UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended: September 30, 2004

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.

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 [X]                                                                No [  ]

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X]                                                                No [  ]

The number of shares outstanding of the issuer’s common stock as of November 1, 2004 was 48,700,934.

INSIGHT ENTERPRISES, INC.
FORM 10-Q QUARTERLY REPORT
Three Months Ended September 30, 2004

TABLE OF CONTENTS

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INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

     Certain statements in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I Item 2, 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 operations or net earnings; projections of capital expenditures; projections for growth; hiring plans; plans for future operations; financing needs or plans; plans relating to our products and services; statements of belief; and statements of assumptions underlying any of the foregoing. Forward-looking statements 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 statement. 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:

	•		changes in the economic environment and/or IT industry;
	•		reliance on suppliers for product availability, marketing funds, purchasing incentives and competitive products to sell;
	•		actions of competitors, including manufacturers of products we sell;
	•		reliance on a limited number of outsourcing clients;
	•		disruptions in our information and telephone communication systems;
	•		ability to renew or replace short-term financing facilities;
	•		risks associated with international operations;
	•		dependence on key personnel;
	•		decreased effectiveness of equity compensation and proposed changes in accounting for equity compensation;
	•		changes in results of operations of or non-payment by our equity method investees;
	•		rapid changes in product standards;
	•		recently enacted and proposed changes in securities laws and regulations;
	•		intellectual property infringement claims;
	•		integration and operation of future acquired businesses; and
	•		risks that are otherwise described from time to time in our Securities and Exchange Commission (“SEC”) reports, including but not limited to the items discussed in “Factors that Could Affect Future Results and Financial Condition” set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I Item 2 of this report.

We assume no obligation to update, and do not intend to update, any forward-looking statements.

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PART 1- FINANCIAL INFORMATION

Item 1. Financial Statements

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

4

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

5

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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INSIGHT ENTERPRISES, INC.

1. Basis of Presentation

     We are a leading provider of information technology (“IT”) products and services to businesses in the United States, Canada and the United Kingdom. Our offerings include brand name computing products, IT services and outsourcing of business processes. During the quarter ended September 30, 2004, we were organized in the following three operating segments:

•		Single-source provider of IT products and services – North America (“Insight North America”);
•		Single-source provider of IT products and services – United Kingdom (“Insight UK”); and
•		Business process outsourcing provider (“Direct Alliance”).

     In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position as of September 30, 2004, the results of operations for the three and nine months ended September 30, 2004 and 2003, and the cash flows for the nine months ended September 30, 2004 and 2003. The condensed consolidated balance sheet as of December 31, 2003 was derived from the audited consolidated financial statements at such date. 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 accounting principles generally accepted in the United States of America (“GAAP”).

     The results of operations for such interim periods are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, including the related notes thereto, in our Annual Report on Form 10-K for the year ended December 31, 2003.

     The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

     The condensed consolidated financial statements include the accounts of Insight Enterprises, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. References to “the Company,” “we,” “us,” “our” and the like refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

     The equity method of accounting is used for investments in companies over which we have significant influence, but do not have control. Significant influence is generally deemed to exist when we have an ownership interest in the voting stock of the investee of between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. See Note 4 for additional information regarding our equity method investments.

2. Stock Based Compensation

     We apply the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations including Financial Accounting Standards Board (“FASB”) Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation — an interpretation of APB Opinion No. 25” to account for our fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method of accounting described above and have

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

adopted the disclosure requirements of SFAS No. 123. Accordingly, we do not recognize compensation expense for any of our stock-based plans because we do not issue options at exercise prices below the market value at date of grant. Had compensation cost for our stock-based plans been determined consistent with SFAS No. 123, our net earnings and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):

     For purposes of the SFAS No. 123 pro forma net earnings and net earnings per share calculations, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants of stock options in Insight Enterprises, Inc. during the three months ended September 30, 2004: dividend yield – 0%; expected volatility – 73%; risk-free interest rate – 2.79%; and expected lives – 2.30 years. We did not issue any stock options in Direct Alliance during the three and nine months ended September 30, 2004.

     Until the initial public offering (“IPO”) of PlusNet plc (“PlusNet”) on July 14, 2004, we had reserved shares of common stock of PlusNet under the PlusNet Technologies Limited 2000 Long-Term Incentive Plan. The sale of shares in the offering reduced our percentage ownership in PlusNet to approximately 45%. Accordingly, since July 14, 2004, we are accounting for our investment in PlusNet under the equity method, and as a result, the PlusNet Technologies Limited 2000 Long-Term Incentive Plan is no longer an Insight Enterprises, Inc. plan. See Note 4 for additional information regarding our equity method investment in PlusNet.

3. Earnings Per Share (“EPS”)

     Basic EPS is computed by dividing net earnings available to common stockholders by the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect of stock options assumed to be exercised using the treasury stock method. The reconciliation of the numerators and denominators of the basic and diluted EPS calculations were as follows for the three and nine month periods ended September 30, 2004 and 2003 (in thousands, except per share data):

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

     The following weighted average outstanding stock options during the three and nine month periods ended September 30, 2004 and 2003 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.

4. Equity Method Investments

     Executive Technology, Inc., fka ExecTechDirect Technology, Inc. (“ET”)

     In March 2004, we invested in ET, a minority-owned reseller of information technology products and services. We recorded the initial investment of $400,000 at cost in “other assets” on our condensed consolidated balance sheet. Our investment represents 20% of the total outstanding common and preferred shares of ET in the form of Series A Preferred shares and is accounted for under the equity method. Accordingly, 20% of ET’s earnings or losses are recorded in our condensed consolidated statements of earnings under “equity in income of investees.” At the time of investment, the entire basis of our investment exceeded the underlying equity in the net assets of the investee. Therefore, we accounted for the investment as goodwill embedded in our investment. We will assess whether such embedded goodwill is impaired on an annual basis. In addition to the 20% net earnings or loss recorded, we will increase our investment, to the extent deemed recoverable, by the amount of cumulative distributions of profit sharing equal to 20% of ET’s cumulative net earnings. These cumulative dividends are accrued but not paid until 24 months after the date of the original agreement and then only if ET has achieved certain financial ratios.

     ET also purchases products and services from some of our subsidiaries at rates that we believe are no different than would be negotiated in arm’s length transactions. We have offered extended terms to ET that are not routinely offered to other customers and have made advances to third-party suppliers for product purchased by ET pursuant to purchase orders from an ET customer. The payments related to these advances are paid to us via a lock-box arrangement as ET’s customer pays ET for the product purchased. Where appropriate, intercompany transactions and balances have been eliminated. At September 30, 2004, certain of our subsidiaries held receivables from ET in the amount of $5,966,000. The receivables were for products purchased, services

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

rendered and for advances to third-party suppliers for product purchased by ET and are included as receivables from equity method investees on the accompanying condensed consolidated balance sheets.

     PlusNet

     During the three months ended September 30, 2004, we successfully completed an IPO of 13,900,000 shares of PlusNet at a public offering price of £0.90 per share (approximately $1.67 a share). Trading in PlusNet shares began on July 14, 2004 under the symbol “PNT” on AIM, a market of the London Stock Exchange. Insight Enterprises, Inc. sold 11,111,111 shares, which resulted in net proceeds to Insight Enterprises of £9,500,000 (approximately $17,400,000). PlusNet’s market value, based on the public offering price, was £25,110,000 (approximately $46,705,000) compared to the £9,126,000 (approximately $16,933,000) that we paid for PlusNet in 1998. We recorded a gain of $6,654,000 in the three months ended September 30, 2004 on our sale of shares. Additionally, we recorded bonus expenses of $929,000, including employer taxes, related to a management incentive plan with the top executives at PlusNet. The management incentive plan compensates them, as a group, with approximately 12.5% of the gain, after certain adjustments, related to the sales in the IPO, as well as future sales of PlusNet shares owned by Insight Enterprises.

     The sale of shares in the offering reduced our percentage ownership of PlusNet to approximately 45%. Accordingly, starting in the three months ended September 30, 2004; we are accounting for our investment in PlusNet under the equity method and are no longer reporting PlusNet as a separate operating segment. We are restricted from selling additional shares of PlusNet prior to the announcement of PlusNet’s interim results for the six-month period ending June 30, 2005, without the prior consent of Robert W. Baird Limited, the underwriters of the IPO.

     PlusNet also purchases products and services from some of our subsidiaries at rates and terms that we believe are no different than would be negotiated in arm’s length transactions. Where appropriate, intercompany transactions and balances have been eliminated. At September 30, 2004, certain of our subsidiaries held receivables from PlusNet in the amount of $55,000, which are included as receivables from equity method investees on the accompanying condensed consolidated balance sheets.

     For the three and nine months ended September 30, 2004, we recorded $318,000 and $187,000, respectively, of equity in income of investees, representing our percentage ownership of the income or loss of PlusNet and ET.

5. Goodwill

     The changes in the carrying amount of goodwill for the nine months ended September 30, 2004 are as follows (in thousands):

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

6. Financing Facilities

     Our financing facilities include a $200,000,000 accounts receivable securitization financing facility, a $30,000,000 revolving line of credit and a $40,000,000 inventories financing facility.

     We have an agreement to sell receivables periodically to a special purpose accounts receivable and financing entity (the “SPE”), which is exclusively engaged in purchasing receivables from us. The SPE is a wholly-owned, bankruptcy-remote entity that we have included in our condensed consolidated financial statements. The SPE funds its purchases by selling undivided interests in up to $200,000,000 of eligible trade accounts receivable to a multi-seller conduit administered by an independent financial institution. The sales to the conduit do not qualify for sale treatment under SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” as we maintain control over the receivables that are sold. Accordingly, the receivables remain recorded on our condensed consolidated financial statements. At September 30, 2004, the SPE owned $350,988,000 of receivables that were recorded at fair value and included in our condensed consolidated balance sheet, of which $182,480,000 was eligible for funding. The financing facility expires December 30, 2004, and, accordingly, the $45,000,000 outstanding at September 30, 2004 is recorded in current liabilities. Interest is payable monthly, and the interest rate at September 30, 2004 on borrowed funds was 2.21% per annum. We also pay a commitment fee on the facility equal to 0.35% of the unused balance. At September 30, 2004, $137,480,000 was available under the facility. We have no reason to believe the facility will not be renewed at the end of its current term.

     As of September 30, 2004, there was $5,502,000 outstanding under our $30,000,000 revolving line of credit. The line of credit bears interest, payable quarterly, at a rate chosen by us among available rates subject to our leverage ratio and other terms and conditions. The available rates are the financial institution’s prime rate or the London Interbank Offered Rate (LIBOR) based rate (4.75% and 3.09%, respectively, at September 30, 2004). We also pay a commitment fee on the facility equal to 0.30% of the unused balance. The credit facility expires on December 31, 2005, and, accordingly, amounts outstanding are recorded as long-term liabilities. We have an outstanding letter of credit that reduces the availability on this line of credit by $10,000,000. At September 30, 2004, $14,498,000 was available under the line of credit.

     Our $40,000,000 secured inventories financing facility can be used to facilitate the purchases of inventories from certain suppliers and amounts outstanding are recorded as accounts payable. As of September 30, 2004, there was $9,226,000 outstanding under the inventories financing facility and $30,774,000 was available. This facility is non-interest bearing if paid within its terms and expires on December 31, 2005.

     Our facilities contain various covenants including the requirement that we maintain a specified amount of tangible net worth and comply with leverage and minimum fixed charge requirements. We were in compliance with all such covenants at September 30, 2004.

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

7. Income Taxes

     Our effective tax rates for the three and nine months ended September 30, 2004 were 26.2% and 33.1%, respectively. For the three months ended September 30, 2004, our effective tax rate differs from the United States federal statutory rate of 35% primarily due to the following:

•		a tax benefit of $2,110,000 recorded to reflect an increase in the actual tax basis of the PlusNet shares over the original estimate recorded in the three months ended June 30, 2004;
•		the gain on the sale of the PlusNet shares being taxed at an effective rate of 23%;
•		income resulting from the reduction of certain Insight UK liabilities assumed in connection with a previous acquisition not being taxable;
•		lower tax rates on earnings in the United Kingdom; and
•		state income taxes, net of federal tax benefit.

In addition to the foregoing, for the nine months ended September 30, 2004, the effective tax rate was reduced by the recognition of income tax benefits for the utilization of capital loss and depreciation allowance carryforwards.

     Our effective tax rates for the three and nine months ended September 30, 2003 were 33.6% and 33.4%, respectively. Our effective tax rates for the three and nine months ended September 30, 2003 differ from the United States federal statutory rate of 35% due to state income taxes, net of federal income tax benefit, and lower tax rates on earnings in Canada and the United Kingdom. The effective tax rate for the nine months ended September 30, 2003 was also reduced because income resulting from the reduction of certain Insight UK liabilities assumed in connection with a previous acquisitions was not taxable and because we realized a tax benefit related to a UK foreign currency exchange loss in conjunction with an intercompany debt-to-equity conversion.

8. Restructuring and Acquisition Integration Activities

Severance and Restructuring Costs Expensed in 2004

     During the three months ended September 30, 2004, Insight North America, Insight UK and Direct Alliance recorded severance and restructuring expenses of $1,975,000, $377,000 and $83,000, respectively, for severance attributable to the elimination of certain sales, support and management functions. These amounts include $1,650,000 recorded for the retirement of P. Robert Moya, Executive Vice President, Chief Administrative Officer, General Counsel and Secretary and the planned elimination of this senior executive position. Of the amounts recorded during the quarter, $408,000 and $101,000 were paid in Insight North America and Insight UK, respectively, leaving accruals of $1,567,000 and $276,000, respectively, at September 30, 2004. No amounts were paid during the three months ended September 30, 2004 for Direct Alliance’s severance and restructuring expenses. We expect to pay all amounts outstanding at September 30, 2004, which primarily relate to the severance due to Mr. Moya, by January 31, 2005.

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

     The following table details the changes in severance and restructuring liabilities during the three months ended September 30, 2004 (in thousands):