<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________ to __________
Commission File Number: 0-25092
INSIGHT ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0766246
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6820 SOUTH HARL AVENUE, TEMPE, ARIZONA 85283
(Address of principal executive offices)
(602) 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 X No
------- -------
Indicate the number of shares outstanding of each of issuer's class of common
stock as the latest practicable date:
<TABLE>
<CAPTION>
CLASS: COMMON STOCK OUTSTANDING SHARES AT MAY 7, 1997: 6,763,180
- ---------------------- ---------------------------------------------
<S> <C>
</TABLE>
<PAGE> 2
INSIGHT ENTERPRISES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1996 and March 31, 1997....................................................................... 3
Condensed Consolidated Statements of Earnings -
Three and Nine Months Ended March 31, 1996 and 1997.................................................... 4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended March 31, 1996 and 1997.............................................................. 5
Notes to Condensed Consolidated Financial Statements................................................... 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................. 8-13
PART II - OTHER INFORMATION............................................................................... 14
SIGNATURE................................................................................................. 15
</TABLE>
2
<PAGE> 3
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 5,300 $ 11,743
Accounts receivable, net .................................................... 41,798 58,806
Inventories ................................................................. 16,104 28,327
Prepaid expenses ............................................................ 1,959 2,133
Deferred income taxes ....................................................... 1,239 2,522
-------- --------
Total current assets ............................................ 66,400 103,531
Property and equipment, net .................................................... 6,660 15,780
Other assets ................................................................... 558 72
-------- --------
$ 73,618 $119,383
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 29,667 $ 28,252
Accrued expenses ............................................................ 1,290 1,744
Customer refunds payable .................................................... 291 235
Deferred revenue ............................................................ 585 1,146
-------- --------
Total current liabilities ....................................... 31,833 31,377
Line of credit ................................................................. -- --
Stockholders' equity:
Preferred stock, $.01 par value, 3,000,000 shares authorized,
no shares issued ........................................................ -- --
Common stock, $.01 par value, 30,000,000 shares authorized,
5,396,754 at June 30, 1996 and 6,761,166 at
March 31, 1997 shares issued and outstanding ............................ 54 67
Paid-in capital ............................................................. 29,426 68,719
Retained earnings ........................................................... 12,305 19,220
-------- --------
Total stockholders' equity ......................................... 41,785 88,006
-------- --------
$ 73,618 $119,383
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .................................. $ 94,655 $130,825 $ 241,863 $346,139
Costs of goods sold ........................ 81,224 114,103 207,358 300,446
-------- -------- --------- --------
Gross profit ..................... 13,431 16,722 34,505 45,693
Selling, general and administrative expenses 10,758 12,340 27,839 34,741
-------- -------- --------- --------
Earnings from operations ......... 2,673 4,382 6,666 10,952
Non-operating income (expense), net ........ (24) 122 (158) 452
-------- -------- --------- --------
Earnings before income taxes ..... 2,649 4,504 6,508 11,404
Income tax expense ......................... 1,050 1,758 2,578 4,489
-------- -------- --------- --------
Net earnings ..................... $ 1,599 $ 2,746 $ 3,930 $ 6,915
======== ======== ========= ========
Net earnings per share ..................... $ 0.29 $ 0.39 $ 0.76 $ 1.06
======== ======== ========= ========
Shares used in net earnings per
share calculation ....................... 5,585 7,084 5,144 6,503
======== ======== ========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................... $ 3,930 $ 6,915
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation ..................................... 713 1,174
Tax effect of stock options ...................... 463 1,045
Provision for losses on accounts receivable ...... 885 1,614
Provision for obsolete and slow-moving inventories 223 404
Deferred income tax benefit ...................... (379) (1,283)
Loss on disposition of property and equipment .... -- 11
Change in assets and liabilities:
Increase in accounts receivable .................. (21,606) (18,622)
Increase in inventories .......................... (5,542) (12,627)
Increase in prepaid expenses ..................... (269) (174)
Decrease (increase) in other assets .............. (297) 486
Increase (decrease) in accounts payable .......... 7,143 (1,415)
Increase in accrued expenses ..................... 128 454
Increase (decrease) in customer refunds payable .. 32 (56)
Increase in deferred revenue ..................... 111 561
-------- --------
Net cash used in operating activities .......... (14,465) (21,513)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment .................. (3,397) (10,305)
-------- --------
Net cash used in investing activities ............ (3,397) (10,305)
-------- --------
Cash flows from financing activities:
Net repayments on line of credit ..................... (2,086) --
Issuance of common stock ............................. 16,680 38,261
-------- --------
Net cash provided by financing activities ........ 14,594 38,261
-------- --------
Increase (decrease) in cash and cash equivalents ....... (3,268) 6,443
Cash and cash equivalents at beginning of period ........ 7,574 5,300
-------- --------
Cash and cash equivalents at end of period .............. $ 4,306 $ 11,743
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
INSIGHT ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Insight Enterprises, Inc. and subsidiaries ("INSIGHT" or the "Company")
is a direct marketer of computers, hardware and software. INSIGHT markets a
comprehensive line of brand-name products to price-conscious, computer literate
end-users in the business, education, government and home markets throughout the
United States primarily through outbound telemarketing and its own distinctive
catalogs and advertisements in computer industry publications. Additionally,
Insight provides direct marketing services to manufacturers seeking to outsource
their direct marketing activities. The services provided include marketing,
sales and distribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The condensed consolidated financial statements include the accounts of
Insight Enterprises, Inc. and its wholly-owned subsidiaries: Insight Direct,
Inc., Direct Alliance Corporation and ITA, Inc. Intercompany accounts and
transactions have been eliminated in consolidation.
Certain amounts in the condensed consolidated financial statements have
been reclassified to conform to the current presentation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the requirements of Form 10-Q and
consequently do not include all of the disclosure normally required by generally
accepted accounting principles. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
financial position of INSIGHT as of June 30, 1996 and March 31, 1997, the
results of operations for the three and nine months ended March 31, 1996 and
1997, and the cash flows for the nine months ended March 31, 1996 and 1997. The
results of operations for such interim periods are not necessarily indicative of
results for the full year. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements,
including the related notes thereto, in INSIGHT's Annual Report on Form 10-K for
the year ended June 30, 1996.
Advertising Expense
Costs of direct-response advertising are capitalized and amortized over
the expected revenue stream, generally three months, while other advertising
costs are expensed as incurred. All advertising costs are recorded net of
related cooperative marketing reimbursements. Direct response advertising
consists primarily of costs incurred to develop and distribute catalogs and
magazine advertisements. At June 30, 1996 net advertising costs of $143,000 were
deferred and are included in other assets. At March 31, 1997, no advertising
costs have been deferred or included in other assets.
6
<PAGE> 7
INSIGHT ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123"). SFAS 123 requires that companies can elect to
account for stock-based compensation plans using a method based upon fair value
or continue measuring compensation expense for those plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). Companies electing to
continue using the intrinsic value method must make pro forma disclosures for
fiscal 1997 of net earnings and earnings per share as if the fair value based
method had been applied. The Company will continue using APB 25; therefore, SFAS
123 is not expected to have an impact on the Company's results of operations or
financial position.
3. LINE OF CREDIT
INSIGHT has a $30,000,000 credit facility. The agreement provides for
cash advances outstanding at any one time up to a maximum of $22,500,000 on the
line of credit, subject to limitations based upon the Company's eligible
accounts receivable and inventories. As of March 31, 1997, $22,500,000 was
available under the line of credit. Cash advances under the line of credit bear
interest at the London Interbank Offered Rate (LIBOR) plus 1.90% (7.56% at March
31, 1997) payable monthly. The additional $7,500,000 of the credit facility is
used to facilitate the purchases of inventories from certain vendors and is
classified on the balance sheet as accounts payable. At March 31, 1997, the
outstanding balance of this additional portion of the credit facility was
$5,715,000. The credit facility expires in June 1998 and is secured by
substantially all of the assets of INSIGHT. The credit facility contains various
covenants including the requirement that INSIGHT maintain a specified dollar
amount of tangible net worth.
4. INCOME TAXES
Income tax expense as provided for the three months and nine months
ended March 31, 1996 and 1997 is based upon the estimated annual income tax rate
of the Company.
5. NET EARNINGS PER SHARE
Net earnings per share for the three months ended March 31, 1996 and
1997 is calculated using 5,367,927 and 6,738,512, respectively, of weighted
average shares of common stock and 216,966 and 345,881, respectively, of common
stock equivalents outstanding during the period. Net earnings per share for the
nine months ended March 31, 1996 and 1997 is calculated using 4,857,793 and
6,102,069, respectively, of weighted average shares of common stock and 286,043
and 401,208, respectively, of common stock equivalents outstanding during the
period. The common stock equivalent shares relate to the Company's stock options
and warrants and are calculated using the treasury stock method.
7
<PAGE> 8
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Conditions and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Forward-looking statements can be identified by
the use of forward-looking terminology such as "expects," "should," "believes,"
or "anticipates" or the negative thereof or comparable terminology, or by
discussions of Company goals and strategy. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including but not limited to the following: the
continued acceptance of the Company's distribution channel by suppliers and
customers; changes in the personal computer industry, especially competitive
pressures, decreasing price margins, and inventory risks due to technological
developments or shifts in market demand; and the changes in costs, especially
the price of paper for the Company catalogs and advertising. Additional factors
are set forth under "Certain Factors Affecting the Company's Operations" in the
Company's Annual Report on Form 10-K for the year ended June 30, 1996 and under
"Risk Factors" in the Company's Prospectus dated November 1, 1996, as filed with
the Securities and Exchange Commission.
OVERVIEW
The Company commenced operations in 1988 as a direct marketer of hard
disk drives and other mass storage products. In fiscal 1991, the Company began
marketing its own Insight-brand microcomputers and in fiscal 1992 and 1993 added
peripherals, software and other name brand computers to its product line.
Through fiscal 1992, the Company based its marketing practices primarily on
advertising in computer magazines and the use of inbound toll-free
telemarketing. In fiscal 1993, the Company shifted its marketing strategy to
include the publication of proprietary catalogs and the use of outbound account
executives focused on the business, education and government markets. During
fiscal 1995, the Company began to de-emphasize the sale of Insight- branded
computers and discontinued the sale of Insight-branded computers in the second
quarter of fiscal 1996. Although the cost savings from this decision have
positively impacted earnings from operations, gross margin has been negatively
affected.
In fiscal 1996, Insight increased its focus on the business, education
and government markets, which aggregated approximately 80% of its business in
the fourth quarter of fiscal 1996. During fiscal 1996, the Company doubled its
catalog circulation to generate leads and aggressively test new lists. The
Company expects the rate of growth in catalog circulation to decrease in the
future as the Company, using information generated from such testing, targets
mailings to its best prospective customers and increases its focus on
penetrating existing accounts. To that end, the Company has recently hired a
number of senior sales managers and account executives, and plans to continue to
actively increase its account executive base for the foreseeable future.
In order to leverage its infrastructure, the Company, in fiscal 1992,
began outsourcing direct marketing services to third parties, including the
distribution of catalogs and mailings featuring name brand or Insight-brand
products. The Company initiated its turnkey direct marketing outsourcing program
for leading manufacturers in fiscal 1993. Under most of the Company's
outsourcing arrangements, the Company takes title to inventories of products and
assumes the risk of collection of accounts receivable in addition to its sales
functions. Revenues derived from the sales of such products are included in the
Company's net sales. This type of outsourcing arrangement represents the
majority of the outsourcing revenues. Certain other outsourcing arrangements are
primarily service-based, and the Company generally derives net sales from these
types of arrangements based on a percentage of the revenue generated from
products sold. Accordingly, the rate of the Company's net sales growth in future
periods may be affected by the mix of outsourcing arrangements which
8
<PAGE> 9
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
are in place from time to time. Outsourcing represented approximately 10% of the
Company's sales in fiscal 1996 and less than 10% in fiscal 1997.
Generally, pricing in the computer and related products industry is
very aggressive. The Company expects pricing pressures to continue and that it
will be required to reduce its prices to remain competitive. Such a reduction
could have a material adverse effect on the Company's financial condition and
results of operations.
RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated certain
financial data as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
1996 1997 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales............................. 100.00% 100.00% 100.00% 100.00%
Costs of goods sold................... 85.81 87.22 85.73 86.80
------ ------ ------ ------
Gross profit.......................... 14.19 12.78 14.27 13.20
Selling, general and administrative
expenses........................... 11.37 9.43 11.51 10.04
------ ------ ------ ------
Earnings from operations.............. 2.82 3.35 2.76 3.16
Non-operating income (expense), net... (0.02) 0.09 (0.07) 0.13
------ ------ ------ ------
Earnings before income taxes.......... 2.80 3.44 2.69 3.29
Income tax expense.................... 1.11 1.34 1.07 1.29
------ ------ ------ ------
Net earnings.......................... 1.69% 2.10% 1.62% 2.00%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales increased $36.2 million, or 38.2%, to $130.8
million in the third quarter of fiscal 1997 from $94.6 million in the third
quarter of fiscal 1996. The Company's net sales are comprised of two components:
direct marketing sales and sales from outsourcing arrangements with
manufacturers. Sales derived from direct marketing increased $37.2 million, or
43.4%, to $122.9 million in the third quarter of fiscal 1997 from $85.7 million
in the third quarter of fiscal 1996. The increase in direct marketing sales
resulted primarily from increased demand for name brand computers and the
continued shift to business customers (including education and government
entities). The percentage of net sales to business customers increased from 75%
in the third quarter of fiscal 1996 to 86% in the third quarter of fiscal 1997.
This continued shift to a customer segment that makes larger purchases resulted
in an increase in average order size of 27.2% to $906 in the third quarter of
fiscal 1997 compared to $712 in the third quarter of fiscal 1996. The "Insight"
catalog circulation increased from 3.2 million in the third quarter of fiscal
1996 to 3.5 million in the third quarter of fiscal 1997. The Company continues
to refine its circulation strategy, coupled with an emphasis on outbound
telemarketing, with the goal of more efficiently targeting its business customer
audience and improving the profitability and return investment of its marketing
activities. Sales derived from outsourcing arrangements decreased $1.0 million,
or 11.5%, to $7.9 million in the third quarter of fiscal 1997 from $8.9 million
in the third quarter of fiscal 1996. The decrease in sales from outsourcing
services resulted from the elimination of an outsourcing arrangement that was
operational a year ago. The Company is activity seeking other outsourcing
arrangements with major manufacturers.
<PAGE> 10
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996 (CONTINUED)
Gross Profit. Gross profit increased $3.3 million, or 24.5%, to $16.7
million in the third quarter of fiscal 1997 from $13.4 million in the third
quarter of fiscal 1996. As a percentage of net sales, gross margin on the
Company's direct marketing sales decreased due to a greater demand for name
brand computers, which carried a lower gross profit percentage, but was
partially offset by the Company's ability, as a result of its increased volume
and financial position, to take advantage of vendor discount, rebates and bulk
purchasing opportunities. The Company anticipates continued pressure on gross
margins in fiscal 1997 primarily due to the continued shift in product mix and
to industry-wide pricing pressures. The gross profit margin on the Company's
outsourcing business increased primarily as a result of a change in product mix
within the revenue-based portion of its outsourcing business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.6 million, or 14.7% to $12.3 million in
the third quarter of fiscal 1997 from $10.7 million in the third quarter of
fiscal 1996, and decreased as a percentage of net sales to 9.4% in the third
quarter of fiscal 1997 from 11.4% in the third quarter of fiscal 1996. The
decline was primarily attributable to the Company's continued shift in
targeting the business customer through outbound telemarketing, the receipt of
greater co-operative marketing reimbursements from manufacturers, an increase
in the average order size and increased economies of scale as general and
administrative expenses were allocated over a greater net sales base. These
savings in selling, general and administrative expenses were partially offset
by an increase in compensation paid to sales account executives, in order to
attract and retain highly qualified people and the costs of more than doubling
the size of Company's sales and administrative facilities.
Non-Operating Income (Expense), Net. Non-operating income (expense),
net, which consists primarily of interest, changed from $24,000 of expense, net
in the third quarter of fiscal 1996 to $122,000 of interest income, net in the
third quarter of fiscal 1997. Interest expense primarily relates to borrowings
under the Company's line of credit which have been necessary to finance the
Company's growth. Interest expense has decreased as a result of the use of the
net proceeds from Insight's public offerings in November 1995 and November
1996. Interest income was generated by the Company through short term
investments, some of which are tax advantaged bonds.
Income Tax Expense. The Company's effective tax rate was 39.0% and 39.6%
for the quarters ended March 31, 1997 and 1996, respectively. The decrease in
the effective tax rate reflects investments made in tax advantaged bonds.
10
<PAGE> 11
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1996
Net Sales. Net sales increased $104.3 million, or 43.1% to $346.1
million in the first nine months of fiscal 1997 from $241.8 million in the
first nine months of fiscal 1996. The Company's net sales are comprised of two
components: direct marketing sales and sales from outsourcing arrangements with
manufacturers. Sales derived from direct marketing increased $102.9 million, or
47.3%, to $320.4 million in the first nine months of fiscal 1997 from $217.5
million in the first nine months of fiscal 1996. The increase in direct
marketing sales resulted primarily from increased demand for name brand
computers and the continued shift to business customers (including education
and government entities). The percentage of net sales to business customers
increased from 76% for the first nine months of fiscal 1996 to 86% for the
first nine months of fiscal 1997. This continued shift to a customer segment
that makes larger purchases resulted in an increase in average order size of
23.5% to $882 in the first nine months of fiscal 1997 compared to $714 in the
first nine months of fiscal. The sales increase occurred, despite a decrease in
the "Insight" catalog circulation from 10.2 million in the first nine months of
fiscal 1996 to 9.8 million in the first nine months of fiscal 1997. The Company
continues to refine its circulation strategy, coupled with an emphasis on
outbound telemarketing with the goal of more efficiently targeting its business
customer audience and improving the profitability and return on investment of
its marketing activities. Sales derived from outsourcing arrangements increased
$1.4 million, or 5.7%, to $25.7 million in the first nine months of fiscal 1997
from $24.3 million in the first nine months of fiscal 1996. The increase in
sales from outsourcing services from increased sales from existing outsourcing
arrangements that were operational a year ago.
Gross Profit. Gross profit increased $11.2 million, or 32.4%, to $45.7
million in the first nine months of fiscal 1997 from $34.5 million in the first
nine months of fiscal 1996. As a percentage of sales, gross margin on the
Company's direct marketing sales decreased due to a greater demand for name
brand computers, which carried a lower gross profit percentage and industry
pricing pressure, but was partially offset by the Company's ability, as a
result of its increased volume and financial position, to take advantage of
vendor discount, rebates and bulk purchasing opportunities. The Company
anticipates continued pressure on gross margins in fiscal 1997 primarily due to
the continued shift in product mix and to industry-wide pricing pressures. The
gross profit margin on the Company's outsourcing business slightly increased
primarily as a result of a change in the product mix of the revenue-based
outsourcing business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.9 million, or 24.8%, to $34.7 million in
the first nine months of fiscal 1997 from $27.8 million in the first nine
months of fiscal 1996, and decreased as a percentage of net sales to 10.0% in
the first nine months of fiscal 1997 from 11.5% in the first nine months of
fiscal 1996. The decline was primarily attributable to the Company's continued
shift in marketing strategy of targeting the business customer through outbound
telemarketing, receipt of greater co-operative marketing reimbursements from
manufacturers, an increase in the average order size and increased economies of
scale as general and administrative expenses were allocated over a greater net
sales base. These savings in selling, general and administrative expenses were
partially offset by an increase in compensation paid to account executive, to
attract and retain highly qualified people.
11
<PAGE> 12
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996 (CONTINUED)
Non-Operating Income (Expense), Net. Non-operating income (expense),
net, which consists primarily of interest, changed from $158,000 of expense,
net in the first nine months of fiscal 1996 to $452,000 of interest income, net
in the first nine months of fiscal 1997. Interest expense primarily relates to
borrowings under the Company's line of credit which have been necessary to
finance the Company's growth. Interest expense has decreased as a result of the
use of the net proceeds from Insight's public offerings in November 1995 and
November 1996. Additionally, the interest expense associated with the Company's
new sales and administrative facility has been capitalized. Interest income is
generated by the Company through short term investments, some of which are tax
advantaged bonds.
Income Tax Expense. The Company's effective tax rate was 39.4% and
39.6% for the nine months ended March 31, 1997 and 1996, respectively. The
decrease in the effective tax rate reflects investments made in tax advantaged
bonds.
SEASONALITY
The Company has historically experienced, and expects to continue to
experience, seasonal fluctuations in its net sales, earnings from operations
and net earnings. As the Company continues to increase its percentage of
revenue from the business, education and government markets, management
believes that the Company's quarterly net sales will be less impacted by
seasonality.
LIQUIDITY AND CAPITAL RESOURCES
In November 1995 and November 1996, the Company completed a public
offerings of common stock. The Company received $16.6 million and $37.4
million, respectively net of underwriting discounts, commissions and offering
expenses. The Company used a substantial portion of the net proceeds to repay
amounts outstanding under the line of credit and for general corporate
purposes, including working capital, capital expenditures and facilities
expansion. The balance of the net proceeds will be used for general corporate
purposes and potential acquisitions of businesses to expand or complement its
operations.
The Company's primary capital needs have been to fund the working
capital requirements and capital expenditures necessitated by its sales growth.
Cash flows from operations generally have been negative due primarily
to increases in accounts receivable and inventories necessitated by the sales
growth of the Company and the continued shift from sales to the home market to
sales in the business, education and government markets. The Company's net cash
used in operating activities was $21.5 million for the nine months ended March
31, 1997 as compared to $14.5 million used in operating activities for the nine
months ended March 31, 1996. The negative cash flow in the current year is
primarily due to a $18.6 million increase in accounts receivable and a $12.6
million increase in inventories. These increases were primarily funded with the
proceeds from the public offering of common stock in November, 1996 and net
earnings of $6.9 million.
12
<PAGE> 13
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Capital expenditures for the first nine months of fiscal 1997 and 1996
were $10.3 million and $3.4 million, respectively, primarily for the purchase of
17 acres of vacant land in Tempe, Arizona during the second quarter of fiscal
1996, and for the construction of a sales and administration building, on that
site, in fiscal 1997. The Company has incurred approximately $12.5 million in
capital expenditures related to the acquisition of the land, constructing and
equipping the facility.
The Company's future capital requirements include financing the growth
of working capital items such as accounts receivable and inventories, and the
purchases of equipment, furniture and fixtures to accomplish future growth. The
Company anticipates that cash flow from operations together with the unused
proceeds from the recent public offering of stock and the funds available under
its credit facility should be adequate to support the Company's presently
anticipated cash and working capital requirements through fiscal 1998. The
Company's ability to continue funding its planned growth beyond fiscal 1998 is
dependent upon its ability to generate sufficient cash flow or to obtain
additional funds through equity or debt financing, or from other sources of
financing, as may be required.
13
<PAGE> 14
INSIGHT ENTERPRISES, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INSIGHT ENTERPRISES, INC.
By: /s/ ERIC CROWN
-----------------------------
ERIC J. CROWN
CHIEF EXECUTIVE OFFICER
DATE: MAY 12, 1997 By: /s/ STANLEY LAYBOURNE
-----------------------------
STANLEY LAYBOURNE
CHIEF FINANCIAL OFFICER,
SECRETARY AND TREASURER
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES AS OF
MARCH 31, 1997 AND THE RELATED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q FILING FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<CIK> 0000932696
<NAME> INSIGHT ENTERPRISES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 11,743
<SECURITIES> 0
<RECEIVABLES> 62,627
<ALLOWANCES> 3,821
<INVENTORY> 28,327
<CURRENT-ASSETS> 103,531
<PP&E> 20,101
<DEPRECIATION> 4,321
<TOTAL-ASSETS> 119,383
<CURRENT-LIABILITIES> 31,377
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 87,939
<TOTAL-LIABILITY-AND-EQUITY> 119,383
<SALES> 346,139
<TOTAL-REVENUES> 346,139
<CGS> 300,446
<TOTAL-COSTS> 300,446
<OTHER-EXPENSES> 32,625
<LOSS-PROVISION> 1,614
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 11,404
<INCOME-TAX> 4,489
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,915
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
