<PAGE> 1
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, 1999
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) (Zip Code)
(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
--- ---
The number of shares outstanding of the issuer's common stock as of April 30,
1999 was 25,568,373.
<PAGE> 2
INSIGHT ENTERPRISES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998.................................... 3
Condensed Consolidated Statements of Earnings -
Three Months Ended March 31, 1999 and 1998.............................. 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998.............................. 5
Notes to Condensed Consolidated Financial Statements.................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 9
PART II - OTHER INFORMATION............................................... 14
Item 6 - Exhibits and Reports on Form 8-K................................. 14
SIGNATURES................................................................ 15
2
<PAGE> 3
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................... $ 25,397 $ 12,974
Accounts receivable, net ................................ 154,731 139,305
Inventories, net ........................................ 20,693 34,449
Prepaid expenses and other current assets ............... 5,612 7,169
--------- ---------
Total current assets .............................. 206,433 193,897
Property and equipment, net ................................ 35,976 33,075
Goodwill, net .............................................. 23,726 24,020
Other assets ............................................... 527 406
--------- ---------
$ 266,662 $ 251,398
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 88,392 $ 80,259
Accrued expenses and other current liabilities .......... 10,951 11,763
--------- ---------
Total current liabilities ......................... 99,343 92,022
Long-term debt, less current portion ....................... 8,129 8,268
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, 25,540,262 at March 31, 1999 and
25,432,642 at December 31, 1998 shares issued and
outstanding ........................................... 255 254
Paid-in capital ......................................... 102,101 100,923
Retained earnings ....................................... 56,949 50,142
Accumulated other comprehensive income - foreign
currency translation .................................. (115) (211)
--------- ---------
Total stockholders' equity ........................ 159,190 151,108
--------- ---------
$ 266,662 $ 251,398
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales .................................. $ 338,136 $ 206,796
Costs of goods sold ........................ 298,270 181,454
----------- -----------
Gross profit ......................... 39,866 25,342
Selling, general and administrative expenses 28,308 17,875
----------- -----------
Earnings from operations ............. 11,558 7,467
Non-operating expense, net ................. 275 377
----------- -----------
Earnings before income taxes ......... 11,283 7,090
Income tax expense ......................... 4,476 2,757
----------- -----------
Net earnings ......................... $ 6,807 $ 4,333
=========== ===========
Earnings per share:
Basic ................................ $ 0.27 $ 0.18
=========== ===========
Diluted .............................. $ 0.26 $ 0.18
=========== ===========
Shares used in per share calculation:
Basic ................................ 25,482,096 23,528,865
=========== ===========
Diluted .............................. 26,672,280 24,680,442
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net earnings ......................................................... $ 6,807 $ 4,333
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization ..................................... 1,702 709
Tax benefit from stock options exercised .......................... 164 2,093
Provision for losses on accounts receivable ....................... 628 777
Provision for obsolete and slow-moving inventories ................ 978 225
Deferred income tax expense ....................................... 493 593
Change in operating assets and liabilities:
Increase in accounts receivable ................................ (16,524) (15,148)
Decrease in inventories ........................................ 12,621 14,465
Decrease in prepaid expenses and other current assets .......... 1,025 661
Increase in other assets ....................................... 4 (80)
Increase in accounts payable ................................... 8,687 16,134
Decrease in accrued expenses and other current liabilities (533) (6)
-------- --------
Net cash provided by operating activities ................... 16,052 24,756
-------- --------
Cash flows from investing activities:
Purchases of property and equipment .................................. (4,363) (2,074)
-------- --------
Net cash used in investing activities ....................... (4,363) (2,074)
-------- --------
Cash flows from financing activities:
Net repayments on line of credit ..................................... 0 (21,950)
Net repayments of long term debt, less current portion ............... (133) --
Issuance of common stock ............................................. 1,111 850
-------- --------
Net cash provided by (used in) financing activities ......... 978 (21,100)
-------- --------
Effect of exchange rate on cash and cash equivalents .................... (244) 23
-------- --------
Increase in cash and cash equivalents ................................... 12,423 1,605
Cash and cash equivalents at beginning of period ........................ 12,974 6,982
-------- --------
Cash and cash equivalents at end of period .............................. $ 25,397 $ 8,587
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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INSIGHT ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS
Insight Enterprises, Inc. and subsidiaries (collectively "Insight" or the
"Company") is a global direct marketer of computers, hardware and software with
locations in the United States, Canada, the United Kingdom and Germany. The
Company markets primarily to small and medium-sized enterprises, through a
combination of outbound telemarketing, electronic commerce, electronic
marketing, targeted direct mail catalogs and advertising in computer magazines
and publications. Additionally, Insight provides direct marketing services to
original equipment manufacturers in the computer industry seeking to outsource
their direct marketing activities. The services provided include marketing,
sales, configuration and distribution.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements and
notes have been prepared in accordance with the requirements of Form 10-Q and
consequently do not include all of the disclosures 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 March 31, 1999, the results of
operations for the three months ended March 31, 1999 and 1998, and the cash
flows for the three months ended March 31, 1999 and 1998. The condensed
consolidated balance sheet as of December 31, 1998 was derived from the audited
consolidated financial statement at such date. Certain amounts in the condensed
consolidated financial statements have been reclassified to conform to the
current presentation. 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
consolidated financial statements, including the related notes thereto, in
Insight's Annual Report on Form 10-K for the year ended December 31, 1998.
On April 3, 1998, the Company acquired all of the outstanding stock of a
United Kingdom direct marketer of computers and computer-related products and
85% of the outstanding common stock of a United Kingdom internet service
provider for a total of 187,227 shares of the Company's common stock (valued at
$2,516,000) and $3,534,000 in cash, including acquisition costs and a cash
overdraft position that was assumed, with further consideration payable in the
future contingent on profitability of the acquired companies.
On September 13, 1998, the Company acquired all of the outstanding stock
of a United States direct marketer of computers and computer-related products
for 451,338 shares of the Company's common stock (valued at $10,000,000), plus
$27,000 of acquisition costs, net of cash acquired, with further consideration
payable in the future contingent on profitability of the acquired company.
On December 16, 1998, the Company acquired all of the outstanding stock of
a German holding company and a German direct marketer of computers and
computer-related products for a total of 82,116 shares of the Company's common
stock (valued at $1,810,000) and $4,521,000 in cash, including acquisition costs
and net of cash acquired, with further consideration payable in the future
contingent on profitability of the acquired company.
6
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INSIGHT ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
All three acquisitions have been accounted for by the purchase method of
accounting, and accordingly the acquired companies' assets and liabilities have
been recorded at their fair values at the date of acquisition. The excess of the
purchase price, including acquisition costs, over the fair values of the net
assets acquired, has been recorded as goodwill.
The condensed consolidated financial statements include the accounts of
Insight Enterprises, Inc. and its subsidiaries, which are primarily
wholly-owned. Intercompany accounts and transactions have been eliminated in
consolidation.
In January 1999, the Company's Board of Directors approved a 3-for-2 stock
split effected in the form of a stock dividend and paid on February 18, 1999 to
the stockholders of record at the close of business on January 25, 1999.
Additionally, 3-for-2 stock splits were effected in the form of stock dividends
on September 8, 1998 and September 17, 1997. All share amounts and earnings per
share have been retroactively adjusted to reflect these 3-for-2 stock splits.
3. LINE OF CREDIT
Insight has a $100,000,000 credit facility with a finance company. The
agreement provides for cash advances outstanding at any one time up to a maximum
of $100,000,000 on the line of credit, subject to limitations based upon the
Company's eligible accounts receivable and inventories. Cash advances bear
interest at the London Interbank Offered Rate (LIBOR) plus 0.80% (5.74% at March
31, 1999) payable monthly. The credit facility can be used to facilitate the
purchases of inventories from certain suppliers and that portion is classified
on the balance sheet as accounts payable. As of March 31, 1999, the balance of
this portion of the credit facility was $17,614,000. As of March 31, 1999, an
additional $61,829,000 was available under the line of credit.
The credit facility expires in February 2002 at which time the outstanding
balance is due. The line is secured by substantially all of the assets of the
Company. The line of credit contains various covenants including the
requirements that the Company maintain a specific dollar amount of tangible net
worth and restrictions on payment of cash dividends.
4. INCOME TAXES
Income tax expense as provided for the three months ended March 31, 1999
and 1998 is based upon the estimated annual income tax rate of the Company.
5. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), effective January 1, 1998. SFAS 130
establishes standards for the reporting and presentation of comprehensive income
and its components in financial statements. Comprehensive income encompasses net
income and "other comprehensive income," which includes all other non-owner
transactions and events that change stockholders' equity. Other comprehensive
income for the three months ended March 31, 1999 and 1998 was immaterial.
7
<PAGE> 8
INSIGHT ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
6. SUBSEQUENT EVENTS
On May 9, 1999, the Company announced that they had entered into a
definitive merger agreement with Action Computer Supplies Holdings PLC
("Action") (LSE:ACS). Action is a United Kingdom-based IT direct marketer,
offering computer products and services to small, medium and large businesses
with operations in the United Kingdom and Spain. Insight will merge with Action
in a tax-free exchange of shares valued at approximately $150 million. The
combined companies have current annualized sales of approximately $1.6 billion.
The terms of the merger agreement provide for holders of Action stock to
receive 0.16 shares of Insight common stock for each of their shares. Insight
expects to issue approximately 5.64 million new shares, representing 18.1%
ownership of the Company pro forma for the transaction. The merger is expected
to be accounted for as a pooling of interests. The transaction is subject to
customary closing conditions including the approval of shareholders of both
Insight and Action and required U.K. regulatory approval. The transaction is
expected to be completed in September 1999.
8
<PAGE> 9
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that are
inherently subject to risk 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: fluctuations in operating results, intense
competition, management of rapid growth, need for additional financing, past and
future acquisitions and international operations, risk of business interruption,
year 2000 issues, reliance on and seasonality of outsourcing arrangements,
changing methods of distribution, reliance on suppliers, rapid change in product
standards, inventory obsolescence, sales and use tax uncertainty, increasing
marketing, postage and shipping cost, and dependence on key personnel. These
factors are discussed in greater detail under "Factors That May Affect Future
Results and Financial Condition" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, 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 1990, the Company began marketing its
own Insight-brand computers and in 1991 and 1992, added hardware, software and
other name brand computers to its product line. Through 1992, the Company based
its marketing practices primarily on advertising in computer magazines and the
use of inbound toll-free telemarketing. In 1993, the Company shifted its
marketing strategy to the publication of proprietary catalogs and the use of
outbound account executives focused on the business, education and government
markets. During 1995, the Company began to de-emphasize the sale of
Insight-branded computers and discontinued the sale of Insight-branded computers
in the fourth quarter of 1995. Although the cost savings from this decision have
positively impacted earnings from operations, gross profit percentage has been
negatively affected. The Company expects gross margins to continue to decline in
1999 and thereafter primarily due to industry-wide pricing pressures and pricing
strategies.
During 1995, the Company nearly doubled its catalog circulation to
generate leads and aggressively tested new lists. In 1997, the Company decreased
its catalog circulation because the Company used the information generated from
prior year tests to target mailings to its best customers and began to increase
its focus on penetrating existing accounts by aggressively increasing its
outbound sales force. To that end, the Company has hired a number of senior
sales managers and account executives, and plans to continue to actively
increase its account executive base by approximately 50 to 75, net, per quarter
during 1999. In 1998, Insight introduced its graphically rich electronic
catalogs and continued to focus on the business, education and government
markets, which aggregated approximately 90% of its business in 1998.
In the fourth quarter of 1997, the Company began operations in Canada.
During 1998, the Company entered the United Kingdom market, during the second
quarter, and the German market, during the fourth quarter, both through
acquisitions. Sales in these European markets accounted for 5.5% of the
Company's net sales in 1998.
9
<PAGE> 10
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
In order to leverage its infrastructure, the Company, in 1992, began
providing direct marketing services to third parties. Under some 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. 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 type of outsourcing arrangements which are
in place from time to time. Additionally, some of the programs may be seasonal
in nature, as their target customers can have cyclical buying patterns.
Outsourcing represented 9.2% and 7.8% of the Company's net sales in 1998 and
1997, respectively.
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. The continued acceptance
of electronic commerce might place additional pricing pressure on the Company.
Such price reductions 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 periods indicated certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
---- ----
<S> <C> <C>
Net sales.......................................... 100.0% 100.0%
Costs of goods sold................................ 88.2 87.7
----- -----
Gross profit................................. 11.8 12.3
Selling, general and administrative expenses....... 8.4 8.7
----- -----
Earnings from operations..................... 3.4 3.6
Non-operating expense, net......................... 0.1 0.2
----- -----
Earnings before income taxes................. 3.3 3.4
Income tax expense................................. 1.3 1.3
----- -----
Net earnings................................. 2.0% 2.1%
===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net Sales. Net sales increased $131.3 million, or 64%, to $338.1 million
for the three months ended March 31, 1999 from $206.8 million for the three
months ended March 31, 1998. The Company had 1,062 and 692 account executives at
March 31, 1999 and 1998, respectively. The Company increased its number of
orders shipped by 81% from 231,000 for the quarter ended March 31, 1998 to
418,000 for the quarter ended March 31, 1999. European sales represented $41.8
million or 12.4% of total net sales for the quarter ended March 31, 1999.
These European sales are a result of aquisitions made after March 31, 1998.
10
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INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Net sales derived from direct marketing increased $124.5 million, or 65%,
to $317.0 million for the three months ended March 31, 1999 from $192.5 million
for the three months ended March 31, 1998. The increase in direct marketing net
sales resulted primarily from increased account executive productivity, deeper
account penetration, an increase in the Company's customer base and internet
enhancements that have increased unassisted transactions from 3.5% of total net
sales to 8.2% of total net sales for the quarters ended March 31, 1998 and 1999,
respectively.
Net sales derived from outsourcing arrangements increased $6.8 million, or
48%, to $21.1 million for the three months ended March 31, 1999 from $14.3
million for the three months ended March 31, 1998. Outsourcing sales represented
6.3% and 6.9% of total net sales in the quarters ended March 31, 1999 and 1998,
respectively. The increase in sales from outsourcing services resulted from the
successful addition of new programs and sales improvements in existing programs.
The growth rate of the outsourcing arrangements may be affected by the mix of
type of outsourcing arrangements - that is, service-based versus revenue-based
outsourcing programs. The Company is actively seeking other outsourcing
arrangements with major manufacturers.
Gross Profit. Gross profit increased $14.5 million, or 57%, to $39.9
million for the three months ended March 31, 1999 from $25.4 million for the
three months ended March 31, 1998. As a percentage of net sales, gross profit
decreased from 12.3% for the three months ended March 31, 1998 to 11.8% for the
three months ended March 31, 1999. The decline in gross profit percentage
primarily resulted from pricing strategies and market conditions. The Company
expects its gross profit percentage to continue to decline in 1999 and
thereafter primarily due to pricing strategies and industry-wide pricing
pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.4 million, or 58%, to $28.3 million for
the three months ended March 31, 1999 from $17.9 million for the three months
ended March 31, 1998, but decreased as a percentage of net sales to 8.4%, 8.3%
excluding amortization of goodwill, for the three months ended March 31, 1999
from 8.7% for the three months ended March 31, 1998. The decline was
attributable to increased economies of scale and continued cost-cutting
measures. This decline was partially offset by costs associated with rapid
growth, costs associated with maintaining an international infrastructure
necessary for rapid growth and goodwill amortization which totaled $306,000 in
the quarter ended March 31, 1999, compared to no goodwill amortization for the
quarter ended March 31, 1998.
Non-Operating Expense, Net. Non-operating expense, net, which consists
primarily of interest expense, decreased to $275,000 for the three months ended
March 31, 1999 from $377,000 for the three months ended March 31, 1998. Interest
expense primarily relates to borrowings under the Company's line of credit which
has been necessary to finance the Company's growth and interest expense
associated with the financing of the sales facility in Tempe, Arizona. Interest
expense was offset by interest income, which was generated by the Company
through short-term investments, some of which are investment grade tax
advantaged bonds.
Income Tax Expense. The Company's effective tax rate was 39.7% and 38.9%
for the quarters ended March 31, 1999 and 1998, respectively. The increase in
the effective tax rate reflects the higher effective tax rates of the European
entities and the non-deductibility of their goodwill for tax purposes.
11
<PAGE> 12
INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
SEASONALITY
The Company has historically experienced seasonal fluctuations in its
growth of net sales, earnings from operations and net earnings. As the Company
has increased its percentage of sales from the business, education and
government markets, the Company's quarterly net sales, earnings from operations
and net earnings have been less impacted by seasonality. Due to their lower
percentages of business, education and government customers, the Company's
recent acquisitions may result in seasonal fluctuations in net sales for the
Company. Additionally, the Company's net sales growth rate, earnings from
operations and net earnings as a percentage of net sales could be affected by
the mix of types of outsourcing arrangements which are in place from time to
time. Additionally, some of the outsourcing programs can be seasonal in nature,
as their target customers can have cyclical buying patterns. For example, the
Company obtained a revenue-based outsourcing program in 1997 which offers high
dollar but low margin products primarily sold in the third quarter, which
negatively impacts gross margin.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the working capital
requirements and capital expenditures necessitated by its sales growth.
In previous years, cash flows from operations generally have been negative
due primarily to increases in accounts receivable and inventories necessitated
by sales growth and the continued shift from sales to the home market to sales
in the business, education and government markets. However, the Company's net
cash provided by operating activities was $16.1 million for the three months
ended March 31, 1999 and $24.8 million for the three months ended March 31,
1998. The positive cash flow in the current year was primarily generated from a
$12.6 million decrease in inventory a $8.7 million increase in accounts payable,
and net earnings of $6.8 million. The decrease in inventories resulted from the
Company's increased use of direct shipments from aggregators and original
equipment manufacturers which increased from 40% to 48% of orders shipped for
the three months ended March 31, 1998 and 1999, respectively. These funds were
primarily used to fund a $16.5 million increase in accounts receivable which
occurred as the result of increased sales.
Capital expenditures for the three months ended March 31, 1999 and 1998
were $4.4 million and $2.1 million, respectively. Capital expenditures for the
three months ended March 31, 1999 primarily relate to new software applications.
Capital expenditures for the three months ended March 31, 1998 primarily relate
to the continued upgrade of the Company's equipment, systems and the Company's
sales facility.
The Company's future capital requirements include financing the growth of
working capital items such as accounts receivable and inventories, the purchase
of software enhancements, the purchase of equipment, furniture and fixtures to
accommodate future growth and funds needed for future acquisitions. The Company
anticipates that cash flow from operations together with the funds available
under its credit facility should be adequate to support the Company's presently
anticipated cash and working capital requirements through 1999. The Company's
ability to continue funding its planned growth beyond 1999 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. See
12
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INSIGHT ENTERPRISES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Note 3 of Notes to Condensed Consolidated Financial Statements for
a description of the Company's $100 million credit facility.
YEAR 2000 COMPLIANCE
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems will be unable to properly interpret dates beyond
the year 1999, which could lead to business disruptions. The potential costs and
uncertainties associated with this issue will depend on a number of factors,
including software, hardware and the nature of the industry in which a company
operates. Additionally, companies must coordinate with other entities with which
they electronically interact, such as vendors, customers and lenders.
The Company has completed its assessment of its Year 2000 issues with
respect to both information technology ("IT") systems and non-IT systems. This
completed assessment has not revealed any material Year 2000 issues. Remediation
and testing, to eliminate possible business impact, is continuing and is planned
to be completed in the third quarter of 1999.
The Company is in the process of modifying its existing core-business
functions applications to be Year 2000 compliant. The Company presently believes
that with modifications to existing software, the cost of which is not expected
to be material, the Year 2000 problem will not pose significant operational
problems for the Company's internal operations. To date, the Company's
assessment of non-IT systems, such as its buildings and equipment, has not
revealed any material Year 2000 issues, assuming no disruption in telephone,
electric services and delivery.
Additionally, the Company is in the process of replacing its core-business
function applications in order to accommodate its expanding business needs.
These applications are believed to be Year 2000 compliant software, purchased
with such certification from the source vendor. Certain of these applications
are scheduled to be installed during the third quarter of 1999 at which point
the Company will proceed to the testing phase.
As part of the Company's Year 2000 assessment, it is continuing to verify
the Year 2000 readiness of third parties (vendors, customers and lenders) with
whom the Company has material relationships. At present, the Company is not able
to determine the effect on the Company's results of operations, liquidity, and
financial condition in the event the Company's material vendors, customers and
lenders are not Year 2000 compliant. In a worst case scenario, possible
consequences include loss of communications links, loss of electric power, and
inability to process transactions or engage in similar normal business
activities resulting in the inability to sell and deliver products to customers.
In addition, since not all customer situations can be anticipated, the Company
may experience sales returns of merchandise, although such returns should not
materially affect the Company's financial condition. The Company will continue
to monitor the progress of its material vendors, customers and lenders and
formulate a contingency plan at that point in time when the Company does not
believe a material vendor, customer or lender will be compliant. The Company's
internal contingency planning is not yet complete and will be reviewed regularly
until Year 2000 actually begins.
13
<PAGE> 14
INSIGHT ENTERPRISES, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Merger Agreement, dated May 10, 1999, by and between Insight
Enterprises, Inc. and Action Computer Supplies Holdings PLC
(incorporated by reference to Exh. 2.1 of Insight Enterprises, Inc.
current report on Form 8-K filed on May 12, 1999).
27.1 Financial Data Schedule for the three months ended March 31, 1999.
27.2 Financial Data Schedule for the three months ended March 31, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which the report
is filed.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: MAY 12, 1999 INSIGHT ENTERPRISES, INC.
BY: /S/ ERIC CROWN
--------------------------------
ERIC J. CROWN
CHIEF EXECUTIVE OFFICER
BY: /S/ STANLEY LAYBOURNE
--------------------------------
STANLEY LAYBOURNE
CHIEF FINANCIAL OFFICER, SECRETARY
AND TREASURER
15
<PAGE> 16
EXHIBIT INDEX
(a) Exhibits
2.1 Merger Agreement, dated May 10, 1999, by and between Insight
Enterprises, Inc. and Action Computer Supplies Holdings PLC
(incorporated by reference to Exh. 2.1 of Insight Enterprises, Inc.
current report on Form 8-K filed on May 12, 1999).
27.1 Financial Data Schedule for the three months ended March 31, 1999.
27.2 Financial Data Schedule for the three months ended March 31, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF INSIGHT ENTERPRISES, INC. AND
SUBSIDIARIES AS OF MARCH 31, 1999 AND RELATED CONDENSED CONSOLIDATED STATEMENT
OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDING MARCH
31, 1999.
</LEGEND>
<CIK> 0000932696
<NAME> INSIGHT ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 25,397
<SECURITIES> 0
<RECEIVABLES> 161,961
<ALLOWANCES> 7,230
<INVENTORY> 20,693
<CURRENT-ASSETS> 206,433
<PP&E> 45,771
<DEPRECIATION> 9,795
<TOTAL-ASSETS> 266,662
<CURRENT-LIABILITIES> 99,343
<BONDS> 8,129
0
0
<COMMON> 255
<OTHER-SE> 158,935
<TOTAL-LIABILITY-AND-EQUITY> 266,662
<SALES> 338,136
<TOTAL-REVENUES> 338,136
<CGS> 298,270
<TOTAL-COSTS> 298,270
<OTHER-EXPENSES> 27,680
<LOSS-PROVISION> 628
<INTEREST-EXPENSE> 275
<INCOME-PRETAX> 11,283
<INCOME-TAX> 4,476
<INCOME-CONTINUING> 6,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,807
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF INSIGHT ENTERPRISES, INC. AND
SUBSIDIARIES AS OF MARCH 31, 1998 AND RELATED CONDENSED CONSOLIDATED STATEMENT
OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY PERIOD
ENDING MARCH 31, 1998.
</LEGEND>
<RESTATED>
<CIK> 0000932696
<NAME> INSIGHT ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,587
<SECURITIES> 0
<RECEIVABLES> 99,283
<ALLOWANCES> 4,248
<INVENTORY> 31,411
<CURRENT-ASSETS> 141,973
<PP&E> 28,750
<DEPRECIATION> 6,951
<TOTAL-ASSETS> 163,886
<CURRENT-LIABILITIES> 43,414
<BONDS> 10,800
0
0
<COMMON> 237
<OTHER-SE> 109,435
<TOTAL-LIABILITY-AND-EQUITY> 163,886
<SALES> 206,796
<TOTAL-REVENUES> 206,796
<CGS> 181,454
<TOTAL-COSTS> 181,454
<OTHER-EXPENSES> 17,100
<LOSS-PROVISION> 777
<INTEREST-EXPENSE> 375
<INCOME-PRETAX> 7,090
<INCOME-TAX> 2,757
<INCOME-CONTINUING> 4,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,333
<EPS-PRIMARY> 0.18<F1>
<EPS-DILUTED> 0.18<F1>
<FN>
<F1>EPS - BASIC AND EPS - DILUTED ARE RESTATED TO INCLUDE THE EFFECT OF THE 3 - FOR
- - 2 STOCK SPLITS IN THE FORM OF STOCK DIVIDENDS PAID ON FEBRUARY 18, 1999 AND
SEPTEMBER 8, 1998.
</FN>
</TABLE>
