UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended: June 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.

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

The number of shares outstanding of the issuer’s common stock as of August 2, 2004 was 48,505,227.

INSIGHT ENTERPRISES, INC.
FORM 10-Q QUARTERLY REPORT
Three Months Ended June 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;
•		actions of competitors, including manufacturers of products we sell;
•		reliance on suppliers for product availability, marketing funds, purchasing incentives and competitive products to sell;
•		reliance on a limited number of outsourcing clients;
•		disruptions in our information and telephone communication systems;
•		risks associated with international operations;
•		dependence on key personnel;
•		decreased effectiveness of equity compensation and proposed changes in accounting for equity compensation;
•		rapid changes in product standards;
•		integration and operation of future acquired businesses;
•		ability to renew or replace short-term financing facilities;
•		recently enacted and proposed changes in securities laws and regulations;
•		results of litigation;
•		intellectual property infringement claims; 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” 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

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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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

     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 June 30, 2004, the results of operations for the three and six months ended June 30, 2004 and 2003, and the cash flows for the six months ended June 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 subsidiaries, which primarily are wholly-owned. 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 an investment in a company over which we have significant influence, but do not 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. We have an equity investment in our June 30, 2004 balance sheet and statement of earnings for the three months ended June 30, 2004. See Note 4 for additional information regarding our equity method investment.

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 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. 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 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):

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

     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 June 30, 2004: dividend yield – 0%; expected volatility – 74%; risk-free interest rate – 3.24%; and expected lives – 3.01 years. We did not issue any stock options in PlusNet or Direct Alliance during the three and six months ended June 30, 2004.

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 six month periods ended June 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 six month periods ended June 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 Investment

     In March 2004, we invested in ExecTechDirect Technology, Inc. dba Executive Technology (“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 is recorded in non-operating expense, net. 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 not record amortization expense associated with such embedded goodwill but 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 twenty-four months after the date of the original agreement and then only if ET has achieved certain financial ratios. For the three months ended June 30, 2004, we recorded $131,000 of non-operating expenses, representing 20% of ET’s losses, and $0 for cumulative dividends.

     ET also purchases products and services from other 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 June 30, 2004, certain of our subsidiaries held receivables, net, from ET in the amount of $215,000.

5.

Goodwill

     The changes in the carrying amount of goodwill for the six months ended June 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 June 30, 2004, the SPE owned $324,400,000 of receivables that were recorded at fair value and included in our condensed consolidated balance sheet, of which $180,300,000 was eligible for funding. The financing facility expires December 30, 2004, and, accordingly, the $65,000,000 outstanding at June 30, 2004 is recorded in current liabilities. Interest is payable monthly, and the interest rate at June 30, 2004 on borrowed funds was 1.69% per annum. We also pay a commitment fee on the facility equal to 0.35% of the unused balance. At June 30, 2004, $115,300,000 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 June 30, 2004, there were no amounts 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 floating rate or the London Interbank Offered Rate (LIBOR) based rate (5.55% and 2.92%, respectively, at June 30, 2004). The credit facility expires on December 31, 2005 and accordingly, any 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 June 30, 2004, $20,000,000 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 June 30, 2004, there was $5,600,000 outstanding under the inventories financing facility and $34,400,000 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 June 30, 2004.

7.

Income Taxes

     Our effective tax rates for the three and six months ended June 30, 2004 were 42.0% and 37.1%, respectively. For the three months ended June 30, 2004, our effective tax rates differ from the United States federal statutory rate of 35% primarily due to (i) the accrual of deferred tax expense resulting from our determination that the investment in PlusNet no longer met the indefinite reversal criteria as defined by GAAP, (ii) the recognition of an income tax benefit for valuation allowance releases related primarily to the utilization of depreciation allowance carryforwards, and (iii) state income taxes, net of federal income tax benefit. In addition to the foregoing, for the six months ended June 30, 2004, the effective tax rate was reduced by the recognition of an income tax benefit for valuation allowance releases related to a reduction of liabilities assumed in a previous acquisition and the utilization of capital loss carryforwards.

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

     Our effective tax rates for the three and six months ended June 30, 2003 were 37.0% and 33.2%, respectively. For the three and six months ended June 30, 2003, state income taxes, net of federal income tax benefit, and lower tax rates on earnings in Canada and the United Kingdom caused our effective tax rates to differ from the United States federal statutory rate of 35%. In addition, for the six months ended June 30, 2003, the effective tax rate was reduced by the recognition of an income tax benefit for income resulting from a reduction of liabilities assumed in a previous acquisition which was nontaxable.

8.

Restructuring and Acquisition Integration Activities

Acquisition-Related Restructuring Costs Expensed in 2003

     During the year ended December 31, 2003, Insight North America recorded $2,283,000 in restructuring expenses associated with costs incurred to close Insight North America’s distribution facility in Indiana and $639,000 in connection with the elimination of certain support and management positions. Of the remaining $458,000 still recorded at December 31, 2003 for facilities based costs, $390,000 was paid and the remaining $68,000 was adjusted and recorded as a reduction of selling and administrative expenses during the six months ended June 30, 2004.

     Also during the year ended December 31, 2003, Insight UK recorded $543,000 of restructuring expenses relating to severance associated with the elimination of service technicians and certain support and management functions. The remaining $46,000 still recorded at December 31, 2003 for employee based costs was adjusted and recorded as a reduction of selling and administrative expenses during the six months ended June 30, 2004.

     The following table details the changes in restructuring liabilities for the six months ended June 30, 2004 (in thousands):

Acquisition-Related Restructuring Costs Capitalized in 2001 as a Cost of Acquisition of Action

     In 2001, Insight UK recorded costs of $18,440,000 relating to restructuring the operations of Action plc (“Action”) as part of the integration of this acquisition. These costs consisted of employee termination benefits and facilities based costs of $3,532,000 and $14,908,000, respectively, of which $9,117,000 of facilities based costs remained accrued at December 31, 2003. Adjustments to the accrued facilities based costs during the six months ended June 30, 2004 includes the settlement of a liability assumed with the acquisition for $3,160,000 less than the amounts originally recorded and an increase of $272,000 related to fluctuations in the British pound sterling exchange rates. Facilities based costs of $2,570,000 were paid during the six months ended June 30, 2004, resulting in an ending accrual balance at June 30, 2004 of $3,659,000. Although the facilities based costs represent contractual payments under long-term leases, we are actively pursuing opportunities to negotiate a termination of these leases and have recorded the obligations as current accrued liabilities.

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

     The following table details the change in these liabilities for the six months ended June 30, 2004 (in thousands):

9.

Contingencies

Employment Contracts

     We have employment agreements with certain officers and management employees under which severance payments would become payable in the event of specified terminations without cause or terminations under certain circumstances after a change in control. If all such persons were terminated, and the severance payments under the current employment agreements were to become payable, the maximum contingent severance payment calculated as of June 30, 2004 would be approximately $13,900,000.

Guaranties

     In conjunction with a significant product sale made by ET, our equity method investee described in Note 4, we have provided performance and financial guaranties to a customer and a third-party product supplier on behalf of ET.

     Under the customer guaranty, we would be required to deliver products and perform under the Purchase Agreement between ET and the customer, if ET is unable to do so. With respect to this guaranty, we assessed the fair value of our obligation to stand ready to perform by considering the likelihood of occurrence of the specified triggering events or conditions requiring performance, as well as other assumptions and factors. We determined that the fair value of this guaranty is not material to our financial position, results of operations or cash flow, and, accordingly, no liability has been recorded related to this guaranty.

     Under the third-party supplier guaranty, we would be required to remit payments to the third-party supplier for the product purchased pursuant to the customer purchase order, if ET is unable to make such payments. This guaranty expires on September 5, 2004, and the maximum aggregate amount of this guaranty was $7,285,000 at June 30, 2004. Due to the fact that the customer has a strong financial and credit history, we fully expect ET to be paid in full, which increases the likelihood that the third-party supplier will be paid. In addition, the product purchased from the third-party supplier could be resold if the customer does not remit payment. We have determined that the fair value of this guaranty is $0, and, accordingly, no liability has been recorded.

Indemnifications

     In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify either our customer or a third party service provider in the arrangement from any losses incurred relating to services performed on our behalf or for losses arising from certain defined events, which may include litigation or claims relating to past performance. These arrangements include, but are not limited to, our indemnification of our officers and directors to the maximum extent under the laws of the State of Delaware, the indemnification of our lessors for certain claims arising from our use of the leased facilities, and the indemnification of the bank that provides our credit facilities for certain claims arising from the bank’s grants of

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

credit to us. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments, if any, related to these indemnifications have been immaterial, and we have not accrued any liabilities related to such indemnifications in our condensed consolidated financial statements.

Legal Proceedings

     We are a defendant in a lawsuit, which is a consolidation of four separate actions brought by stockholders in July 2002 in the United States District Court, District of Arizona. The lawsuit alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the SEC. The plaintiffs in this action allege we, and certain of our officers, made false and misleading statements pertaining to our business, operations and management in an effort to inflate the price of our common stock. The lawsuit also names as co-defendants: Eric J. Crown, the Chairman of our Board of Directors; Timothy A. Crown, our Chief Executive Officer and President and a director; and Stanley Laybourne, our Executive Vice President, Chief Financial Officer and Treasurer and a director. The plaintiffs seek class action status to represent all buyers of our common stock from September 3, 2001 through July 17, 2002. On September 27, 2003, the court granted our motion to dismiss plaintiffs’ amended complaint, but allowed plaintiffs leave to file an amended complaint, which they did on October 31, 2003. On May 11, 2004, the court granted our motion to dismiss the second amended complaint with prejudice and without leave to amend. Plaintiffs have appealed the dismissal to the Ninth Circuit Court of Appeals. We will continue to defend the case vigorously. The costs associated with defending the allegations in this lawsuit and the potential outcome cannot be determined at this time and, accordingly, no estimate for such costs has been included in these condensed consolidated financial statements.

     We are also a party to various legal proceedings arising in the ordinary course of business, including asserted preference payment claims in customer bankruptcy proceedings and claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights.

     In accordance with SFAS No. 5, “Accounting for Contingencies,” we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice