments			—				506				506
Cash payments			(394	)			(4,760	)			(5,154	)
Balance at September 30, 2007		$	603			$	5,274			$	5,877

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

Severance and restructuring activities expensed in 2005

     During the year ended December 31, 2005, our EMEA operations moved into a new facility in the United Kingdom and recorded restructuring costs of $7,458,000, of which $6,447,000 represented the present value of the remaining lease obligations on the previous lease and $1,011,000 represented duplicate rent expense for the new facility for the last half of 2005. At December 31, 2006, the balance of these restructuring accruals was $6,468,000. During the nine months ended September 30, 2007, adjustments of $157,000 and $158,000 were recorded to reflect the accretion of interest for the present value of the remaining lease obligations and fluctuations in the British pound sterling exchange rates, respectively. Cash payments of $3,543,000 were made during the nine months ended September 30, 2007, resulting in an accrual balance of $3,240,000 at September 30, 2007. In the accompanying consolidated balance sheet at September 30, 2007, all amounts are expected to be paid within the next year and are included in accrued expenses and other current liabilities.

7. Stock-Based Compensation

     On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (“SFAS No. 123R”), which requires stock-based compensation to be measured based on the 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 Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB No. 107”), relating to SFAS No. 123R. We have applied the provisions of SAB No. 107 in our adoption of SFAS No. 123R. Prior to January 1, 2006, we issued stock options and restricted stock shares. After January 1, 2006, we have elected to issue service-based and performance-based restricted stock units (“RSUs”) instead of stock options and restricted stock shares.

     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,
		2007				2006				2007				2006
North America		$	2,889			$	2,567			$	7,754			$	8,253
EMEA			612				263				1,456				831
APAC			45				—				83				—
Total Continuing Operations		$	3,546			$	2,830			$	9,293			$	9,084
Discontinued Operations		$	—			$	—			$	—			$	1,017

Accounting for Stock Options After SFAS No. 123R Implementation 
 

     There were no stock options granted during the three months ended September 30, 2007 or 2006, and we do not currently plan to grant any stock options in 2007. The current expense for all outstanding stock options granted prior to January 1, 2006, net of estimated forfeitures, has been recognized in our consolidated statements of earnings for the three and nine months ended September 30, 2007 and 2006. Forfeitures were estimated and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

     For the three months ended September 30, 2007 and 2006, we recorded in continuing operations stock-based compensation expense related to stock options, net of forfeitures, of $1,024,000 and $1,867,000, respectively. For the nine months ended September 30, 2007 and 2006, we recorded in continuing operations stock-based compensation expense related to stock options, net of forfeitures, of $3,065,000 and $6,494,000, respectively. Included in these amounts for the three and nine months ended September 30, 2007 is $281,000 and $366,000, respectively, 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 of September 30, 2007, total

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

compensation cost related to nonvested stock options not yet recognized is $1,098,000, which is expected to be recognized over the next 0.37 years on a weighted-average basis.

     We used the criteria in SFAS No. 123R to calculate and establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation and to determine the subsequent effect on the APIC pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that were outstanding upon adoption of SFAS No. 123R.

     The following table summarizes our stock option activity during the three months ended September 30, 2007:

														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 period			4,814,327			$	19.18
Granted			—			$	—
Exercised			(1,245,782	)		$	18.82			$	6,063,187
Expired			(33,992	)		$	13.18
Forfeited			(8,665	)		$	19.88
Outstanding at the end of period			3,525,888			$	19.37			$	22,995,110				2.14
Exercisable at the end of period			2,617,956			$	19.38			$	17,121,804				2.12
Vested and expected to vest			3,497,853			$	19.37			$	22,806,761				0.09

     The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $25.81 as of September 30, 2007, which would have been received by the option holders had all option holders exercised options and sold the underlying shares on that date.

     The following table summarizes the status of outstanding stock options as of September 30, 2007:

		Options Outstanding												Options Exercisable
						Weighted Average
Range of						Remaining				Weighted Average								Weighted Average
Exercise		Number of Options				Contractual Life				Exercise Price Per				Number of Options				Exercise Price Per
Prices		Outstanding				(in years)				Share				Exercisable				Share
$6.95 – 18.35			707,023				2.21			$	15.20				635,870			$	15.22
18.36 – 19.35			890,834				2.29			$	18.73				551,578			$	18.76
19.50 – 19.90			733,355				2.27			$	19.84				499,023			$	19.84
19.92 – 21.25			743,863				1.67			$	20.92				480,672			$	20.92
21.30 – 41.00			450,813				2.34			$	23.83				450,813			$	23.83
			3,525,888				2.14			$	19.37				2,617,956			$	19.38

Accounting for Restricted Stock

     We have issued shares of restricted common stock and RSUs as incentives to certain officers and teammates and plan to do so in the future. We recognize compensation expense associated with the issuance of such shares and RSUs over the vesting period for each respective share and RSU. 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 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

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

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 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 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 three months ended September 30, 2007 and 2006, we recorded in continuing operations stock-based compensation expense, net of forfeitures, related to restricted stock shares and RSUs of $2,522,000 and $963,000, respectively. For the nine months ended September 30, 2007 and 2006, we recorded in continuing operations stock-based compensation expense, net of forfeitures, related to restricted stock shares and RSUs of $6,228,000 and $2,590,000, respectively. As of September 30, 2007, total compensation cost related to nonvested restricted stock shares and RSUs not yet recognized is $8,354,000, which is expected to be recognized over the next 0.83 years on a weighted-average basis.

     The following table summarizes our restricted stock activity, including restricted stock shares and RSUs, during the three months ended September 30, 2007:

						Weighted Average
						Grant Date Fair
		Number				Value				Fair Value
Nonvested at the beginning of period			1,353,770			$	20.72
Granted			—			$	—
Vested			(43,199	)		$	20.69			$	1,029,864	(a)
Forfeited			(37,987	)		$	20.73
Nonvested at the end of period			1,272,584			$	20.72			$	32,845,393	(b)
Expected to vest			1,150,113							$	29,684,416	(b)

8. Share Repurchase Program

     On January 26, 2006, we announced that our Board of Directors had authorized the purchase of up to $50,000,000 of our common stock. During the three months ended September 30, 2007, we purchased in open market transactions 887,000 shares of our common stock at a total cost of $22,336,026 (an average price of $25.18 per share). All shares repurchased as of September 30, 2007 have been retired. Subsequent to September 30, 2007, we repurchased the remainder of the $50.0 million of common stock authorized under the program. The total repurchase represented approximately 1.96 million shares at an average price of $25.57 per share.

9. 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 $9,650,000 through 2013 for sponsorship arrangements, ticket purchases and miscellaneous expenses.

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

     We have committed to pay the Arizona Cardinals an aggregate amount of approximately $9,900,000 through February 2014 for advertising and marketing events at the University of Phoenix stadium, the home of the Arizona Cardinals.

     In July 2007, we signed a Statement of Work with Wipro Limited (“Wipro”) to assist us in integrating our hardware, services and software distribution operations in U.S., Canada, EMEA and APAC on mySAP. We have committed to pay Wipro an aggregate amount of approximately $17,350,000 based on certain milestones in 2007 through 2009, as set forth in the Statement of Work.

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 be equal to either one or two times the teammates’ annual salary and bonus. Additionally, we would record additional compensation expense for the acceleration of the vesting of any stock-based compensation.

     On May 2, 2007, we announced the retirement of Stanley Laybourne, the Company’s chief financial officer, secretary and treasurer and a member of our Board of Directors. In connection with his retirement, we have agreed to provide him payments and benefits consistent with those required for termination without cause under his existing employment agreement. Accordingly, we expect to pay him a lump sum severance payment equal to two times his base salary plus two times his 2006 bonus. The total severance amount related to this retirement is estimated to be approximately $2,842,000, including non-cash stock-based compensation expense for a 90-day extension of the post termination exercise period for stock options, all of which was recorded as severance expense during the nine months ended September 30, 2007.

Guaranties

     In the ordinary course of business, we may guarantee the indebtedness of our subsidiaries to vendors and clients. We have not recorded specific liabilities for these guaranties in the consolidated financial statements because we have recorded the underlying liabilities associated with the guaranties. In the event we are required to perform under the related contracts, we believe the cost of such performance would not have a material adverse effect on our consolidated financial position or results of operations.

Indemnifications

     In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify either our client or a third-party service provider in the arrangement 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, our indemnification of our officers and directors to the maximum extent under the laws of the State of Delaware, the indemnification of our lessors 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, 2007 and, if incurred, would be immaterial. Accordingly, we have not accrued any liabilities related to such indemnifications in our consolidated interim financial statements.

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

     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 related to these indemnifications, if any, are not probable at September 30, 2007 and, if incurred, would not be material.

     The sale agreement for our sale of PC Wholesale in March 2007 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 related to these indemnifications, if any, are not probable at September 30, 2007 and, if incurred, would not be material.

Legal Proceedings

     We are party to various legal proceedings arising in the ordinary course of business, including asserted preference payment claims in client bankruptcy proceedings, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights and claims of alleged non-compliance with contract provisions.

     In accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS No. 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.

     In October 2006, we received a letter of informal inquiry from the SEC requesting certain documents relating to our stock option grants and practices. We have cooperated with the SEC and will continue to do so. We cannot predict the outcome of this inquiry.

     In June 2006, our subsidiary, Software Spectrum, Inc., was named as a defendant in a civil lawsuit, Allocco v. Gardner (Superior Court, County of San Diego), regarding certain software resale transactions with Peregrine Systems, Inc. (“Peregrine”). The subsidiary was named as successor to Corporate Software & Technology, Inc. (“CS&T”), and the complaint alleges that during October 2000 CS&T participated in or aided and abetted a fraudulent scheme by Peregrine to inflate Peregrine’s stock price. Pursuant to the terms of the agreement by which we acquired Software Spectrum, Inc. from Level 3 Communications, Inc. (“Level 3”, the former corporate parent of Software Spectrum, Inc.), Level 3 has agreed to indemnify, defend and hold us harmless for this matter. The discovery process is on-going, and the defendant strongly disputes any allegations of participation in fraudulent behavior. On our behalf, Level 3 is vigorously defending this matter.

     Software Spectrum, Inc., also as successor to CS&T, is party to litigation brought in the Belgian courts regarding a dispute over the terms of a tender awarded by the Belgian Ministry of Defence (“MOD”) in November 2000. In February 2001, CS&T brought a breach of contract suit against MOD in the Court of First Instance in Brussels and claimed breach of contract damages in the amount of approximately $150,000. MOD counterclaimed against CS&T for cost to cover in the amount of approximately $2,700,000, and, in July 2002, CS&T added a Belgian subsidiary of Microsoft as a defendant. We believe that MOD’s counterclaims are unfounded, and we are vigorously defending the claim.

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

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 No. 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.

10. 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 transaction generated proceeds of $28.7 million, including net assets sold that are subject to certain post-closing adjustments. We expect to have resolution of the post-closing adjustments by the end of 2007, which may result in additional gain recorded on the sale. 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 growth strategy.

     In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), we have accounted for PC Wholesale as a discontinued operation, and we have reported the results of operations of PC Wholesale as a discontinued operation in the consolidated statements of earnings for all periods presented. We did not allocate interest, general corporate overhead expense or non-specific vendor funding to the discontinued operation. PC Wholesale’s accounts receivable and inventory was approximately $15.0 million and $6.0 million, respectively, at December 31, 2006. Other assets and liabilities of PC Wholesale included in the consolidated balance sheets as of December 31, 2006 were not material.

     The following amounts for the three and nine months ended September 30, 2007 and 2006, respectively, represent PC Wholesale’s results of operations. The following amounts have been segregated from continuing operations and reflected as a discontinued operation (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales		$	—			$	60,673			$	30,142			$	173,510
Costs of goods sold			—				58,451				29,092				167,235
Gross profit			—				2,222				1,050				6,275
Selling and administrative expenses			—				1,342				768				3,966
Earnings from discontinued operation before income taxes			—				880				282				2,309
Income tax expense			—				350				111				916
Net earnings from discontinued operation		$	—			$	530			$	171			$	1,393

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. The purchase price did not include real estate and intercompany receivables, which had an estimated fair value of $49,400,000 (book value of $43,237,000) and were distributed to us immediately prior to closing. 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

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

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. 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 No. 144, we have reported the results of operations of Direct Alliance as a discontinued operation in the consolidated statements of earnings for all periods presented. We did not allocate interest or general corporate overhead expense to the discontinued operation.

11. 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 brand-name 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.

     Statement of Financial Accounting Standards No. 131, “Disclosure About Segments of an Enterprise and Related Information,” (“SFAS No. 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 No. 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 three and nine months ended September 30, 2007.

     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, 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.

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

     The tables below present information about our reportable operating segments as of and for the three and nine months ended September 30, 2007 and 2006 (in thousands):

		Three Months Ended September 30, 2007
		North America				EMEA				APAC				Consolidated
Net sales		$	817,747			$	264,679			$	27,279			$	1,109,705
Costs of goods sold			708,729				228,965				22,165				959,859
Gross profit			109,018				35,714				5,114				149,846
Operating expenses:
Selling and administrative expenses			93,742				33,165				3,913				130,820
Earnings from operations		$	15,276			$	2,549			$	1,201			$	19,026
Non-operating expense, net															3,705
Earnings from continuing operations before income taxes															15,321
Income tax expense															6,225
Net earnings from continuing operations															9,096
Net earnings from discontinued operations															—
Net earnings														$	9,096
Total assets		$	2,198,755			$	393,211			$	39,393			$	1,590,637	*

		Three Months Ended September 30, 2006
		North America				EMEA				APAC				Consolidated
Net sales		$	694,284			$	157,115			$	6,520			$	857,919
Costs of goods sold			603,360				135,702				5,528				744,590
Gross profit			90,924				21,413				992				113,329
Operating expenses:
Selling and administrative expenses			70,023				17,481				707				88,211
Severance and restructuring expenses			508				221				—				729
Earnings from operations		$	20,393			$	3,711			$	285				24,389
Non-operating income, net															(178	)
Earnings from continuing operations before income taxes															24,567
Income tax expense															7,857
Net earnings from continuing operations															16,710
Net earnings from discontinued operations															530
Net earnings														$	17,240
Total assets		$	1,909,860			$	327,299			$	32,466			$	1,536,585	*

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

		Nine Months Ended September 30, 2007
		North America				EMEA				APAC				Consolidated
Net sales		$	2,518,847			$	923,958			$	74,324			$	3,517,129
Costs of goods sold			2,163,724				804,733				60,838				3,029,295
Gross profit			355,123				119,225				13,486				487,834
Operating expenses:
Selling and administrative expenses			289,605				98,646				10,651				398,902
Severance and restructuring expenses			2,841				—				—				2,841
Earnings from operations		$	62,677			$	20,579			$	2,835				86,091
Non-operating expense, net															6,994
Earnings from continuing operations before income taxes															79,097
Income tax expense															30,896
Net earnings from continuing operations															48,201
Net earnings from discontinued operations															4,972
Net earnings														$	53,173
Total assets		$	2,198,755			$	393,211			$	39,393			$	1,590,637	*

		Nine Months Ended September 30, 2006
		North America				EMEA				APAC				Consolidated
Net sales		$	1,972,186			$	392,383			$	6,520			$	2,371,089
Costs of goods sold			1,717,031				335,949				5,528				2,058,508
Gross profit			255,155				56,434				992				312,581
Operating expenses:
Selling and administrative expenses			197,105				46,038				707				243,850
Severance and restructuring expenses			508				221				—				729
Earnings from operations		$	57,542			$	10,175			$	285				68,002
Non-operating income, net															(773	)
Earnings from continuing operations before income taxes															68,775
Income tax expense															23,454
Net earnings from continuing operations															45,321
Net earnings from discontinued operations															12,630
Net earnings														$	57,951
Total assets		$	1,909,860			$	327,299			$	32,466			$	1,536,585	*

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q.

Quarterly Overview

     We are a leading provider of brand-name information technology (“IT”) hardware, software and services to large enterprises, small-to medium-sized businesses (“SMB”) and public sector institutions in North America, EMEA (Europe, the Middle East and Africa) and APAC (Asia-Pacific).

     Currently, our offerings in North America and the United Kingdom include brand name IT hardware, software and services. Our offerings in the remainder of our EMEA segment and in APAC currently only include software and select software-related services.

     Net sales for the three months ended September 30, 2007 increased 29% to $1.11 billion from $857.9 million for the three months ended September 30, 2006, due primarily to an increase in software sales attributable to the acquisition of Software Spectrum. Net earnings for the three months ended September 30, 2007 decreased 47% to $9.1 million from $17.2 million for the three months ended September 30, 2006, and diluted earnings per share decreased to $0.18 for the three months ended September 30, 2007 from $0.35 for the three months ended September 30, 2006. Net earnings and diluted earnings per share for the three months ended September 30, 2007 include expenses of $2.5 million, $1.5 million net of tax, for professional fees associated with our stock option review (for further discussion see Note 2 to our Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K/A for the year ended December 31, 2006). Net earnings and diluted earnings per share for the three months ended September 30, 2006 include severance and restructuring expenses of $729,000, $454,000 net of tax, associated with the elimination of Insight positions as part of our integration and expense reduction plans.

     Net sales for the nine months ended September 30, 2007 increased 48% to $3.52 billion from $2.37 billion for the nine months ended September 30, 2006, due primarily to an increase in software sales attributable to the acquisition of Software Spectrum. Net earnings for the nine months ended September 30, 2007 decreased 8% to $53.2 million from $58.0 million for the nine months ended September 30, 2006 and diluted earnings per share decreased to $1.07 for the nine months ended September 30, 2007 from $1.20 for the nine months ended September 30, 2006. Net earnings and diluted earnings per share for the nine months ended September 30, 2007 include the following items:

	•		gain on sale of a discontinued operation of $7.9 million, $4.8 million net of tax;
	•		expenses of $12.5 million, $7.6 million net of tax, for professional fees associated with our stock option review; and
	•		$2.8 million, $1.7 million net of tax, for severance expense.

     Net earnings and diluted earnings per share for the nine months ended September 30, 2006 include the gain on the sale of a discontinued operation of $15.1 million, $9.1 million net of tax, and severance and restructuring expenses of $729,000, $454,000 net of tax, associated with the elimination of Insight positions as part of our integration and expense reduction plans.

     Overviews of each of our operating segments are discussed below and reconciliations of segment results of operations to consolidated results of operations can be found in Note 11 to our Consolidated Financial Statements provided in Item 1 of this report.

     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

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

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.

     Our North America net sales increased 18% from $694.3 million in the three months ended September 30, 2006 to $817.7 million in the three months ended September 30, 2007, due primarily to an increase in software sales attributable to the acquisition of Software Spectrum. We experienced a significant, but seasonal, decline in our software sales during the three months ended September 30, 2007 as compared to the three months ended June 30, 2007. Year-over-year software growth was 64%, due primarily to the acquisition of Software Spectrum, and we grew hardware sales by 5% and services sales by 42% over the prior year. Also included in our North America segment results was $2.5 million, $1.5 million net of tax, of professional fees associated with our stock option review. Overall, North America earnings from operations decreased 25% from $20.4 million for the three months ended September 30, 2006 to $15.3 million for the three months ended September 30, 2007.

     Our EMEA operations recognized net sales that were up from $157.1 million in the three months ended September 30, 2006 to $264.7 million in the three months ended September 30, 2007, due primarily to the acquisition of Software Spectrum. EMEA was also affected by the significant, but seasonal, decline in software sales during the three months ended September 30, 2007 as compared to the three months ended June 30, 2007 but posted strong results across the hardware and services categories. Within EMEA, during the three months ended September 30, 2007, our software category grew 183%, due primarily to the acquisition of Software Spectrum, hardware sales grew 16%, and services grew 226% over the prior year. Overall EMEA earnings from operations decreased 31% from $3.7 million for the three months ended September 30, 2006 to $2.5 million for the three months ended September 30, 2007.

     Our APAC segment continues to perform very well and contributed net sales of $27.3 million, gross profit of $5.1 million and earnings from operations of $1.2 million for the three months ended September 30, 2007. Although this operating segment, which was added as a result of the acquisition of Software Spectrum in September 2006, represents a small percentage of our consolidated results, we continue to be excited about the growth opportunities this region brings.

     Software Spectrum’s results of operations are included in our consolidated results of operations after the close of the acquisition on September 7, 2006. In the last 23 days of September 2006, Software Spectrum contributed $97.7 million in net sales and $2.4 million in earnings from operations to our consolidated results.

Critical Accounting Estimates

General

     Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales, costs of goods sold 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. Members of our senior management have discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results, however, may differ from estimates we have made.

     In addition to the items disclosed as critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2006, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting and reporting for uncertainties in income tax

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

law. This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

RESULTS OF OPERATIONS

     The following table sets forth for the periods presented certain financial data as a percentage of net sales for the three and nine months ended September 30, 2007 and 2006:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Costs of goods sold			86.5				86.8				86.1				86.8
Gross profit			13.5				13.2				13.9				13.2
Selling and administrative expenses			11.8				10.3				11.3				10.3
Severance and restructuring expenses			—				0.1				0.1				—
Earnings from operations			1.7				2.8				2.5				2.9
Non-operating (income) expense:
Interest income			(0.1	)			(0.2	)			(0.2	)			(0.1	)
Interest expense			0.3				0.1				0.4				0.1
Net foreign currency exchange loss (gain)			0.1				—				(0.1	)			—
Other expense, net			—				—				0.1				—
Earnings from continuing operations before income taxes			1.4				2.9				2.3				2.9
Income tax expense			0.6				1.0				0.9				1.0
Net earnings from continuing operations			0.8				1.9				1.4				1.9
Net earnings from discontinued operations			—				0.1				0.1				0.5
Net earnings			0.8	%			2.0	%			1.5	%			2.4	%

     Net Sales. Net sales for the three months ended September 30, 2007 increased 29% to $1.11 billion from $857.9 million for the three months ended September 30, 2006. The increase in sales is due primarily to an increase in software sales following the acquisition of Software Spectrum on September 7, 2006. Our net sales by operating segment were as follows (dollars in thousands):

		Three Months Ended												Nine Months Ended
		September 30,								%				September 30,								%
		2007				2006				Change				2007				2006				Change
North America		$	817,747			$	694,284				18	%		$	2,518,847			$	1,972,186				28	%
EMEA			264,679				157,115				69	%			923,958				392,383				135	%
APAC			27,279				6,520				318	%			74,324				6,520				1,040	%
Consolidated		$	1,109,705			$	857,919				29	%		$	3,517,129			$	2,371,089				48	%

     The increase in North America net sales for the three and nine months ended September 30, 2007 compared to the same periods in 2006 is due primarily to an increase in software sales attributable to the acquisition of Software Spectrum, which was only included for 23 calendar days in the three and nine months ended September 30, 2006. We experienced a significant, but seasonal, decline in our software sales during the three months ended September 30, 2007 as compared to the three months ended June 30, 2007. Year-over-year software growth was 64%, due primarily to the acquisition of Software Spectrum, and we grew hardware sales by 5% and services sales by 42% over the prior year. North America had 1,362 account executives at September 30, 2007, an increase from 1,033 at September 30, 2006 due primarily to the acquisition of Software Spectrum. Net sales per account executive in North America decreased to $606,000 for the three months ended September 30,

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

2007 from $613,000 for the three months ended September 30, 2006, excluding the 23 calendar days of Software Spectrum’s results during the three months ended September 30, 2006.

     The increase in EMEA net sales for the three and nine months ended September 30, 2007 compared to the same periods in 2006 is due primarily to an increase in software sales attributable to the September 2006 acquisition of Software Spectrum, which was only included for 23 calendar days in the three and nine months ended September 30, 2006. EMEA was also affected by the significant, but seasonal, decline in software sales during the three months ended September 30, 2007 as compared to the three months ended June 30, 2007 but posted strong results across the hardware and services categories. Within EMEA, for the three months ended September 30, 2007, our software category grew 183%, due primarily to the acquisition of Software Spectrum, hardware sales grew 16%, and services grew 226% over the prior year. EMEA had 530 account executives at September 30, 2007, an increase from 291 at September 30, 2006 due primarily to the acquisition of Software Spectrum. Net sales per account executive in EMEA increased 16% to $517,000 for the three months ended September 30, 2007 from $446,000 for the three months ended September 30, 2006, excluding the 23 calendar days of Software Spectrum’s results during the three months ended September 30, 2006.

     APAC’s net sales for the three months ended September 30, 2007 were $27.3 million. We were pleased with the results of our APAC segment which continues to overachieve against internal expectations.

     Percentage of net sales by category for North America, EMEA and APAC were as follows for the three months ended September 30, 2007 and 2006:

		North America								EMEA								APAC
		Three Months Ended								Three Months Ended								Three Months Ended
		September 30,								September 30,								September 30,
Sales Mix		2007				2006				2007				2006				2007				2006
Notebooks and PDAs			12	%			13	%			11	%			15	%			—				—
Desktops and Servers			12	%			14	%			9	%			12	%			—				—
Network and Connectivity			12	%			13	%			5	%			7	%			—				—
Storage Devices			6	%			8	%			4	%			7	%			—				—
Printers			6	%			7	%			4	%			6	%			—				—
Memory and Processors			4	%			5	%			2	%			3	%			—				—
Supplies and Accessories			4	%			6	%			4	%			6	%			—				—
Monitors and Video			5	%			5	%			5	%			7	%			—				—
Miscellaneous			7	%			7	%			3	%			5	%			—				—
Hardware			68	%			78	%			47	%			68	%			—				—
Software			29	%			20	%			52	%			31	%			100	%			100	%
Services			3	%			2	%			1	%			1	%			—				—
			100	%			100	%			100	%			100	%			100	%			100	%