UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2007

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     .

INSIGHT ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Delaware		86-0766246
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

1305 West Auto Drive, Tempe, Arizona 85284
(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (480) 902-1001

Securities registered pursuant to Section 12(b) of the Act:

Title Of Each Class		Name Of Each Exchange On Which Registered
Common stock, par value $0.01		NASDAQ

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o      No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o      No þ

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 report(s)), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based upon the closing price of the Registrant’s common stock as reported on The Nasdaq Global Select Market on June 29, 2007, the last business day of the Registrant’s most recently completed second fiscal quarter, was $1,090,737,456.

The number of issued and outstanding shares of the Registrant’s common stock on February 15, 2008 was 48,725,236.

 

 

INSIGHT ENTERPRISES, INC.

ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2007

TABLE OF CONTENTS

		Page
PART I
ITEM 1. Business			3
ITEM 1A. Risk Factors			12
ITEM 1B. Unresolved Staff Comments			19
ITEM 2. Properties			19
ITEM 3. Legal Proceedings			19
ITEM 4. Submission of Matters to a Vote of Security Holders			20
PART II
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			21
ITEM 6. Selected Financial Data			23
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk			41
ITEM 8. Financial Statements and Supplementary Data			42
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			77
ITEM 9A. Controls and Procedures			77
ITEM 9B. Other Information			78
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance			79
ITEM 11. Executive Compensation			79
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			79
ITEM 13. Certain Relationships and Related Transactions, and Director Independence			79
ITEM 14. Principal Accountant Fees and Services			79
PART IV
ITEM 15. Exhibits and Financial Statement Schedules			79
SIGNATURES			80
EXHIBITS TO FORM 10-K			81
Exhibit 21
Exhibit 23.1
Exhibit 24.1
Exhibit 24.2
Exhibit 24.3
Exhibit 24.4
Exhibit 24.5
Exhibit 24.6
Exhibit 24.7
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

INSIGHT ENTERPRISES, INC.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K, including statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include: projections of matters that affect net sales, gross profit, operating expenses, earnings from continuing operations, non-operating income and expenses, earnings from discontinued operations, net earnings or cash flows, the payment of accrued expenses and liabilities and costs or gains that may result from post-closing adjustments pertaining to business acquisitions or dispositions; effects of acquisitions or dispositions; projections of capital expenditures, growth and our effective tax rate and earnings per share in 2008; hiring plans; plans for future operations; the availability of financing and our needs or plans relating thereto; plans relating to our products and services; the effect of new accounting principles or changes in accounting policies; the effect of guaranty and indemnification obligations; projections about the outcome of ongoing tax audits; statements related to accounting estimates, including estimated stock option and other equity award forfeitures, and deferred compensation cost amortization periods; statements regarding a stockholder’s demand to inspect our books and records pursuant to Section 220 of the Delaware General Corporation Law discussed in “Legal Proceedings” in Part I, Item 3 of this report; statements of belief; and statements of assumptions underlying any of the foregoing. Forward-looking statements are identified by such words as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will,” “may” and variations of such words and similar expressions, and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. There can be no assurances that forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. 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 information technology industry and/or the economic environment;
	•		our reliance on partners for product availability, marketing funds, purchasing incentives and competitive products to sell;
	•		disruptions in our information technology systems and voice and data networks, including the upgrade to mySAP and the migration of acquired businesses to our information technology systems and voice and data networks;
	•		the integration and operation of acquired businesses, including our ability to achieve expected benefits of the acquisitions;
	•		actions of our competitors, including manufacturers and publishers of products we sell;
	•		the informal inquiry from the Securities and Exchange Commission (“SEC”) and stockholder litigation related to our historical stock option granting practices and the related restatement of our consolidated financial statements;
	•		the risks associated with international operations;
	•		seasonal changes in demand for sales of software licenses;
	•		increased debt and interest expense and lower availability on our financing facilities and changes in the overall capital markets that could increase our borrowing costs or reduce future availability of financing;
	•		exposure to currency exchange risks and volatility in the U.S. dollar exchange rate;
	•		our dependence on key personnel;
	•		risk that purchased goodwill or amortizable intangible assets become impaired;
	•		failure to comply with the terms and conditions of our public sector contracts;
	•		rapid changes in product standards; and
	•		intellectual property infringement claims and challenges to our registered trademarks and trade names.

Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the SEC. Any forward-looking statements in this release should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others. We assume no obligation to update, and do not intend to update, any forward-looking statements. We do not endorse any projections regarding future performance that may be made by third parties.

INSIGHT ENTERPRISES, INC.

PART I

Item 1. Business

General

Insight Enterprises, Inc. (“Insight” or the “Company”) is a leading provider of brand-name information technology (“IT”) hardware, software and services to large enterprises, small- to medium-sized businesses (“SMB”) and public sector institutions in North America, Europe, the Middle East, Africa and Asia-Pacific. The Company is organized in the following three operating segments, which are primarily defined by their related geographies:

										% of 2007 Consolidated
						% of 2007				Earnings from
Operating Segment*		Geography				Consolidated Net Sales				Operations
North America		United States and Canada					70	%			69	%
EMEA		Europe, Middle East and Africa					28	%			27	%
APAC		Asia-Pacific					2	%			4	%

*	-	Additional detailed segment and geographic information can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and in Note 17 to the Consolidated Financial Statements in Part II, Item 8 of this report.

We help companies around the world design, enable, manage and secure their IT environment with our process knowledge, technical expertise and product fulfillment and logistics capabilities. Our management tools and capabilities make designing and deploying IT solutions easier, and we help our clients streamline IT management and manage IT costs. Insight is located in 22 countries, and we support clients in 170 countries, transacting business in 17 languages and 13 currencies. Currently, our offerings in North America and the United Kingdom include brand-name IT hardware, software and services. Our offerings in the remainder of our EMEA segment and in APAC currently only include software and select software-related services. On a consolidated basis, hardware, software and services represented 56%, 42% and 2%, respectively, of our net sales in 2007, compared to 72%, 26% and 2%, respectively, in 2006.

We were incorporated in Delaware in 1991 as the successor to an Arizona corporation that commenced operations in 1988. We began operations in the U.S., expanded into Canada in 1997 and into the United Kingdom in 1998. In September 2006, through our acquisition of Software Spectrum, Inc. (“Software Spectrum”), we penetrated deeper into global markets in EMEA and APAC, where Software Spectrum already had an established footprint and strategic relationships. As part of our plan to focus on the core elements of our growth strategy, we sold PC Wholesale in March 2007. PC Wholesale was engaged in the business of selling IT products to other resellers in the U.S. Also, as part of this plan, we sold 100% of the outstanding stock of Direct Alliance Corporation (“Direct Alliance”), a business process outsourcing provider in the U.S., in 2006. Our corporate headquarters are located in Tempe, Arizona.

On January 24, 2008, we signed an agreement and plan of merger to acquire privately-held Calence, LLC (“Calence”), one of the nation’s largest independent technology service providers specializing in Cisco networking solutions, advanced communications and managed services. This acquisition is consistent with our vision and strategy to become a G-VAR through continued investment in certain key technology categories, including networking and advanced communications.

Business Strategy

Our strategic vision is to be the trusted advisor to our clients, helping them enhance their business performance through innovative IT solutions. Our strategy is to grow profitable market share through the continued transformation of Insight into a complete IT solutions company, with growth expected from a combination of organic growth and acquisitions, and to establish Insight as a Global Value-Added Reseller (“G-VAR”). We believe this strategy will differentiate us in the marketplace and give us a competitive advantage. Our strategic plan over the past few years has been to transform Insight from an IT products reseller to an IT solutions provider. Historically, we primarily engaged in our clients’ acquisition cycle once they had substantially determined their IT needs.

INSIGHT ENTERPRISES, INC.

We recognize, and are proactively reacting to, the fact that the historical value proposition of a direct marketer, which includes broad product selection, competitive prices and an efficient supply chain, is no longer a unique differentiator in the marketplace. Increasingly, our role has shifted to one of a trusted advisor, where we are involved earlier in our clients’ IT planning cycle, assisting our clients as they make technology decisions. We believe this creates stronger relationships with our clients, allowing us to help accelerate attainment of our clients’ business objectives, expand the range of products and services we sell to each of our current clients, and attract new clients. We are focused on bringing more value to our clients employees (referred to within the Company and this document as “teammates”) and suppliers (referred to within the Company and this document as “partners”) through the evolution of Insight’s value proposition.

To enable our strategic vision, Insight is focused on seven strategic initiatives:

	•		Continue to build “VAR-like” solutions capabilities;
	•		Leverage existing client relationships;
	•		Extend our reach into new client segments;
	•		Expand our global capabilities;
	•		Align tactics to ensure we deliver value to partners;
	•		Drive operational efficiency and improve our return on invested capital (“ROIC”); and
	•		Continue to strengthen the teammate experience.

Continue to build “VAR- like” solutions capabilities. We believe that Value-Added Resellers (“VARs”) have historically serviced the solutions needs of business end-users, particularly in the SMB sector. These resellers are typically smaller companies with technical expertise in a small number of areas covering a limited geographic area. The VAR model is expensive, as it is labor intensive with higher operating expenses than a typical direct marketer. However, clients are frequently willing to pay for the value-added advice and services that VARs provide. Unlike “typical” VARs, Insight has broader capabilities as we are focused on three areas of technical expertise: deep and growing service capabilities; an expansive product offering with an efficient supply chain; and the ability to service clients globally.

In addition to our IT lifecycle services offerings, our strategy is to focus on expanding our technical expertise through a combination of organic growth and acquisitions, in three high-growth solution areas:

	•		Networking and Communication;
	•		High Performance Systems; and
	•		Enterprise Software.

We are aligning activities across all functions including product management, services, sales, marketing and training to support development of VAR-like capabilities in these three key IT solution areas.

We believe the attributes that differentiate Insight are our technical expertise and services capabilities rather than the base competencies of providing a broad product selection, competitive pricing and an efficient supply chain to our clients. By maintaining the strength of our base value proposition and continuing to develop the differentiators above that base, Insight can be a single source for our clients’ technology needs: from standard hardware and software to advanced technologies; and from standard lifecycle services to advanced IT solutions.

Leverage existing client relationships. Our relationships with our clients remain at the heart of our business. We do not manufacture product, nor do we significantly alter product that passes through our facilities. Our client loyalty is based on the trust they have in our organization, their ties with our teammates, and their confidence that Insight will provide the right solutions to address their needs. Therefore, it is imperative that our focus for innovation and improvement be around relationships and providing an exceptional experience for our clients.

Increasing the assortment of products and services a client purchases from us and directing clients to advanced technologies in order to enhance their businesses are areas of strategic focus to increase our “share-of-wallet” with our existing client base. Our goal is to increase the percentage of our clients that buy all three categories (hardware, software and services) from us, as we believe this creates increased loyalty with our clients and results in higher profitability. As part of our ongoing mySAP Business Suite (“mySAP”) IT system upgrade, our goal is to increase our use of customer relationship management (“CRM”) tools and analytics to target and identify clients with the greatest propensity to have an interest in certain technology solutions.

INSIGHT ENTERPRISES, INC.

An important differentiator for Insight is our multi-faceted selling approach, which makes it easier for our clients to do business with us. Based on their preferences, our clients can interact with us face-to-face, via the Web or over the phone. Consequently, a client can select the type of interaction method that best meets their needs and preferences at any given point in time.

We measure client satisfaction each month and report the results to our Client Action Council (“CAC”). The client satisfaction survey has been standardized globally so that we have comparative data from all regions about all of our offerings. We also introduced a client loyalty index which helps gauge the depth of our clients’ satisfaction with Insight based on three components of loyalty: overall satisfaction, willingness to recommend, and likelihood to repurchase. In addition to the client satisfaction research, we host a semi-annual meeting with some of our largest global clients and regularly solicit input from our sales executives through round tables and other means. All of this feedback is reported to our CAC and action plans are developed to address identified issues and/or opportunities.

Extend our reach into new client segments. Our clients include businesses as well as government and educational entities. Historically, our SMB client set was composed primarily of clients with over 500 technology users who regularly use business technology in the performance of their jobs. We believe the overall SMB space to be a valuable portion of the IT hardware, software and services market because these entities demand high-performance technology solutions, appreciate well-trained account executives, purchase frequently, are value conscious and are knowledgeable buyers who require less technical support than the average individual consumer. Part of our strategy to extend our reach into new client segments is to expand our target base to include clients with 50-500 technology users. We have created a special team of account executives focused solely on the 50-500 user small business market within the SMB market with metrics, methodology and offers that will address the unique needs of this client set. We believe this market provides incremental opportunity for Insight, specifically in the U.S., and that this portion of the market is underserved and typically provides good gross margin. Our operating model, which allows us to tailor our offerings to the size and complexity of our client, positions us to serve our target markets effectively by combining highly qualified field and telesales account executives, advanced service capabilities, focused client service, competitive pricing and cost-effective distribution systems. During 2007, virtually all of our net sales were to large enterprise, SMB and public sector institutions, and no single client accounted for more than 3% of our consolidated net sales.

We are focused on understanding clients’ business needs through disciplined account planning, data mining, and on-going research. Another focus of our strategy is to dedicate our sales force to specific industries in order to develop an in-depth understanding of what the needs are of each industry segment in order to most effectively take specific solutions to market. Based on industry research, client feedback and partner input, we believe that segmenting based on industry vertical is an effective way to gain the required expertise. We are prioritizing development of the tools and capabilities to solve business needs within target industry verticals with the greatest potential for growth.

Expand our global capabilities. We believe that our global delivery capabilities differentiate us and that our clients and partners understand and appreciate this aspect of our value proposition. Insight has a larger geographic footprint than the majority of our competitors, and we also offer the benefit of unbiased support and advice compared to manufacturers.

In our experience, global clients desire global service, pricing, reporting and management to help them gain control over a complex global IT network. We currently have a suite of services and reports to support our clients’ global software needs; however, many of our key clients and partners are driving us to have a wider presence beyond these global software related services. We believe an expanded global presence will help us build greater client loyalty and increase our “share of wallet” through the value-add of a broad line of hardware, software and services offerings and support for some of our largest clients.

Our geographic expansion plans are focused on two distinct activities:

	•		Geographic expansion – Focused on providing deeper reach by launching software in EMEA and APAC in growing markets where we see the greatest growth and return on investment opportunity.
	•		Portfolio expansion – Focused on broadening our offering in established markets by adding hardware and services and expanding our client base in all existing markets through deeper penetration of SMB and public sector institutions and through outsource and hosting companies.

For a discussion of risks associated with international operations, see “Risk Factors – There are risks associated with our international operations that are different than the risks associated with our operations in the U.S., and our exposure to the risks of a global market could hinder our ability to maintain and expand international operations,” in Part I, Item 1A of this report.

INSIGHT ENTERPRISES, INC.

Align tactics to ensure we deliver value to partners. We are focused on understanding our partners’ objectives and developing plans and programs to grow our mutual businesses. We believe that as we increase loyalty and grow our “share-of-wallet” with our clients, it will result in increased sales and growth in market share for our partners. Success against these two goals is the primary driver of partner satisfaction with Insight. Our strategy is focused on aligning marketing plans with partners’ initiatives and goals; building enhanced capabilities to deliver, monitor, analyze and report return on marketing investment for our partners; and building strong relationships with our key partners’ field sales organizations.

We measure partner satisfaction annually through a partner satisfaction survey in North America and EMEA and through similar means in APAC. We hold quarterly business reviews with our largest partners to review business results from the prior quarter, discuss plans for the next quarter and obtain feedback. Our Partner Action Council surveys results and feedback, and we implement action plans to address identified issues and/or opportunities. Additionally, we host an annual partner conference in North America and EMEA where we articulate our strategy and facilitate various strategic and tactical discussions with our partners.

For a discussion of risks associated with our reliance on partners, see “Risk Factors – We rely on our partners for product availability, marketing funds, purchasing incentives and competitive products to sell,” in Part I, Item 1A of this report.

Drive operational efficiency and improve our return on invested capital (“ROIC”). We have implemented an ROIC focus into our core management systems, including incentive bonus plans, and have introduced appropriate metrics and rewards to reinforce the importance of this key measure. A team of key executives have been assigned to drive ROIC improvement initiatives on a global basis, to include education and awareness initiatives. We expect that the execution of our mySAP IT system upgrade and global deployment, discussed in more detail below, will help us execute our strategy and realize cost efficiencies. Additionally, we are focused on improving working capital metrics, such as days sales outstanding, inventory turns and days purchases outstanding.

Continue to strengthen the teammate experience. We believe our teammates are the foundation of the Insight experience. Accordingly, we focus on teammate development to promote teammate satisfaction, build teammates’ skill sets and motivate teammates to ensure client satisfaction. As with partner satisfaction, we measure teammate satisfaction annually through a global teammate satisfaction survey. The surveys are administered and analyzed by an outside firm to encourage frank responses and to provide perspective on results versus other companies. In addition to the annual teammate survey, we monitor key metrics for teammates each month, such as turnover and attrition rates, as well as measures against development, diversity and training goals. Our Teammate Action Council meets quarterly to review metrics and develop action plans to address any identified issues.

Hardware, Software and Services Offerings

Hardware Offerings. We currently offer our clients in North America and the United Kingdom a comprehensive selection of brand-name IT hardware products, and we plan to expand our hardware offerings to certain markets where we currently only offer software and select software-related services. We offer products from hundreds of manufacturers, including Hewlett-Packard (“HP”), Cisco, Lenovo, IBM, Toshiba, Sony and American Power Conversion Corporation (“APC”). Our scale and purchasing power, combined with our efficient, high-volume and cost effective direct sales and marketing forces, allow us to offer competitive prices. We believe that offering multiple vendor choices enables us to better serve our clients by providing a variety of product solutions to best address their specific business needs. These needs may be based on particular client preferences or other criteria, such as real-time best pricing and availability, or compatibility with existing technology. In addition to our distribution facilities, we have “direct-ship” programs with many of our partners through the use of EDI and XML links allowing us to expand our product offerings without further increasing inventory, handling costs or inventory risk exposure. As a result, we are able to offer a vast product offering with billions of dollars of products in virtual inventory. Convenience and product options among multiple brands are key competitive advantages against manufacturers’ direct selling programs, which are generally limited to their own brands and may not offer clients a complete or best solution across all product categories.

The manufacturer warrants most of the products we market, and it is our policy to request that clients return their defective products directly to the manufacturer for warranty service. On selected products, and for selected client service reasons, we may accept returns directly from the client and then either credit the client or ship a replacement product.

INSIGHT ENTERPRISES, INC.

We generally offer a limited 15- to 30-day return policy for unopened products and certain opened products, which are consistent with manufacturers’ terms; however, for some products we may charge restocking fees. Products returned opened are quickly processed and returned to the manufacturer or partner for repair, replacement or credit to us. We resell most unopened products returned to us. Products that cannot be returned to the manufacturer for warranty processing, but are in working condition, are promptly sold to inventory liquidators, to end users as “previously sold” or “used” products, or through other channels to limit our losses from returned products.

Software Offerings. Our clients acquire software applications from us in the form of licensing agreements with software publishers, boxed products, or through a growing delivery model, “Software as a Service” (“SaaS”). Under SaaS, clients subscribe to software that is hosted off-site. The majority of our clients purchase their software applications through licensing agreements, which we believe is a result of their ease of administration and cost-effectiveness. Licensing agreements, or right-to-copy agreements, allow a client to either purchase a license for each of its users in a single transaction or periodically report its software usage, paying a license fee for each user. For most clients, the overall cost of acquiring software through a licensing arrangement is substantially less than purchasing boxed products.

As software publishers choose different procedures for implementing licensing agreements, businesses are faced with a significant challenge to evaluate all the alternatives and procedures to ensure that they select the appropriate agreements, comply with the publishers’ licensing terms and properly report and pay for their software licenses. A large, multinational corporation may have over 100,000 users, increasing the complexity associated with purchasing and managing their software assets. We work closely, either locally or globally, with our clients to understand their requirements and educate them regarding the options available under partner licensing agreements.

Many of our clients who have elected to purchase software licenses through licensing agreements have also entered into software maintenance agreements which allow clients to receive new versions, upgrades or updates of software products released during the maintenance period, in exchange for a specified annual fee. These fees may be paid in monthly, quarterly or annual installments. Upgrades and updates are revisions to previously published software that improve or enhance certain features of the software and/or correct errors found in previous versions. We assist our partner publishers and clients in tracking and renewing these agreements.

Our proprietary systems support the requirements necessary to service licensing agreements for our clients. Our systems provide individualized client contract management data, assist clients in complying with licensing agreements and provide clients with necessary reporting information.

In connection with certain enterprise-wide licensing agreements, publishers may choose to bill and collect from clients directly. In these cases, we earn a referral fee directly from the publisher.

Our Insight:LicenseAdvisor ™ product is a proprietary integrated software asset management platform that is designed to enable organizations to gain better control of their software assets, thereby saving money and helping to ensure software license compliance. Feedback from clients that have invested in other software asset management tools indicates that clients may still make unnecessary purchases, fall out of compliance with software licenses, are slow to distribute software to their employees, and do not believe they are in control of their software asset lifecycle. Insight:LicenseAdvisor integrates with a company’s internal processes and other asset management technology to improve compliance with software licenses and reduce costs.

Services Offerings. Effectively managing hardware and software assets is paramount to fully utilizing technology investments. As our presence in a particular market grows, we will look for opportunities to round out our solutions offerings with a suite of professional services. These services require an extensive team of field services personnel and, therefore, generally require that we be broadly and deeply established in a market to support the investment. We currently offer these services in the U.S. and the United Kingdom via our own field service personnel, augmented by services partners to fill gaps in our geographic coverage or capabilities. We also utilize partners to deliver these services in Canada.  We expect to continue to develop these capabilities internally or through targeted acquisitions over time in other geographies, as they are an essential element of a technology solution and a key differentiator for us. 

Being an IT solutions provider requires that we have a high level of technology expertise and experience implementing complex IT solutions. The breadth and quality of our technical and service capabilities are key points of differentiation for us.  We have, and are developing, an array of technical expertise and service capabilities to help identify, acquire, implement and manage technology solutions to allow our clients to address their business needs and accelerate attainment of their business objectives. We believe that none of our competition is able to offer the same breadth and depth of IT solutions that we offer across all target client groups in North America, EMEA and APAC.

INSIGHT ENTERPRISES, INC.

Today, we have four technology practice groups that focus on key emerging technologies and best practice standards that are required to build, upgrade and/or optimize agile and cost-effective IT infrastructures to better meet the needs of businesses.  These groups focus on IT lifecycle services and three additional solutions areas that we believe will best address the needs of our clients and provide strong growth for us. Our practice groups are:

	•		Lifecycle Services;
	•		Networking and Communications;
	•		High Performance Systems; and
	•		Enterprise Software.

These technology practice groups are responsible for understanding client needs and, together with our technology partners, customizing total solutions that address those needs. These technology practice groups are made up of industry- and product-certified engineers, consultants and specialists who are up-to-date on best practices and the latest developments in their respective practice areas.  These groups work with our account executives and their clients to understand business needs and identify the right services and solutions to address those needs. 

Lifecycle Services. We offer clients a suite of services designed to streamline the deployment cycle of IT assets, as well as minimize the complexity and cost of managing those assets throughout their life. We act as our clients’ trusted advisor and provide advice on hardware, software licensing and financing programs; streamline procurement; plan and manage the roll-out; assist with developing standards and implementing best practices; pre-configure systems, load custom software images and tag assets; provide logistics planning and drop-ship to locations; provide on-site implementation; offer help desk support for users; and provide IT maintenance services and properly dispose of old equipment when it reaches its end-of-life. These services are available primarily in the U.S., Canada and the United Kingdom.

Networking and Communications. The communications landscape for enterprises continues to experience a rapid degree of change and convergence. Many enterprises are finding that phone, fax and e-mail, alone, are no longer sufficient for day-to-day business and long-term productivity gain. Advanced networking technologies that merge voice, data and video applications are quickly becoming a critical component of an enterprise’s strategic IT infrastructure and the backbone of an organization’s unified communications strategy.

We are a Cisco Gold Certified partner, and our Networking and Communications solutions provide clients secure voice and data communications within and across organizations. We offer design, implementation and support of a wide range of networking and communications solutions including IP-based telephony, unified communications, wireless LAN, network security, network management and network infrastructure, and mobility solutions.

High-Performance Systems and Storage. Designing, implementing and managing adaptive server and storage environments in a cost-effective manner is becoming increasingly difficult. Using technology from HP, IBM, EMC, AMD and VMWare, we provide high-end servers, data disk arrays, hard drives, tape libraries, blades, and virtualization software to help clients build and maintain responsive IT infrastructures that allow them to quickly adapt to changes in business priorities. We also provide IT professional services for assessing, implementing and managing these environments for our clients – ensuring a resilient and cost-effective data center while reducing maintenance and management costs.

Enterprise Software Solutions. There are many challenges associated with maintaining a well-managed software infrastructure. New software technology requires our clients to implement large roll-outs of desktop and server applications, which can be complex, costly, and time-consuming. In addition, innovative technologies are being introduced to address new requirements for communications, collaboration and information usage. These challenges and requirements are driving our clients to update their current software infrastructures.

As one of the leading resellers of Microsoft business software, we provide desktop deployment, communication and collaboration solutions for clients. We assess, implement and manage a clients’ software environment through our portfolio of service offerings including configuration and integration services. These services remove time-consuming steps and costs from the deployment process, field-based implementation services, warranty support and leasing programs.

INSIGHT ENTERPRISES, INC.

We have a service delivery team of over 400 consultants, project managers, certified engineers and technicians in 18 offices across the U.S. who are responsible for implementing services used to effectively deploy and manage our solution offerings at client sites. This IT service delivery team provides project-based consulting and professional services, such as assessment planning, architecture and design services, field implementation, systems integration and optimization, and knowledge transfer services.

Information Technology Systems

Our IT systems are at the center of our technology-based operations. To further enable our business, we are in the process of upgrading from SAP version 4.6 to mySAP.

Our current plans include a deliberate and client-specific approach to the deployment of mySAP in the U.S. The key objectives for 2008 are to address client interruptions experienced in our SMB client set in the U.S. as a result of the ongoing mySAP implementation and to improve those clients’ web experience. Upon completion of these objectives and achievement of the benefits associated with the system in the U.S., in future years we will deploy our IT systems to our legacy Software Spectrum operations in the U.S. and to our operations outside of the U.S.

For a discussion of risks associated with our IT systems, see “Risk Factors – Disruptions in our IT systems and voice and data networks, including the upgrade to mySAP and the migration of acquired businesses to our IT systems and voice and data networks, could affect our ability to service our clients and cause us to incur additional expenses,” in Part I, Item 1A of this report.

Competition

The IT hardware, software and services industry is very fragmented and highly competitive. We compete with a large number and wide variety of marketers and resellers of IT hardware, software and services, including:

	•		product manufacturers, such as Dell, HP, IBM and Lenovo;
	•		software publishers, such as IBM and Microsoft;
	•		direct marketers, such as CDW Corporation (North America) and PC World Business (United Kingdom);
	•		software resellers, such as SoftChoice and Software House International;
	•		systems integrators, such as Compucom Systems, Inc.;
	•		national and regional resellers, including VARs, specialty retailers, aggregators, distributors, and to a lesser extent, national computer retailers, computer superstores, Internet-only computer providers, consumer electronics and office supply superstores and mass merchandisers; and
	•		national and global service providers, such as IBM Global Services, HP and EDS.

The competitive landscape in the industry is changing as various competitors expand their product and service offerings. It is increasingly difficult to discern the difference between a direct marketer, LAR (Large Account Reseller – Microsoft reseller), VAR (Value-Added Reseller) and SI (Systems Integrator). In addition, emerging models such as software as a service (SaaS) are creating new competitors and opportunities.

We believe that we have three unique competitive advantages over our competitors:

	•		Global Reach – Some competitors are expanding their global reach and presence through partner relationships in various countries. We have one of the broadest footprints in the IT industry, with physical presence in 22 countries and serves clients in 170 countries, either internally or through partner relationships. Our ability to conduct business with clients in their language and currency is a key differentiator. We will seek opportunities to further expand our global footprint and continue to strengthen this differentiator.
	•		Client Penetration and Retention – We have deep penetration in large enterprises, SMB and public sector institutions. Most competitors focus on one or two of these sectors. This enables us to reach a broad range of clients on behalf of our partners. In addition, we have very strong client retention and loyalty that can be leveraged as we build our trusted advisor capabilities.
	•		Technical Expertise and Service Offerings – We have broad technical expertise when compared to the competition as evidenced by our long list of certifications, licensing capability and technology practices. In addition, we offer a broad array of technology-related services to our clients. These capabilities are most well developed in the U.S., the United Kingdom and Canada, and offer opportunities for further global reach.

INSIGHT ENTERPRISES, INC.

We have two primary weaknesses:

	•		Brand Awareness – The Insight brand is relatively unknown compared to some of our primary competitors, and we believe our advertising expenditures are significantly lower than many of our competitors.
	•		Inconsistent Geographic Delivery Capabilities – While we have deeper capabilities than many of our competitors, our ability to deliver across all geographies varies considerably. Our most developed capabilities (hardware, software and services) are found in the U.S. and the United Kingdom. Our capabilities are developing rapidly in Canada where they are deep in software and hardware and are developing in services. The balance of our footprint can currently deliver only software and software-related services.

For a discussion of risks associated with the actions of our competitors, see “Risk Factors – The IT hardware, software and services industry is intensely competitive, and actions of our competitors, including manufacturers and publishers of products we sell, can negatively affect our business,” in Part I, Item 1A of this report.

Partners

During 2007, we purchased products and software from approximately 5,600 partners. Approximately 18% (based on dollar volume) of these purchases from partners were through distributors, with the balance purchased directly from manufacturers or software publishers. Purchases from Microsoft, a software publisher, Ingram Micro, a distributor, and HP, a manufacturer, accounted for approximately 23%, 13%, and 10%, respectively, of our aggregate purchases in 2007. No other partner accounted for more than 10% of purchases in 2007. Our top five partners as a group for 2007 were Microsoft, Ingram Micro, HP, Tech Data (a distributor) and SYNNEX (a distributor). Approximately 60% of our total purchases during 2007 came from this group of partners. Although brand names and individual products are important to our business, we believe that competitive sources of supply are available in substantially all of our product categories and many of our software offerings such that, with the exception of Microsoft, we are not dependent on any single partner for sourcing products or software.

We obtain supplier reimbursements from certain product manufacturers, software publishers and distribution partners based typically upon the volume of sales or purchases of their products and services. In other cases, such reimbursements may be in the form of participation in our partner programs, which may require specific services or activities with our clients, discounts, marketing funds, price protection or rebates. Manufacturers and publishers may also provide mailing lists, contacts or leads to us. We believe that supplier reimbursements allow us to increase our marketing reach and strengthen our relationships with leading manufacturers and publishers. These reimbursements are important to us, and any elimination or substantial reduction would increase our costs of goods sold or marketing expenses, resulting in a corresponding decrease in our earnings from operations and net earnings. During 2007, sales of Microsoft products and HP products accounted for approximately 27% and 20%, respectively, of our consolidated net sales. No other manufacturer’s products accounted for more than 10% of our consolidated net sales in 2007. Sales of product from our top five manufacturers/publishers as a group (Microsoft, HP, Lenovo, Cisco and IBM) accounted for approximately 63% of Insight’s consolidated net sales during 2007. We believe that the majority of IT purchases by our clients are made based on the ability of our total product and service offering to meet their IT needs, more than on the offering or availability of specific brands.

As we move into new service areas, consistent with our strategy to expand our technical expertise, we may become more reliant on certain partner relationships. For a discussion of risks associated with our reliance on partners, see “Risk Factors – We rely on our partners for product availability, marketing funds, purchasing incentives and competitive products to sell,” in Part I, Item 1A of this report.

INSIGHT ENTERPRISES, INC.

Teammates

We believe our teammate relations are good. Our teammates are not represented by any labor union, and we have not experienced any work stoppages. Certain teammates in various countries outside of the U.S. are subject to laws providing representation rights to teammates on workers councils. At December 31, 2007, we had 4,763 teammates as follows:

		North
		America				EMEA				APAC				Consolidated
Management, support services and administration			1,945				592				71				2,608
Sales account executives			1,349				550				58				1,957
Distribution			144				54				—				198
Total			3,438				1,196				129				4,763

We have invested in our teammates’ futures and our future through an ongoing program of internal and external training. Training programs include new hire orientation, sales training, general industry and computer education, technical training, specific product training and on-going teammate and management development programs. We emphasize on-the-job training and provide our teammates and managers with development opportunities through on-line and classroom training relevant to their needs.

Information regarding the number and tenure of account executives in North America, EMEA and APAC at December 31, 2007 and 2006 follows:

		North America								EMEA								APAC
		12/31/07				12/31/06				12/31/07				12/31/06				12/31/07				12/31/06
Number of account executives			1,349				1,259				550				476				58				54
Experience:
Less than one year			27	%			22	%			29	%			37	%			35	%			31	%
One to two years			11	%			16	%			20	%			21	%			21	%			30	%
Two to three years			11	%			11	%			17	%			13	%			22	%			13	%
More than three years			51	%			51	%			34	%			29	%			22	%			26	%
			100	%			100	%			100	%			100	%			100	%			100	%
Average tenure		4.2 years				4.4 years				3.0 years				2.7 years				3.4 years				2.5 years

Increase in tenure is important to our business as our statistics show that account executive productivity increases with experience. The decrease in average tenure for North America is due primarily to increases in hiring of new account executives; however, the percent of account executives with tenure greater than two years (our most productive account executives) has remained stable in North America and has increased in EMEA and APAC. Average tenure for EMEA and APAC has increased as the result of initiatives designed to increase teammate retention rates.

For a discussion of risks associated with our dependence on key personnel, including sales personnel, see “Risk Factors – We depend on key personnel,” in Part I, Item 1A of this report.

Seasonality

General economic conditions have an effect on our business and results of operations. We also experience some seasonal trends in our sales of IT hardware, software and services. For example:

	•		software sales are seasonally significantly higher in our second and fourth quarters, particularly the second quarter;
	•		business clients, particularly larger enterprise businesses in the U.S., tend to spend less in the first quarter and more in our fourth quarter as they utilize their remaining capital budget authorizations; and
	•		sales to the federal government in the U.S. are often stronger in our third quarter.

INSIGHT ENTERPRISES, INC.

These trends create overall seasonality in our consolidated results such that sales and profitability are expected to be higher in the second and fourth quarters of the year.

For a discussion of risks associated with seasonality see “Risk Factors – Sales of software licenses are subject to seasonal changes in demand and resulting sales activities,” in Part I, Item 1A of this report.

Backlog

Virtually all of our backlog historically has been and continues to be open cancelable purchase orders, and we do not believe that backlog as of any particular date is indicative of future results.

Intellectual Property

We do not maintain a traditional research and development group, but we do develop and seek to protect a range of intellectual property, including trademarks, service marks, copyrights, domain name rights, trade dress, trade secrets and similar intellectual property. We rely on applicable statutes and common law rights, trade-secret protection and confidentiality and license agreements, as applicable, with teammates, clients, partners and others to protect our intellectual property rights. We have registered a number of domain names, and our principal trademark is a registered mark. We have also applied for registration of other marks, in the U.S. and in select international jurisdictions, and from time to time, we file patent applications. We also license certain of our proprietary intellectual property rights to third parties. We believe our trademarks and service marks, in particular, have significant value and we continue to invest in the promotion of our trademarks and service marks and in our protection of them.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the reports of beneficial ownership filed pursuant to Section 16(a) of the Exchange Act are available free of charge on our Web site at www.insight.com, as soon as reasonably practicable after we electronically file with, or furnish to, the Securities and Exchange Commission (“SEC”). The information contained on our Web site is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Additionally, the public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. Information on the operation of the SEC’s Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site at www.sec.gov that contains information we file with, or furnish to, the SEC.

Item 1A. Risk Factors

Changes in the IT industry and/or the economic environment may reduce demand for the IT hardware, software and services we sell. Our results of operations are influenced by a variety of factors, including the condition of the IT industry, general economic conditions, shifts in demand for, or availability of, IT hardware, software, peripherals and services, and industry introductions of new products, upgrades or methods of distribution. Weak economic conditions generally or a reduction in IT spending would likely adversely affect our business, operating results and financial condition. Net sales can be dependent on demand for specific product categories, and any change in demand for or supply of such products could have a material adverse effect on our net sales, and/or cause us to record write-downs of obsolete inventory, if we fail to react in a timely manner to such changes. Our operating results are also highly dependent upon our level of gross profit as a percentage of net sales, which fluctuates due to numerous factors, including changes in prices from partners, changes in the amount and timing of supplier reimbursements and marketing funds that are made available, volumes of purchases, changes in client mix, the relative mix of products sold during the period, general competitive conditions, the availability of opportunistic purchases and opportunities to increase market share. In addition, our expense levels, including the costs and salaries incurred in connection with the hiring of account executives, are based, in part, on anticipated net sales and the anticipated amount and timing of vendor funding. Therefore, we may not be able to reduce spending in a timely manner to compensate for any unexpected net sales shortfall, and any such inability could have a material adverse effect on our business, results of operations and financial condition.

INSIGHT ENTERPRISES, INC.

We rely on our partners for product availability, marketing funds, purchasing incentives and competitive products to sell. We acquire products for resale both directly from manufacturers/publishers and indirectly through distributors. The loss of a partner could cause a disruption in the availability of products. Additionally, there is no assurance that, as manufacturers/publishers continue to sell directly to end users and through the distribution channel, they will not limit or curtail the availability of their product to resellers like us. In addition, a reduction in the amount of credit granted to us by our partners could increase our cost of working capital and have a material adverse effect on our business, results of operations and financial condition.

Certain manufacturers/publishers and distributors provide us with substantial incentives in the form of rebates, supplier reimbursements and marketing funds, early payment discounts, referral fees and price protections. Vendor funding is used to offset, among other things, inventory, costs of goods sold, marketing costs and other operating expenses. Certain of these funds are based on our volume of net sales or purchases, growth rate of net sales or purchases and marketing programs. If we do not grow our net sales over prior periods or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by manufacturers/publishers. Additionally, partners routinely change the requirements for, and the amount of, funds available. No assurance can be given that we will continue to receive such incentives or that we will be able to collect outstanding amounts relating to these incentives in a timely manner, or at all. A reduction in, the discontinuance of, a significant delay in receiving or the inability to collect such incentives, particularly related to programs with our largest vendors, HP and Microsoft, could have a material adverse effect on our business, results of operations and financial condition.

Although product is generally available from multiple sources via the distribution channel as well as directly from manufacturers/publishers, we rely on the manufacturers/publishers of products we offer not only for product availability and vendor funding, but also for development and marketing of products that compete effectively with products of manufacturers/publishers we do not currently offer, particularly Dell. Although we have the ability to sell, and from time to time do sell, Dell product if it is specifically requested by our clients and approved by Dell, we do not proactively advertise for or offer Dell products.

Disruptions in our IT systems and voice and data networks, including the upgrade to mySAP and the migration of acquired businesses to our IT systems and voice and data networks, could affect our ability to service our clients and cause us to incur additional expenses. We believe that our success to date has been, and future results of operations will be, dependent in large part upon our ability to provide prompt and efficient service to our clients. Our ability to provide that level of service is largely dependent on the accuracy, quality and utilization of the information generated by our IT systems, which affects our ability to manage our sales, client service, distribution, inventories and accounting systems and the reliability of our voice and data networks. We have been making and will continue to make enhancements and upgrades to our IT systems, including our current upgrade to mySAP. Additionally, certain assumed expense synergies are dependent on migrating acquired businesses to our IT systems. There can be no assurances that these enhancements or conversions will not cause disruptions in our business, and any such disruption could have a material adverse effect on our results of operations and financial condition. The conversion of EMEA to a new IT system platform is intended to enable us to sell hardware and services to clients in that region, and therefore any delay would have an adverse effect on future sales growth. Further, any delay in the timing could reduce and/or delay our expense savings, and any such disruption could have a material adverse effect on our results of operations and financial condition. Additionally, if we complete conversions that shorten the life of existing technology or impair the value of the existing system, we could incur additional depreciation expense and/or impairment charges. Although we have built redundancy into most of our IT systems, have documented system outage policies and procedures and have comprehensive data backup, we do not have a formal disaster recovery. Substantial interruption in our IT systems or in our telephone communication systems would have a material adverse effect on our business, results of operations and financial condition.

The integration and operation of acquired businesses may disrupt our business and create additional expenses, and we may not achieve the anticipated benefits of the acquisitions. Integration of an acquired business involves numerous risks, including assimilation of operations of the acquired business and difficulties in the convergence of IT systems, the diversion of management’s attention from other business concerns, risks of entering markets in which we have had no or only limited direct experience, assumption of unknown and unquantifiable liabilities, the potential loss of key teammates and/or clients, difficulties in completing strategic initiatives already underway in the acquired companies, and unfamiliarity with partners of the acquired company, each of which could have a material adverse effect on our business, results of operations and financial condition. The success of our integration of acquired businesses assumes certain synergies and other benefits. We cannot assure that these risks or other unforeseen factors will not offset the intended benefits of the acquisitions, in whole or in part.

INSIGHT ENTERPRISES, INC.

The IT hardware, software and services industry is intensely competitive, and actions of our competitors, including manufacturers and publishers of products we sell, can negatively affect our business. Historically, competition in the industry had been based primarily on price, product availability, speed of delivery, credit availability and quality and breadth of product lines and, increasingly, it is also based on the ability to tailor specific solutions to client needs. We compete with manufacturers/publishers, including manufacturers/publishers of products we sell, as well as a large number and wide variety of marketers and resellers of IT hardware, software and services. Product manufacturers/publishers have programs to sell directly to business clients, particularly larger corporate clients, and are thus a competitive threat to us. In addition, the manner in which software products are distributed and sold and the manner in which publishers compensate channel partners like us are continually changing. Software publishers may intensify their efforts to sell their products directly to end-users, including our current and potential clients, and may reduce the compensation to resellers or change the requirements for earning these amounts. Other products and methodologies for distributing software may be introduced by publishers, present competitors or other third parties. An increase in the volume of products sold through any of these competitive programs or distributed directly electronically to end-users or a decrease in the amount of referral fees paid to us, or increased competition for providing services to these clients, could have a material adverse effect on our business, results of operations and financial condition.

Additionally, we believe our industry will see further consolidation as product resellers and direct marketers combine operations or acquire or merge with other resellers, service providers and direct marketers to increase efficiency, service capabilities and market share. Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their product and service offerings. Accordingly, it is possible that new competitors or alliances among competitors may emerge and acquire significant market share. Generally, pricing is very aggressive in the industry, and we expect pricing pressures to continue. There can be no assurance that we will be able to negotiate prices as favorable as those negotiated by our competitors or that we will be able to offset the effects of price reductions with an increase in the number of clients, higher net sales, cost reductions, greater sales of services, which are typically at higher gross margins, or otherwise. Price reductions by our competitors that we either cannot or choose not to match could result in an erosion of our market share and/or reduced sales or, to the extent we match such reductions, could result in reduced operating margins, any of which could have a material adverse effect on our business, results of operations and financial condition.

Certain of our competitors in each of our operating segments have longer operating histories and greater financial, technical, marketing and other resources than we do. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies and client requirements. Many current and potential competitors also have greater name recognition and engage in more extensive promotional activities, offer more attractive terms to clients and adopt more aggressive pricing policies than we do. Additionally, some of our competitors have higher margins and/or lower operating cost structures, allowing them to price more aggressively. There can be no assurance that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not have a material adverse effect on our business, results of operations and financial condition.

Another growing industry trend is the SaaS business model, whereby software vendors develop and make their applications available for use over the Internet. In many cases, the SaaS model allows enterprises to obtain the benefits of commercially licensed, internally operated software without the associated complexity or high initial set-up and operational costs. Advances in the SaaS business model and other new models could increase our competition or eliminate the need for a resale channel. There can be no assurance that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not have a material adverse effect on our business, results of operations and financial condition.

We have received an informal inquiry from the SEC and could be subject to stockholder litigation and other regulatory proceedings related to the Options Subcommittee’s investigation of our historical stock option granting practices and the related restatement of our consolidated financial statements. We identified errors in the Company’s accounting related to stock option compensation expenses in prior periods and determined that corrections to our consolidated financial statements were required to reflect additional material charges for stock-based compensation expenses and related income tax effects.

INSIGHT ENTERPRISES, INC.

There is a pending informal inquiry from the SEC regarding our historical option granting practices, and we cannot make any assurances regarding the results of that inquiry. One purported derivative lawsuit was filed and subsequently dismissed without prejudice at the request of the plaintiff. The Options Subcommittee’s investigation, our internal review and related activities have already required the Company to incur substantial expenses for legal, accounting, tax and other professional services, and any future related investigations or litigation could require further expenditures and harm our business, financial condition, results of operations and cash flows. Further, if the Company is subject to adverse findings in litigation, regulatory proceedings or government enforcement actions, we could be required to pay damages or penalties or have other remedies imposed, all of which could harm our business, financial condition, results of operations and cash flows.

There are risks associated with our international operations that are different than the risks associated with our operations in the U.S., and our exposure to the risks of a global market could hinder our ability to maintain and expand international operations. We have operation centers in Australia, Canada, Germany, France, the U.S., and the United Kingdom, as well as sales offices in Australia, Belgium, Canada, China, Denmark, Finland, France, Germany, Hong Kong, Italy, the Netherlands, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the U.S., and sales presence in Austria, Ireland, New Zealand and Russia. In the regions in which we do not currently have a physical presence, such as Africa, Japan and India, we serve our clients through strategic relationships. In implementing our international strategy, we may face barriers to entry and competition from local companies and other companies that already have established global businesses, as well as the risks generally associated with conducting business internationally. The success and profitability of international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as:

	•		political or economic instability;
	•		changes in governmental regulation or taxation;
	•		changes in import/export duties;
	•		trade restrictions;
	•		difficulties and costs of staffing and managing operations in certain foreign countries;
	•		work stoppages or other changes in labor conditions;
	•		taxes and other restrictions on repatriating foreign profits back to the U.S.;
	•		extended payment terms; and
	•		seasonal reductions in business activity in some parts of the world.

In addition, until a payment history is established with clients in a new region, the likelihood of collecting receivables generated by such operations, on a timely basis or at all, could be less than expected. As a result, there is a greater risk that reserves established with respect to the collection of such receivables may be inadequate. Furthermore, changes in policies and/or laws of the U.S. or foreign governments resulting in, among other things, higher taxation, currency conversion limitations or the expropriation of private enterprises could reduce the anticipated benefits of their international operations. Any actions by countries in which we conduct business to reverse policies that encourage foreign trade could have a material adverse effect on our results of operations and financial condition.

Sales of software licenses are subject to seasonal changes in demand and resulting sales activities. With the acquisition of Software Spectrum, our product mix changed significantly. Prior to the acquisition of Software Spectrum in September 2006, software sales represented approximately 12% of net sales. In 2007, software sales represented 42% of our annual net sales. Our software business is subject to seasonal change. In particular, software sales are seasonally much higher in our second and fourth quarters. As a result, our quarterly results will be affected by lower demand in the first and third quarters. A majority of our costs are not variable and therefore a substantial reduction in sales during a quarter could have a negative effect on operating results. In addition, periods of higher sales activities during certain quarters may require a greater use of working capital to fund the business. During these periods, these increased working capital requirements could temporarily increase our leverage and liquidity needs and expose us to greater financial risk during those periods. Due to these seasonal changes, the operating results for any three-month period will not be indicative of the results that may be achieved for any subsequent fiscal quarter or for a full fiscal year.

  Our acquisitions of businesses increase our outstanding debt and interest expense and lower the availability on our financing facilities. Additionally, there have been negative changes in the overall capital markets due to current economic factors in the lending industry. Our financing facilities include a $225.0 million accounts receivable securitization financing facility, a $75.0 million revolving line of credit and a $75.0 million five-year term loan. As of December 31, 2007, we had $202.3 million outstanding under these facilities and approximately $165.1 million, including $37.5 million of increased availability upon our request, was available. The availability under the accounts receivable securitization facility is subject to formulas based on our eligible trade accounts receivable.

INSIGHT ENTERPRISES, INC.

The accounts receivable securitization financing facility expires in September 2009, and the revolving credit facility expires in September 2011. Additionally, most of our financing facilities have variable interest rates, which increase our exposure to interest rate fluctuations and may result in greater interest expense than we have forecasted. On January 24, 2008, we signed an agreement and plan of merger to acquire privately-held Calence, LLC. The cash purchase price for the Calence acquisition is $125.0 million and up to an additional $35.0 million in purchase price consideration if certain performance targets are achieved (subject to certain conditions) over the next four years. To facilitate the acquisition of Calence, we have received a commitment from a financial institution to provide up to $275.0 million in new credit to finance the acquisition and for general corporate purposes. It is contemplated that the new revolving facility will be funded through a syndicate of banks and will replace our current $75.0 million revolving credit facility and our $75.0 million term loan. These acquisitions will increase our outstanding debt and interest expense, which could have a material adverse effect on our results of operations and financial condition.

International operations expose us to currency exchange risk and we cannot predict the effect of future exchange rate fluctuations or the volatility of the U.S. dollar exchange rate on our business and operating results. We have currency exposure arising from both sales and purchases denominated in foreign currencies, including intercompany transactions outside the U.S. Changes in exchange rates between foreign currencies and the U.S. dollar may adversely affect our operating margins. For example, if these foreign currencies appreciate against the U.S. dollar, it will become more expensive in U.S. dollars to pay expenses with foreign currencies. In addition, currency devaluation against the U.S. dollar can result in a loss to us if we hold deposits of that currency. We currently do not conduct any hedging activities, and, to the extent that we continue not to do so in the future, we may be vulnerable to the effects of currency exchange-rate fluctuations. In addition, some currencies are subject to limitations on conversion into other currencies, which can limit the ability to otherwise react to rapid foreign currency devaluations. We cannot predict the effect of future exchange-rate fluctuations on business and operating results and significant rate fluctuations could have a material adverse effect on results of operations and financial condition.

International operations also expose us to currency fluctuations as we translate the financial statements of our foreign operations to U. S. dollars. Although the effect of currency fluctuations on our financial statements has not generally been material in the past, there can be no guarantee that the effect of currency fluctuations will not be material in the future.

We depend on certain key personnel. Our future success will be largely dependent on the efforts of key management personnel. The loss of one or more of these leaders could have a material adverse effect on our business, results of operations and financial condition. We cannot offer assurance that we will be able to continue to attract or retain highly qualified executive personnel or that any such executive personnel will be able to increase stockholder value. We also believe that our future success will be largely dependent on our continued ability to attract and retain highly qualified management, sales, service and technical personnel, but we cannot offer assurance that we will be able to attract and retain such personnel. Further, we make a significant investment in the training of our sales account executives and services engineers. Our inability to retain such personnel or to train them either rapidly enough to meet our expanding needs or in an effective manner for quickly changing market conditions could cause a decrease in the overall quality and efficiency of our sales staff, which could have a material adverse effect on our business, results of operations and financial condition.

If purchased goodwill or amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.  The purchase price allocation for the acquisition of Software Spectrum included a material allocation to goodwill and amortizable intangible assets. In accordance with U.S. generally accepted accounting principles, we perform an annual review in the fourth quarter of every year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of the recorded goodwill is impaired. Events or circumstances that could trigger an impairment review include a significant adverse change in legal factors or in the business climate, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, significant declines in our stock price for a sustained period or significant underperformance relative to expected historical or projected future results of operations. We have experienced volatility in our stock price over the past year. If our stock price declines for a sustained period, this may indicate a heightened risk that the carrying value of our goodwill or amortizable intangible assets may not be recoverable. We may be required to record a significant non-cash charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, resulting in a negative effect on our results of operations.

INSIGHT ENTERPRISES, INC.

The failure to comply with the terms and conditions of our public sector contracts could result in, among other things, fines or other liabilities. Net sales to public sector clients are derived from sales to federal, state and local governmental departments and agencies, as well as to educational institutions, through open market sales and various contracts and programs. Government contracting is a highly regulated area. Noncompliance with government procurement regulations or contract provisions could result in civil, criminal, and administrative liability, including substantial monetary fines or damages, termination of government contracts, and suspension, debarment or ineligibility from doing business with the government. In addition, substantially all of our contracts in the public sector are terminable at any time for convenience of the contracting agency or upon default. The effect of any of these possible actions by any governmental department or agency or the adoption of new or modified procurement regulations or practices could materially adversely affect our business, financial position and results of operations.

Rapid changes in product standards may result in substantial inventory obsolescence. The IT industry is characterized by rapid technological change and the frequent introduction of new products and product enhancements, both of which can decrease demand for current products or render them obsolete. In addition, in order to satisfy client demand, protect ourselves against product shortages, obtain greater purchasing discounts and react to changes in original equipment manufacturers’ terms and conditions, we may decide to carry relatively high inventory levels of certain products that may have limited or no return privileges. There can be no assurance that we will be able to avoid losses related to inventory obsolescence on these products.

We may not be able to protect our intellectual property adequately, and we may be subject to intellectual property infringement claims.  To protect our intellectual property, we rely on copyright and trademark laws, unpatented proprietary know-how, and trade secrets and patents, as well as confidentiality, invention assignment, non-solicitation and non-competition agreements. There can be no assurance that these measures will afford us sufficient protection of our intellectual property, and it is possible that third parties may copy or otherwise obtain and use our proprietary information without authorization or otherwise infringe on our intellectual property rights. The disclosure of our trade secrets could impair our competitive position and could have a material adverse effect on our business relationships, results of operations, financial condition and future growth prospects. In addition, our registered trademarks and tradenames are subject to challenge by other rights owners. This may affect our ability to continue using those marks and names. Likewise, many businesses are actively investing in, developing and seeking protection for intellectual property in the areas of search, indexing, e-commerce and other Web-related technologies, as well as a variety of on-line business models and methods, all of which are in addition to traditional research and development efforts for IT products and application software. As a result, disputes regarding the ownership of these technologies are likely to arise in the future, and, from time to time, parties do assert various infringement claims against us in the form of cease-and-desist letters, licensing inquiries, lawsuits and other communications.  If there is a determination that we have infringed the proprietary rights of others, we could incur substantial monetary liability, be forced to stop selling infringing products or providing infringing services, be required to enter into costly royalty or licensing agreements, if available, or be prevented from using the rights, which could force us to change our business practices in the future.  Additionally, as we increase the geographic scope of our operations and the types of services provided under the Insight brand, there is a greater likelihood that we will encounter challenges to our tradenames, trademarks and service marks. We may not be able to use our principal mark without modification in all of our operations for all of our offerings, and these challenges may come from either governmental agencies or other market participants. These types of claims could have a material adverse effect on our business, results of operations and financial condition.

We issue equity-based awards, such as restricted stock units, under our long-term incentive plans, and these issuances dilute the interests of stockholders. We have reserved shares of our common stock for issuance under our 2007 Omnibus Plan and, previously, under our 1998 Long-Term Incentive Plan (the “1998 LTIP”) and other plans. At December 31, 2007, there were options outstanding to acquire 3,621,130 shares of our common stock, and there were 36,664 shares of restricted common stock and restricted stock units covering 1,072,193 shares of common stock unreleased (i.e., unvested). At December 31, 2007, there were 4,032,500 shares available for issuance under the 2007 Omnibus Plan.

When stock options are exercised, the risk increases that our stockholders will experience dilution of earnings per share due to the increased number of shares outstanding. Also, the terms upon which we will be able to obtain equity capital may be affected, because the holders of outstanding options can be expected to exercise them at a time when we would, in all likelihood, be able to obtain needed capital on terms more favorable to us than those provided in outstanding options.

INSIGHT ENTERPRISES, INC.

Some anti-takeover provisions contained in our certificate of incorporation, bylaws and stockholders rights agreement, as well as provisions of Delaware law and executive employment contracts, could impair a takeover attempt. We have provisions in our certificate of incorporation and bylaws which could have the effect (separately, or in combination) of rendering more difficult or discouraging an acquisition deemed undesirable by our Board of Directors. These include provisions:

	•		authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;
	•		limiting the liability of, and providing indemnification to, directors and officers;
	•		limiting the ability of our stockholders to call special meetings;
	•		requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board of Directors;
	•		controlling the procedures for conduct of Board and stockholder meetings and election and removal of directors; and
	•		specifying that stockholders may take action only at a duly called annual or special meeting of stockholders.

These provisions, alone or together, could deter or delay hostile takeovers, proxy contests and changes in control or management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some stockholders from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

On December 14, 1998, each stockholder of record received one Preferred Share Purchase Right (“Right”) for each outstanding share of common stock owned. Each Right entitles stockholders to buy .00148 of a share of our Series A Preferred Stock at an exercise price of $88.88. The Rights will be exercisable if a person or group acquires 15% or more of our common stock or announces a tender offer for 15% or more of the common stock. However, should this occur, the Right will entitle its holder to purchase, at the Right’s exercise price, a number of shares of common stock having a market value at the time of twice the Right’s exercise price. Rights held by the 15% holder will become void and will not be exercisable to purchase shares at the bargain purchase price. If we are acquired in a merger or other business combination transaction after a person acquires 15% or more of the our common stock, each Right will entitle its holder to purchase at the Right’s then current exercise price a number of the acquiring company’s common shares having a market value at the time of twice the Right’s exercise price. On January 11, 2008, the Board of Directors resolved to allow the current stockholder rights plan to expire in accordance with its terms on December 14, 2008.

Also, on January 11, 2008, the Board of Directors amended our bylaws to provide that the Company will seek stockholder approval prior to its adoption of a stockholder rights plan, unless the Board, in the exercise of its fiduciary duties, determines that, under the circumstances existing at the time, it is in the best interest of our stockholders to adopt or extend a stockholder rights plan without delay. The amendment further provides that a stockholder rights plan adopted or extended by the Board without prior stockholder approval must provide that it will expire unless ratified by the stockholders of the Company within one year of adoption.

Additionally, we have employment agreements with certain officers and management teammates 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 such persons were terminated without cause or under certain circumstances after a change of control, and the severance payments under the current employment agreements were to become payable, the severance payments would generally range from three months of a teammate’s annual salary up to two times the teammate’s annual salary and bonus.

Any provision of our certificate of incorporation, bylaws or employment agreements, or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and also could affect the price that some investors are willing to pay for our common stock.

Sales of additional common stock and securities convertible into our common stock may dilute the voting power of current holders. We may issue equity securities in the future whose terms and rights are superior to those of our common stock. Our certificate of incorporation authorizes the issuance of up to 3,000,000 shares of preferred stock. These are “blank check” preferred shares, meaning that our Board of Directors is authorized, from time to time, to issue the shares and designate their voting, conversion and other rights, including rights superior, or preferential, to rights of already outstanding shares, all without stockholder consent. No preferred shares are outstanding, and we currently do not intend to issue any shares of preferred stock. Any shares of preferred stock that may be issued in the future could be given voting and conversion rights that could dilute the voting power and equity of existing holders of shares of common stock and have preferences over shares of common stock with respect to dividends and liquidation rights.

INSIGHT ENTERPRISES, INC.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive offices are located at 1305 West Auto Drive, Tempe, Arizona 85284. We conduct sales, distribution, services, and administrative activities in owned and leased facilities, and some of our field account executives conduct business from home offices. We have renewal rights in most of our property leases, and we anticipate that we will be able to extend these leases on terms satisfactory to us or, if necessary, locate substitute facilities on acceptable terms. We believe that our facilities will be suitable and adequate for our present purposes, and that the capacity in the majority of our facilities is not fully utilized. In the future, we may need to purchase, build or lease additional facilities to meet the requirements projected in our long-term business plan. If we decide to exit the current leases, we may have to continue to make payments under the current leases or pay penalties to cancel the leases.

Information about significant sales, distribution, services and administration facilities in use as of December 31, 2007 is summarized in the following table:

Operating Segment		Location		Primary Activities		Own or Lease
Headquarters		Tempe, Arizona, USA		Executive Offices		Own
North America		Tempe, Arizona, USA		Sales and Administration		Own
		Tempe, Arizona, USA		Administration		Lease
		Bloomingdale, Illinois, USA		Sales and Administration		Own
		Hanover Park, Illinois, USA		Services and Distribution		Lease
		Plano, Texas, USA		Sales and Administration		Lease
		Liberty Lake, Washington, USA		Sales and Administration		Lease
		Winnipeg, Manitoba, Canada		Sales and Administration		Lease
		Montreal, Quebec, Canada		Sales and Administration		Own
		Mississauga, Ontario, Canada		Sales and Administration		Lease
		Montreal, Quebec, Canada		Distribution		Lease
EMEA		Sheffield, United Kingdom		Sales and Administration		Own
		Sheffield, United Kingdom		Distribution		Lease
		Uxbridge, United Kingdom		Sales and Administration		Lease
		Munich, Germany		Sales and Administration		Lease
		Paris, France		Sales and Administration		Lease
APAC		Sydney, New South Wales, Australia		Sales and Administration		Lease

In addition to those listed above, we have leased sales offices in various cities across North America, EMEA and APAC. For additional information on operating leases, see Note 8 to the Consolidated Financial Statements in Part II, Item 8 of this report. We own sales, administration and distribution facilities in Tempe, Arizona, a portion of which we currently lease to Direct Alliance, a discontinued operation. These properties are not included in the table above. We also have leased facilities in the United Kingdom that are no longer in use following a move to more desirable office space. These properties are also not included in the table above.

Item 3. Legal Proceedings

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

  INSIGHT ENTERPRISES, INC.

In accordance with SFAS No. 5, “Accounting for Contingencies” (“SFAS No. 5”), we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.  These provisions are reviewed at least quarterly and are adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular claim.  Although litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses.  It is possible, nevertheless, that the results of our operations or cash flows could be materially and adversely affected in any particular period by the resolution of a legal proceeding.  Legal expenses related to defense, negotiations, settlements, rulings and advice of outside legal counsel are expensed as incurred.

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

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

Item 4. Submission of Matters to a Vote of Security Holders

Our 2007 Annual Meeting of Stockholders was held on November 12, 2007. At the 2007 Annual Meeting of Stockholders, the following proposals were considered:

	(1)		The election of three Class I directors to serve until the 2010 annual meeting of stockholders or until their respective successors have been duly elected and qualified;
	(2)		The approval of our 2007 Omnibus Plan;
	(3)		The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2007; and
	(4)		The transaction of such other business as may have properly come before the annual meeting or any adjournment of the meeting.

INSIGHT ENTERPRISES, INC.

The proposals were approved by the following votes:

														Broker
		Votes For				Votes Against				Votes Withheld				Non-Votes
Proposal 1
Election of Bennett Dorrance as Class I Director			24,221,959				—				21,818,586				—
Election of Michael M. Fisher as Class I Director			22,197,716				—				23,842,829				—
Election of David J. Robino as Class I Director			26,990,804				—				19,049,741				—
Proposal 2
Approval of our 2007 Omnibus Plan			33,634,708				8,283,495				361,979				3,760,363
Proposal 3
Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2007			45,230,904				767,866				41,775				—

In addition, Class II Directors (Richard A. Fennessy, Larry A. Gunning and Robertson C. Jones) and Class III Directors (Timothy A. Crown and Kathleen S. Pushor) continued their respective terms of office following the 2007 Annual Meeting of Stockholders.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock trades under the symbol “NSIT” on the Nasdaq Global Select Market. The following table shows, for the calendar quarters indicated, the high and low closing price per share for our common stock as reported on the Nasdaq Global Select Market.

		Common Stock
		High Price				Low Price
Year 2007
Fourth Quarter		$	27.78			$	17.47
Third Quarter			26.50				22.24
Second Quarter			22.65				17.98
First Quarter			20.33				17.75
Year 2006
Fourth Quarter		$	22.69			$	18.59
Third Quarter			20.96				16.22
Second Quarter			22.46				17.78
First Quarter			22.14				19.79

As of February 15, 2008, we had 48,725,236 shares of common stock outstanding held by approximately 104 stockholders of record. This figure does not include an estimate of the number of beneficial holders whose shares are held of record by brokerage firms and clearing agencies.

INSIGHT ENTERPRISES, INC.

We have never paid a cash dividend on our common stock. We currently intend to reinvest all of our earnings into our business and do not intend to pay any cash dividends in the foreseeable future.

Issuer Purchases of Equity Securities

														Approximate dollar
										Total number of shares				value of shares that
		Total number								purchased as part of				may yet be purchased
		of shares				Average price				publicly announced				under the plans or
Period		purchased				paid per share				plans or programs				programs
October 1-31, 2007			1,068,646			$	25.89				1,068,646			$	—
November 1-30, 2007			—				—				—				50,000,000
December 1-31, 2007			—				—				—				50,000,000
Total			1,068,646			$	25.89				1,068,646

On December 5, 2005, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock. During the year ended December 31, 2007, we purchased 1.96 million shares on the open market at an average price of $25.57 per share, which represented the full amount authorized under the repurchase program. All shares repurchased have been retired. On November 13, 2007, our Board of Directors authorized the repurchase of up to an additional $50.0 million of our common stock. There were no repurchases under this new program as of December 31, 2007.

Stock Price Performance Graph

Set forth below is a graph comparing the percentage change in the cumulative total stockholder return on our common stock with the cumulative total return of the Nasdaq Stock Market U.S. Companies (Market Index) and the Nasdaq Retail Trade Stocks (Peer Index) for the period starting January 1, 2003 and ending December 31, 2007. The graph assumes that $100 was invested on January 1, 2003 in our common stock and in each of the two Nasdaq indices, and that, as to such indices, dividends were reinvested. We have not, since our inception, paid any cash dividends on our common stock. Historical stock price performance shown on the graph is not necessarily indicative of future price performance.

INSIGHT ENTERPRISES, INC.

		Jan. 1,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
		2003				2003				2004				2005				2006				2007
Insight Enterprises, Inc. Common Stock (NSIT)			100.00				209.82				229.02				218.86				210.60				203.57
Nasdaq Stock Market U.S. Companies (Market Index)			100.00				149.52				162.72				166.18				182.57				197.98
Nasdaq Retail Trade Stocks (Peer Index)			100.00				139.25				176.62				178.29				194.71				177.15

Item 6. Selected Financial Data

The following selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and the Notes thereto in Part II, Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report. The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations Data” and “Consolidated Balance Sheet Data” as of and for each of the years in the five-year period ended December 31, 2007 is derived, with respect to the years ended December 31, 2007, 2006 and 2005, from our audited consolidated financial statements, and, with respect to the years ended December 31, 2004 and 2003, from the selected financial data of the Company included in our Form 10-K/A for the year ended December 31, 2006. The consolidated financial statements as of December 31, 2007 and 2006, and for each of the years in the three-year period ended December 31, 2007, which have been audited by KPMG LLP, our independent registered public accounting firm, are included in Part II, Item 8 of this report.

		Years Ended December 31,
		2007				2006				2005				2004				2003
		(in thousands, except per share data)
Consolidated Statements of Operations Data (1)
Net sales		$	4,800,431			$	3,593,256			$	2,931,209			$	2,780,484			$	2,567,430
Costs of goods sold			4,139,343				3,122,599				2,566,100				2,437,885				2,258,406
Gross profit			661,088				470,657				365,109				342,599				309,024
Operating expenses:
Selling and administrative expenses			532,391				369,389				279,161				276,203				273,885
Severance and restructuring expenses			2,595				729				11,962				2,435				3,465
Reductions in liabilities assumed in a previous acquisition			—				—				(664	)			(3,617	)			(2,504	)
Earnings from operations			126,102				100,539				74,650				67,578				34,178
Non-operating (income) expense:
Interest income			(2,078	)			(4,355	)			(3,394	)			(1,849	)			(833	)
Interest expense			13,367				6,793				1,914				2,011				2,608
Net foreign currency exchange (gain) loss			(3,887	)			(1,135	)			72				262				398
Other expense, net			1,531				901				782				1,190				1,680
Earnings from continuing operations before income taxes			117,169				98,335				75,276				65,964				30,325
Income tax expense			45,158				34,601				29,591				17,835				9,674
Net earnings from continuing operations			72,011				63,734				45,685				48,129				20,651
Earnings from discontinued operations, net of taxes (2)			5,784				13,084				8,975				32,328				14,474
Net earnings before cumulative effect of change in accounting principle			77,795				76,818				54,660				80,457				35,125
Cumulative effect of change in accounting principle, net of taxes of $330 in 2005			—				—				(649	)			—				—
Net earnings		$	77,795			$	76,818			$	54,011			$	80,457			$	35,125

INSIGHT ENTERPRISES, INC.

		Years Ended December 31,
		2007				2006				2005				2004				2003
		(in thousands, except per share data)
Consolidated Statements of Operations Data (1)
Net earnings per share — Basic:
Net earnings from continuing operations		$	1.47			$	1.32			$	0.94			$	0.99			$	0.45
Net earnings from discontinued operations			0.12				0.27				0.18				0.67				0.31
Cumulative effect of change in accounting principle			—				—				(0.01	)			—				—
Net earnings per share		$	1.59			$	1.59			$	1.11			$	1.66			$	0.76
Net earnings per share — Diluted:
Net earnings from continuing operations		$	1.44			$	1.31			$	0.93			$	0.96			$	0.44
Net earnings from discontinued operations			0.12				0.27				0.18				0.67				0.31
Cumulative effect of change in accounting principle			—				—				(0.01	)			—				—
Net earnings per share		$	1.56			$	1.58			$	1.10			$	1.63			$	0.75
Shares used in per share calculations:
Basic			49,055				48,373				48,553				48,389				46,315
Diluted			49,760				48,564				49,057				49,220				46,581

		December 31,
		2007				2006				2005				2004				2003
		(in thousands)
Consolidated Balance Sheet Data
Working capital		$	453,225			$	413,085			$	367,184			$	370,873			$	230,193
Total assets			1,867,178				1,780,265				922,340				887,641				792,124
Short-term debt			15,000				30,000				66,309				25,000				65,004
Long-term debt			187,250				224,250				—				—				—
Stockholders’ equity			775,194				690,350				569,913				565,517				448,245
Cash dividends declared per common share			—				—				—				—				—

(1)		Our consolidated statements of operations data above includes results of the acquisition of Software Spectrum from September 7, 2006, the acquisition date. See further discussion in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report.
(2)		Earnings from Discontinued Operations. During the year ended December 31, 2007, we sold PC Wholesale, a division of our North American operating segment. During the year ended December 31, 2006, we sold Direct Alliance, a business process outsourcing provider in the U.S. During the year ended December 31, 2004, we sold our 95% ownership in PlusNet, an Internet service provider in the United Kingdom. Accordingly, we have accounted for the entities as discontinued operations and have reported their results of operations as discontinued operations in the consolidated statements of earnings. Included in earnings from discontinued operations for the years ended December 31, 2007, 2006 and 2004 are the gain on the sale of PC Wholesale of $8.3 million, $5.1 million net of taxes, the gain on the sale of Direct Alliance of $14.9 million, $9.0 million net of taxes, and the gain on the sale of PlusNet of $23.7 million, $18.3 million net of taxes, respectively.

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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this report. Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in “Risk Factors” in Part I, Item 1A and elsewhere in this report.

Overview

We are a leading provider of brand-name information technology (“IT”) hardware, software and services to large enterprises, small- to medium-sized businesses (“SMB”) and public sector institutions in North America, EMEA (Europe, the Middle East and Africa) and APAC (Asia-Pacific). Currently, our offerings in North America and the United Kingdom include brand name IT hardware, software and services. Our offerings in the remainder of our EMEA segment and in APAC currently only include software and select software-related services.

Our strategy is focused on growing profitable market share through the continued transformation of Insight into a complete IT solutions company, with growth expected from a combination of organic growth and acquisitions, and establishing Insight as a Global Value-Added Reseller (“G-VAR”). Our strategic vision is to be a trusted advisor to our clients, helping them enhance their business performance through innovative technology solutions.

We are pleased with the overall financial performance of our business in 2007. Net sales for the year ended December 31, 2007 increased 34% over the year ended December 31, 2006, due primarily to an increase in software sales attributable to the acquisition of Software Spectrum in September 2006, as well as organic growth in our hardware and services categories. Net earnings from continuing operations for the year ended December 31, 2007 increased 13% and diluted earnings from continuing operations per share increased 10% compared to the year ended December 31, 2006. Net earnings for the year ended December 31, 2007 increased 1% and diluted earnings per share decreased 1%. These results of operations for the year ended December 31, 2007 include the effect of the following items:

	•		gain on sale of a discontinued operation of $8.3 million, $5.1 million net of tax;
	•		expenses of $13.0 million, $7.9 million net of tax, for professional fees and costs associated with our stock option review; and
	•		severance and restructuring expenses of $2.6 million, $1.5 million net of tax.

The results for the year ended December 31, 2006 include the following items:

	•		gain on the sale of a discontinued operation of $14.9 million, $9.0 million net of tax;
	•		expenses of $1.6 million, $1.0 million net of tax, for professional fees associated with our stock option review; and
	•		severance and restructuring expenses of $729,000, $454,000 net of tax.

For the year ended December 31, 2007, our North America segment grew its net sales by 18% and its earnings from operations by 6% due primarily to the acquisition of Software Spectrum in September 2006, as well as slight organic growth in our hardware category and a 43% increase in our services category. Our EMEA segment grew its net sales by 87% and its earnings from operations by 93% due to both organic growth and as a result of our acquisition of Software Spectrum in September 2006. Our Asia Pacific segment more than tripled its earnings from operations for the year ended December 31, 2007 on a 260% increase in net sales. The reported earnings from operations of our EMEA and APAC segments accounted for more than 30% of our full year consolidated results for 2007, up from 18% in 2006. Reconciliations of segment results of operations to consolidated results of operations can be found in Note 17 to the Consolidated Financial Statements in Part II, Item 8 of this report.

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

On January 24, 2008, we signed an agreement and plan of merger to acquire privately-held Calence, one of the nation’s largest independent technology service providers specializing in Cisco networking solutions, advanced communications and managed services. This acquisition is consistent with our vision and strategy to become a G-VAR through continued investment in certain key technology categories, including networking and advanced communications. Under the terms of the merger agreement, we will acquire Calence for a purchase price of $125.0 million. Up to an additional $35.0 million in purchase price consideration may be due if certain performance targets are achieved over the next four years. The purchase price is subject to customary working capital and hold-back adjustments. The acquisition has been approved by the boards of directors of both companies and is subject to customary closing conditions, including regulatory approval. We expect the acquisition to close early in second quarter of 2008.

On March 1, 2007, we completed the sale of PC Wholesale, a division of our North America operating segment. As a result of the disposition, PC Wholesale’s results of operations for all periods presented are classified as a discontinued operation. See further information in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report.

Also, consistent with our strategic plan for growth through targeted acquisitions, on September 7, 2006, we completed our acquisition of Software Spectrum, a global technology solutions provider with expertise in the selection, purchase and management of software. The cash purchase price of $287.0 million plus working capital of $64.4 million, which included cash acquired of $30.3 million, was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over fair value of net assets acquired was recorded as goodwill. Software Spectrum’s results of operations have been included in our consolidated results of operations subsequent to the acquisition date.

On June 30, 2006, we completed the sale of 100% of the outstanding stock of Direct Alliance, a business process outsourcing provider in the U.S., for a cash purchase price of $46.3 million, subject to earn out and claw back provisions. Accordingly, Direct Alliance’s results of operations for all periods presented are classified as a discontinued operation. See further information in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report.

Our discussion and analysis of financial condition and results of operations is intended to assist in the understanding of our consolidated financial statements, the changes in certain key items in those consolidated financial statements from year to year and the primary factors that contributed to those changes, as well as how certain critical accounting estimates affect our Consolidated Financial Statements.

Critical Accounting Estimates

General

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). For a summary of significant accounting policies, see Note 1 to the Consolidated Financial Statements in Part II, Item 8 of this report. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ from estimates we have made. Members of our senior management have discussed the critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

We believe the following represent our critical accounting estimates used in the preparation of our Consolidated Financial Statements.

Accounting for Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” using the modified prospective transition method. Under the fair value recognition provisions of SFAS No. 123R, we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation expense for those shares expected to vest over the requisite service period of the award.

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

We elected to not make any modifications to existing stock options outstanding prior to January 1, 2006, such as accelerating the vesting of previously granted options, as we did not believe it made business sense to do so. We did, however, take the opportunity to reevaluate our equity compensation plans, and starting in 2006, we elected to primarily issue service-based and performance-based restricted stock units (“RSUs”). The number of RSUs ultimately awarded under performance-based RSUs varies based on whether we achieve certain financial results. We will record compensation expense each period based on our estimate of the most probable number of RSUs that will be issued under the grants of performance-based RSUs. For any stock options awarded, modifications to previous awards or awards of RSUs that are tied to specified market conditions, we use option pricing models or lattice (binomial) models to determine fair value of the awards, as permitted by SFAS No. 123R.

Prior to our adoption of SFAS No. 123R, we applied the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under this method, compensation expense was recorded on the measurement date only if the current market price of the underlying stock exceeded the exercise price. The measurement date is the date when the number of shares and exercise price are known with finality. For grants determined to be “variable” under APB No. 25, we remeasure, and report in our statement of earnings, the intrinsic value of the options at the end of each reporting period until the options are exercised, cancelled or expire unexercised.

In order to comply with the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” we determined the estimated fair value of stock options on the date of the grant using the Black-Scholes-Merton (“Black-Scholes”) option-pricing model. The Black-Scholes model required us to apply highly subjective assumptions, including expected stock price volatility, expected life of the option and the risk-free interest rate. A change in one or more of the assumptions used in the option-pricing model may result in a material change to the estimated fair value of the stock-based compensation.

See Note 12 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of stock-based compensation.

Allowance for Doubtful Accounts

Our net accounts receivable balance was $1.07 billion and $994.9 million as of December 31, 2007 and 2006, respectively. The allowance for doubtful accounts was $22.8 million and $23.2 million as of December 31, 2007 and 2006, respectively. The allowance is determined using estimated losses on accounts receivable based on historical write-offs, evaluation of the aging of the receivables and the current economic environment. Should our clients’ or vendors’ circumstances change or actual collections of client and vendor receivables differ from our estimates, adjustments to the provision for losses on accounts receivable and the related allowances for doubtful accounts would be recorded. See further information on our allowance for doubtful accounts in Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this report.

Write-Downs of Inventories

We evaluate inventories for excess, obsolescence or other factors that may render inventories unmarketable at normal margins. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into account our contractual provisions with our partners governing price protection, stock rotation and return privileges relating to obsolescence. Because of the large number of transactions and the complexity of managing the process around price protection and stock rotation, estimates are made regarding write-downs of the carrying amount of inventories. Additionally, assumptions about future demand, market conditions and decisions by manufacturers/publishers to discontinue certain products or product lines can affect our decision to write down inventories. If our assumptions about future demand change or actual market conditions are less favorable than those projected, additional write-downs of inventories may be required. In any case, actual values could be different from those estimated.

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

Valuation of Long-Lived Assets Including Purchased Intangible Assets and Goodwill

We review property, plant and equipment and purchased intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Our asset impairment review assesses the fair value of the assets based on the estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) and compares the fair value to the carrying value. If the carrying value exceeds the fair value, an impairment loss is recognized for the difference. This approach uses our estimates of future market growth, forecasted net sales and costs, expected periods the assets will be utilized, and appropriate discount rates.

Annually, during the fourth quarter of each year, we assess whether goodwill is impaired. Upon determining the existence of goodwill impairment, we measure that impairment based on the amount by which the book value of goodwill exceeds its implied fair value. The implied fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole. Determining the fair value of reporting units, as well as identifiable assets and liabilities, uses our estimates of market capitalization allocation, future market growth, forecasted sales and costs and appropriate discount rates. Additional impairment assessments may be performed on an interim basis if we encounter events or changes in circumstances that would indicate that, more likely than not, the book value of goodwill has been impaired. Based on impairment tests performed, there was no impairment of goodwill during the years ended December 31, 2007, 2006 or 2005.

We identify potential impairment of goodwill through our strategic reviews of our reporting units and operations performed in conjunction with restructuring actions. Deterioration of our business in a geographic region or within a reporting unit in the future could lead to impairment adjustments as such issues are identified.

Severance and Restructuring Activities

We have engaged, and may continue to engage, in severance and restructuring activities which require us to utilize significant estimates related primarily to employee termination benefits, estimated costs to terminate leases or remaining lease commitments on unused facilities, net of estimated subleases. Should the actual amounts differ from our estimates, adjustments to severance and restructuring expenses in subsequent periods would be necessary. A detailed description of our severance, restructuring and acquisition integration activities and remaining accruals for these activities at December 31, 2007 can be found in Note 9 to the Consolidated Financial Statements in Part II, Item 8 of this report.

Taxes on Earnings

 Our effective tax rate includes the effect of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the U.S. Earnings remittance amounts are planned based on the projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations. Material changes in our estimates of cash, working capital and long-term investment requirements could affect our effective tax rate.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider past operating results, future market growth, forecasted earnings, historical and projected taxable income, the mix of earnings in the jurisdictions in which we operate, prudent and feasible tax planning strategies and statutory tax law changes in determining the need for a valuation allowance. If we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance would be reversed. However, until the adoption of SFAS No. 141R, “Business Combinations” (“SFAS No. 141R”), the reversal of a valuation allowance established in purchase accounting upon the acquisition of Software Spectrum would result in a reduction of goodwill as opposed to a benefit to earnings. Upon adoption of SFAS No. 141R on January 1, 2009, any change in a valuation allowance established in purchase accounting will be a benefit to or charge against earnings. Additional information about the valuation allowance can be found in Note 11 to the Consolidated Financial Statements in Part II, Item 8 of this report.

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

Contingencies

From time to time, we are subject to potential claims and assessments from third parties. We are also subject to various governmental, client and vendor audits. We continually assess whether or not such claims have merit and warrant accrual under the “probable and estimable” criteria of SFAS No. 5, “Accounting for Contingencies.” Where appropriate, we accrue estimates of anticipated liabilities in the consolidated financial statements. Such estimates are subject to change and may affect our results of operations and our cash flows. Additional information about contingencies can be found in Note 15 to the Consolidated Financial Statements in Part II, Item 8 of this report.

RESULTS OF OPERATIONS

The following table sets forth for the periods presented certain financial data as a percentage of net sales for the years ended December 31, 2007, 2006 and 2005. As discussed in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report, we have reported the results of operations of PC Wholesale, which we sold on March 1, 2007, as a discontinued operation in the consolidated statements of earnings for all periods presented.

		2007				2006				2005
Net sales			100.0	%			100.0	%			100.0	%
Costs of goods sold			86.2				86.9				87.5
Gross profit			13.8				13.1				12.5
Operating expenses:
Selling and administrative expenses			11.1				10.3				9.5
Severance and restructuring expenses			0.1				0.0				0.4
Reductions in liabilities assumed in a previous acquisition			—				—				(0.0	)
Earnings from operations			2.6				2.8				2.6
Non-operating expense, net			0.2				0.1				0.0
Earnings from continuing operations before income taxes			2.4				2.7				2.6
Income tax expense			0.9				0.9				1.0
Net earnings from continuing operations			1.5				1.8				1.6
Earnings from discontinued operations, net of taxes			0.1				0.3				0.2
Net earnings before cumulative effect of change in accounting principle			1.6				2.1				1.8
Cumulative effect of change in accounting principle, net of taxes			—				—				(0.0	)
Net earnings			1.6	%			2.1	%			1.8	%

2007 Compared to 2006

Net Sales. Net sales for the year ended December 31, 2007 increased 34% compared to the year ended December 31, 2006, in part, due to the acquisition of Software Spectrum in 2006. Our net sales by operating segment for the years ended December 31, 2007 and 2006 were as follows (dollars in thousands):

		2007				2006				% Change
North America		$	3,362,955			$	2,852,997				18	%
EMEA			1,329,682				710,294				87	%
APAC			107,794				29,965				260	%
Consolidated		$	4,800,431			$	3,593,256				34	%

The increase in North America’s net sales for the year ended December 31, 2007 was due primarily to the acquisition of Software Spectrum, which contributed to 78% growth in our sales of software. We also experienced slight organic growth in our hardware category and strong growth in our services category, which grew by 43% year over year. North America had 1,349 account executives at December 31, 2007, an increase from 1,259 at December 31, 2006. Net sales per average number of account executives in North America increased to $2.6 million for the year ended December 31, 2007 from $2.4 million for the year ended December 31, 2006. The average tenure of our account executives in North America has decreased slightly from 4.4 years at December 31, 2006 to 4.2 years at December 31, 2007.

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

The increase of $619.4 million or 87% in EMEA’s net sales for the year ended December 31, 2007 was due to organic growth and the acquisition of Software Spectrum as well as favorable currency exchange rates. The effect of currency exchange rates between the weakening U.S. dollar year over year as compared to the various European currencies in which we do business accounted for approximately $92.6 million or 15% of this increase. Software sales in the EMEA segment grew 183% year over year and we also saw a very strong performance in our EMEA hardware and services categories, which grew 19% and 113%, respectively. EMEA had 550 account executives at December 31, 2007, an increase from 476 at December 31, 2006 due to planned increases in an effort to grow the business. Net sales per average number of account executives in EMEA increased to $2.6 million for the year ended December 31, 2007 compared to $1.9 million for the year ended December 31, 2006. The average tenure of our account executives in EMEA has increased from 2.7 years at December 31, 2006 to 3.0 years at December 31, 2007.

Our APAC segment recognized net sales of $107.8 million for the year ended December 31, 2007, the first full year of operating results since our acquisition of Software Spectrum in September 2006.

Net sales by category for North America, EMEA and APAC were as follows for the years ended December 31, 2007 and 2006:

		North America								EMEA								APAC
		Years Ended December 31,								Years Ended December 31,								Years Ended December 31,
Sales Mix		2007				2006				2007				2006				2007				2006
Notebooks and PDAs			11	%			12	%			8	%			12	%			—				—
Desktops and Servers			12	%			13	%			7	%			10	%			—				—
Network and Connectivity			11	%			14	%			4	%			6	%			—				—
Storage Devices			5	%			7	%			4	%			6	%			—				—
Printers			5	%			6	%			3	%			5	%			—				—
Memory and Processors			4	%			5	%			2	%			3	%			—				—
Supplies and Accessories			5	%			6	%			3	%			5	%			—				—
Monitors and Video			4	%			5	%			3	%			6	%			—				—
Miscellaneous			8	%			9	%			3	%			5	%			—				—
Hardware			65	%			77	%			37	%			58	%			—				—
Software			32	%			21	%			62	%			41	%			100	%			100	%
Services			3	%			2	%			1	%			1	%			—				—
			100	%			100	%			100	%			100	%			100	%			100	%

With the acquisition of Software Spectrum, our product mix changed significantly as noted above, with software increasing from 26% of total company net sales in 2006 to 42% in 2007. Currently, our offerings in North America and the United Kingdom include brand name IT hardware, software and services. Our offerings in the remainder of our EMEA segment and in APAC currently only include software and select software-related services.

Gross Profit. Gross profit increased 40% for the year ended December 31, 2007 compared to the year ended December 31, 2006. The increase in sales of software licenses for which we receive only an agency fee, as well as sales of software maintenance contracts and third-party warranties for which only the gross profit is recorded as net sales, makes period-to-period comparability of net sales and costs of goods sold more difficult. As a result, we believe that gross profit is a more reliable measure of business performance and is more useful in comparing period-to-period trends than net sales. Our gross profit and gross profit as a percent of net sales by operating segment for the years ended December 31, 2007 and 2006 were as follows (dollars in thousands):

						% of Net								% of Net
		2007				Sales				2006				Sales
North America		$	471,808				14.0	%		$	370,572				13.0	%
EMEA			168,583				12.7	%			95,184				13.4	%
APAC			20,697				19.2	%			4,901				16.4	%
Consolidated		$	661,088				13.8	%		$	470,657				13.1	%

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

North America’s gross profit increased for the year ended December 31, 2007 by 27% compared to the year ended December 31, 2006. Gross profit per account executive increased 14% to $362,000 for the year ended December 31, 2007 from $318,000 for the year ended December 31, 2006. As a percentage of net sales, gross profit increased due primarily to an increase in agency fees for Microsoft enterprise software agreement renewals of 160 basis points and higher margins associated with our service business of 16 basis points. These increases were partially offset by decreases in product margin, which includes vendor funding of 32 basis points and in freight margin of 19 basis points.

EMEA’s gross profit increased for the year ended December 31, 2007 by 77% compared to the year ended December 31, 2006. Gross profit per account executive increased 28% from $329,000 for the year ended December 31, 2007 from $257,000 for the year ended December 31, 2006. As a percentage of net sales, gross profit decreased by approximately 70 basis points from 2006 to 2007 due primarily to decreases in product margin of nearly 130 basis points resulting primarily from our acquisition of Software Spectrum, whose overall gross margins are generally lower than those in our legacy business due to the sales mix of software only compared to hardware, software and services for our legacy business. We also saw a 20 basis point decline related to decreases in supplier discounts due to a change in supplier mix, resulting primarily from our acquisition of Software Spectrum. These decreases in gross margin were offset partially by higher agency fees for Microsoft enterprise software agreement renewals which contributed nearly 80 basis points improvement.

APAC’s gross profit increased for the year ended December 31, 2007 by 322% compared to the year ended December 31, 2006 due to the inclusion of a full year of APAC results in 2007.

Operating Expenses.

Selling and Administrative Expenses. Selling and administrative expenses increased in the year ended December 31, 2007 compared to the year ended December 31, 2006 due primarily to the acquisition of Software Spectrum. Selling and administrative expenses increased 44% and increased as a percentage of net sales for the year ended December 31, 2007 compared to the year ended December 31, 2006. Selling and administrative expenses as a percent of net sales by operating segment for the years ended December 31, 2007 and 2006 were as follows (dollars in thousands):

						% of Net								% of Net
		2007				Sales				2006				Sales
North America		$	381,503				11.3	%		$	287,903				10.1	%
EMEA			135,747				10.2	%			77,694				10.9	%
APAC			15,141				14.0	%			3,792				12.7	%
Consolidated		$	532,391				11.1	%		$	369,389				10.3	%

North America’s selling and administrative expenses increased 33% for the year ended December 31, 2007 compared to the year ended December 31, 2006. The increase in selling and administrative expenses is primarily attributable to:

	•		Salaries and wages, employee-related expenses and contract labor, which increased approximately $60.0 million due to increases in expenses related to the addition of Software Spectrum, increases in sales incentive programs and increases in bonus expenses due to increased overall financial performance;
	•		Amortization of intangible assets acquired in the acquisition of Software Spectrum in September 2006, which increased from $2.3 million in 2006 to $5.8 million in 2007;
	•		Professional fees associated with the review of our historical stock option practices, which increased from $1.6 million in 2006 to $12.5 million in 2007;
	•		Duplicative costs associated with our back-office operations tied to our mySAP upgrade; and
	•		Other integration-related expenses, such as travel, legal and accounting fees.

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

EMEA’s selling and administrative expenses increased 75% for the year ended December 31, 2007 compared to the year ended December 31, 2006. The U.S. dollar increase in selling and administrative expenses is primarily attributable to:

	•		Salaries and wages, employee-related expenses and contract labor, which increased approximately $42.9 million due to increases in expenses related to the addition of Software Spectrum, increases in stock-based compensation expense, increases in sales incentive programs and increases in bonus expenses due to increased overall financial performance;
	•		Amortization of intangible assets acquired with the acquisition of Software Spectrum in September 2006, which increased from $1.3 million in 2006 to $3.5 million in 2007;
	•		Higher facilities expense, travel expense and professional fees related to the increased geographical coverage and office locations resulting from our acquisition of Software Spectrum; and
	•		The effect of currency exchange rates between the weakening U.S. dollar year over year as compared to the various European currencies in which we do business accounted for approximately $9.3 million or 12% of the total increase.

APAC’s selling and administrative expenses increased for the year ended December 31, 2007 compared to the year ended December 31, 2006 primarily due to the inclusion of Software Spectrum results for a full year in 2007.

Severance and Restructuring Expenses. During the year ended December 31, 2007, North America, EMEA and APAC recorded severance expense of $3.0 million, $177,000, and $64,000, respectively. Additionally, a $606,000 benefit related to a reduction in EMEA’s restructuring liability for remaining lease obligations on a previously vacated legacy Insight office property following a successful renegotiation of a portion of the long-term lease was recorded during the period. During the year ended December 31, 2006, North America and EMEA recorded severance expense of $508,000 and $221,000. See Note 9 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of severance and restructuring activities.

Interest Income. Interest income for the years ended December 31, 2007 and 2006 was generated through short-term investments. The decrease in interest income is due to a generally lower level of cash available to be invested in short-term investments as we paid down debt balances and completed stock repurchases during 2007.

Interest Expense. Interest expense for the years ended December 31, 2007 and 2006 primarily relates to borrowings under our financing facilities. The increase in interest expense is primarily due to a higher weighted average borrowings outstanding for the year ended December 31, 2007 compared with 2006 given the debt incurred for the acquisition of Software Spectrum was only outstanding for a third of the year in 2006.

Net Foreign Currency Exchange Gains. These gains result from foreign currency transactions, including intercompany balances that are not considered long-term in nature. The increase in the net foreign currency exchange gain is due primarily to increases in the volume of business transacted outside of the U.S. and the continued decline in the value of the U.S. dollar against currencies we transact business in, specifically the Canadian dollar, the Euro and the British Pound Sterling.

Other Expense, Net. Other expense, net, consists primarily of bank fees associated with our financing facilities and cash management.

Income Tax Expense. Our effective tax rate from continuing operations for the year ended December 31, 2007 was 38.5% compared to 35.2% for the year ended December 31, 2006. The effective tax rate is higher in 2007 due primarily to an increase in our tax reserves relating to uncertain tax positions. Further, our 2006 effective tax rate reflects the reversal of accrued income taxes resulting from the determination that a reserve previously recorded for potential tax exposures was no longer necessary.

Earnings from Discontinued Operations. On March 1, 2007, we completed the sale of PC Wholesale and on June 30, 2006, we completed the sale of Direct Alliance. Accordingly, the results of operations attributable to PC Wholesale and Direct Alliance for all periods presented have been classified as discontinued operations. See Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion.

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

2006 Compared to 2005

Net Sales. Net sales for the year ended December 31, 2006 increased 23% to $3.59 billion from $2.93 billion for the year ended December 31, 2005. Sales contributed from the acquisition of Software Spectrum are included from the acquisition date of September 7, 2006 and approximated 14% of total net sales for 2006. Our net sales by operating segment for the years ended December 31, 2006 and 2005 were as follows (in thousands):

		2006				2005				% Change
North America		$	2,852,997			$	2,460,970				16	%
EMEA			710,294				470,239				51	%
APAC			29,965				—				100	%
Consolidated		$	3,593,256			$	2,931,209				23	%

North America’s net sales for the year ended December 31, 2006 increased 16% to $2.85 billion from $2.46 billion for the year ended December 31, 2005, due primarily to the acquisition of Software Spectrum. Overall, our North America hardware and services categories performed well during the year with sales from public sector clients growing faster than the market, while sales from SMB clients were in line with the market, and hardware sales to large enterprise clients declined compared to 2005. North America had 1,259 account executives at December 31, 2006, an increase from 1,039 at December 31, 2005 due primarily to the acquisition of Software Spectrum. Net sales per average number of account executives in North America increased to $2.4 million for the year ended December 31, 2006 from $2.3 million for the year ended December 31, 2005. The average tenure of our account executives in North America increased from 3.9 years at December 31, 2005 to 4.4 years at December 31, 2006. The increase was due primarily the addition of more tenured account executives with the acquisition of Software Spectrum.

EMEA’s net sales for the year ended December 31, 2006 increased 51% to $710.3 million from $470.2 million for the year ended December 31, 2005. Overall, our growth in EMEA was due to the acquisition of Software Spectrum as our EMEA software category posted seasonally strong results in the fourth quarter of 2006. EMEA had 476 account executives at December 31, 2006, an increase from 266 at December 31, 2005 due primarily to the acquisition of Software Spectrum. Net sales per average number of account executives in EMEA increased to $1.9 million for the year ended December 31, 2006 compared to $1.8 million for the year ended December 31, 2005. The average tenure of our account executives in EMEA increased from 2.3 years at December 31, 2005 to 2.7 years at December 31, 2006. The increase was due primarily to a decrease in account executive turnover and to the addition of more tenured account executives with the acquisition of Software Spectrum.

APAC’s net sales for the year ended December 31, 2006 were $30.0 million. We were pleased with the results of our APAC segment as it achieved strong growth and results in line with its internal budgets.

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

Net sales by category for North America, EMEA and APAC were as follows for the years ended December 31, 2006 and 2005:

		North America								EMEA								APAC
		Years Ended December 31,								Years Ended December 31,								Years Ended December 31,
Sales Mix		2006				2005				2006				2005				2006				2005
Notebooks and PDAs			12	%			13	%			12	%			18	%			—				—
Desktops and Servers			13	%			16	%			10	%			14	%			—				—
Network and Connectivity			14	%			13	%			6	%			8	%			—				—
Storage Devices			7	%			8	%			6	%			8	%			—				—
Printers			6	%			7	%			5	%			8	%			—				—
Memory and Processors			5	%			6	%			3	%			4	%			—				—
Supplies and Accessories			6	%			7	%			5	%			8	%			—				—
Monitors and Video			5	%			7	%			6	%			10	%			—				—
Miscellaneous			9	%			9	%			5	%			8	%			—				—
Hardware			77	%			86	%			58	%			86	%			—				—
Software			21	%			12	%			41	%			14	%			100	%			—
Services			2	%			2	%			1	%			—				—				—
			100	%			100	%			100	%			100	%			100	%			—

In general, we continue to experience declines in average selling prices for most of our hardware product categories, which requires us to sell more units in order to maintain or increase the level of sales. Additionally, average selling prices for printers, monitors and notebooks have been declining at a greater rate than the other product categories as demand and competition for these products have increased. With the acquisition of Software Spectrum, our product mix changed significantly.

Gross Profit. The increase in sales of licenses under sales agency licensing programs as well as sales of software maintenance contracts makes period-to-period comparability of sales and costs of goods sold more difficult. As a result, we believe the focus should be on gross profit as the key measure of business performance and period-to-period trends. Gross profit increased 29% to $470.7 million for the year ended December 31, 2006 from $365.1 million for the year ended December 31, 2005. As a percentage of net sales, gross profit increased to 13.1% for the year ended December 31, 2006 from 12.5% for the year ended December 31, 2005. Our gross profit and gross profit as a percent of net sales by operating segment for the years ended December 31, 2006 and 2005 were as follows (in thousands):

						% of Net								% of Net
		2006				Sales				2005				Sales
North America		$	370,572				13.0	%		$	301,694				12.3	%
EMEA			95,184				13.4	%			63,415				13.5	%
APAC			4,901				16.4	%			—				—
Consolidated		$	470,657				13.1	%		$	365,109				12.5	%

North America’s gross profit increased for the year ended December 31, 2006 by 23% to $370.6 million from $301.7 million for the year ended December 31, 2005. As a percentage of net sales, gross profit increased to 13.0% for the year ended December 31, 2006 from 12.3% for the year ended December 31, 2005 due primarily to increases in agency fees for Microsoft enterprise software agreement renewals, favorable collection experience, resulting in reductions in the reserve for vendor receivables, and increases in sales of services, which generate higher gross margins. These increases were offset partially by decreases in freight margins and decreases in product margin, which includes vendor funding. Gross profit per average number of account executives in North America increased to $318,000 for the year ended December 31, 2006 compared to $281,000 for the year ended December 31, 2005.

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

EMEA’s gross profit increased for the year ended December 31, 2006 by 50% to $95.2 million from $63.4 million for the year ended December 31, 2005. As a percentage of net sales, gross profit decreased to 13.4% for the year ended December 31, 2006 from 13.5% for the year ended December 31, 2005. The decrease in gross margin is due primarily to decreases in product margin, which includes vendor funding, and decreases in freight margins. This decrease in gross margin was offset partially by higher agency fees for Microsoft enterprise software agreement renewals. Gross profit per average number of account executives in EMEA increased to $257,000 for the year ended December 31, 2006 compared to $238,000 for the year ended December 31, 2005.

APAC reported a gross profit of $4.9 million for the year ended December 31, 2006. As a percentage of net sales, gross profit was 16.4% for the year ended December 31, 2006.

Operating Expenses.

Selling and Administrative Expenses. Selling and administrative expenses increased to $369.4 million for the year ended December 31, 2006 from $279.2 million for the year ended December 31, 2005 and increased as a percent of net sales to 10.3% for the year ended December 31, 2006 from 9.5% for the year ended December 31, 2005. Selling and administrative expenses as a percent of net sales by operating segment for the years ended December 31, 2006 and 2005 were as follows (in thousands):

						% of Net								% of Net
		2006				Sales				2005				Sales
North America		$	287,903				10.1	%		$	228,371				9.3	%
EMEA			77,694				10.9	%			50,790				10.8	%
APAC			3,792				12.7	%			—				—
Consolidated		$	369,389				10.3	%		$	279,161				9.5	%

North America’s selling and administrative expenses increased for the year ended December 31, 2006 by 26% to $287.9 million from $228.4 million for the year ended December 31, 2005. As a percentage of net sales, selling and administrative expenses increased to 10.1% for the year ended December 31, 2006 from 9.3% for the year ended December 31, 2005. The increase in selling and administrative expenses is primarily attributable to:

	•		Salaries and wages, employee-related expenses and contract labor increased approximately $48 million due to increases in expenses related to the addition of Software Spectrum, increases in stock-based compensation expense, increases in sales incentive programs and increases in bonus expenses due to increased overall financial performance. Stock-based compensation expense of $11.6 million and $778,000 is included in North America’s selling and administrative expenses for the year ended December 31, 2006 and 2005, respectively;
	•		Depreciation increased approximately $3.9 million, primarily as a result of $2.9 million of accelerated depreciation during 2006 related to portions of our current operating system that will not be utilized after our upgrade to mySAP;
	•		Amortization of intangible assets acquired with the acquisition of Software Spectrum in September 2006 was approximately $2.3 million in 2006;
	•		Professional fees increased by approximately $1.6 million associated with the review of our historical stock option practices in 2006; and
	•		Other integration-related expenses, such as travel, legal and accounting fees, also experienced increases in 2006.

EMEA’s selling and administrative expenses increased 53% to $77.7 million for the year ended December 31, 2006 from $50.8 million for the year ended December 31, 2005. As a percentage of net sales, selling and administrative expenses increased to 10.9% for the year ended December 31, 2006 from 10.8% for the year ended December 31, 2005. The increase in selling and administrative expenses is primarily attributable to:

	•		Salaries and wages, employee-related expenses and contract labor increased approximately $18.3 million due to increases in expenses related to the addition of Software Spectrum, increases in stock-based compensation expense, increases in sales incentive programs and increases in bonus expenses due to increased overall financial performance. Stock-based compensation expense of $1.1 million is included in EMEA’s selling and administrative expenses for the year ended December 31, 2006. No stock-based compensation expense was recorded for EMEA in 2005;
	•		Depreciation increased approximately $1.2 million, primarily as a result of increases in facility costs related to our new London office;

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

	•		Amortization of intangible assets acquired with the acquisition of Software Spectrum in September 2006 was approximately $1.3 million in 2006; and
	•		Other integration-related expenses, such as travel, legal and accounting fees, also experienced increases in 2006;

These increases were offset partially by the effect of higher net sales and a property tax rebate of approximately $1.0 million recorded during the year ended December 31, 2006.

APAC’s selling and administrative expenses were $3.8 million for the year ended December 31, 2006. Stock-based compensation expense of $12,000 is included in APAC’s selling and administrative expenses for the year ended December 31, 2006.

Severance and Restructuring Expenses. During the year ended December 31, 2006, North America and EMEA recorded severance expense of $508,000 and $221,000, respectively, associated with the elimination of Insight positions as part of our integration and expense reduction plans. During the year ended December 31, 2005, EMEA moved into a new facility and recorded restructuring costs of $6.9 million for the remaining lease obligations on the previous lease and $1.0 million for duplicate rent expense for the new facility for the last half of 2005. Also, during 2005, North America and EMEA recorded severance and restructuring expenses of $3.7 million and $414,000, respectively, for severance attributable to the elimination of 89 positions, primarily in support and management. See Note 9 to Consolidated Financial Statements in Part II, Item 8 of this report for further discussion of severance and restructuring activities.

Reductions in Liabilities Assumed in Previous Acquisition. During the year ended December 31, 2005, EMEA settled certain liabilities assumed in a previous acquisition for $664,000 less than the amounts originally recorded. See Note 10 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion.

Interest Income. Interest income of $4.4 million and $3.4 million for the year ended December 31, 2006 and 2005, respectively, was generated through short-term investments. The increase in interest income is due to a generally higher level of cash available to be invested in short-term investments and increases in interest rates earned on those investments during the year ended December 31, 2006.

Interest Expense. Interest expense of $6.8 million and $1.9 million for the year ended December 31, 2006 and 2005, respectively, primarily relates to borrowings under our financing facilities. The increase in interest expense is due to increased borrowings outstanding in the year ended December 31, 2006 related to the acquisition of Software Spectrum in September 2006 and increases in interest rates.

Net Foreign Currency Exchange Gain (Loss). Net foreign currency exchange gain was $1.1 million for the year ended December 31, 2006 compared to a net foreign currency exchange loss of $72,000 for the year ended December 31, 2005. These amounts consist primarily of foreign currency transaction gains or losses for intercompany balances that are not considered long-term in nature.

Other Expense, Net. Other expense, net, was $901,000 for the year ended December 31, 2006 compared to $782,000 for the year ended December 31, 2005. These amounts consist primarily of bank fees associated with our financing facilities and cash management.

Income Tax Expense. Our effective tax rates for continuing operations for the years ended December 31, 2006 and 2005 were 35.2% and 39.3%, respectively. Our effective tax rate for the year ended December 31, 2006 was lower than for the year ended December 31, 2005 primarily due to a benefit recognized during the year ended December 31, 2006 for the reversal of accrued income taxes of $1.4 million resulting from the determination that a reserve previously recorded for potential tax exposures was no longer necessary and to several tax planning initiatives as well as the change in the percentage of taxable income being taxed in countries with lower tax rates than the U.S. as a result of the acquisition of Software Spectrum.

Earnings from Discontinued Operation. On March 1, 2007, we completed the sale of PC Wholesale and on June 30, 2006, we completed the sale of Direct Alliance. Accordingly, the results of operations attributable to PC Wholesale and Direct Alliance for all periods presented have been classified as a discontinued operation. See Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this report for further discussion.

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

Liquidity and Capital Resources

The following table sets forth for the periods presented certain consolidated cash flow information for the years ended December 31, 2007, 2006 and 2005 (dollars in thousands):

		2007				2006				2005
Net cash provided by operating activities		$	99,418			$	82,602			$	15,747
Net cash used in investing activities			(7,130	)			(309,159	)			(8,487	)
Net cash (used in) provided by financing activities			(100,209	)			242,749				2,095
Net cash provided by (used in) discontinued operations			—				105				(6,958	)
Foreign currency exchange effect on cash flow			9,942				3,255				(5,695	)
Increase (decrease) in cash and cash equivalents			2,021				19,552				(3,298	)
Cash and cash equivalents at beginning of year			54,697				35,145				38,443
Cash and cash equivalents at end of year		$	56,718			$	54,697			$	35,145

Cash and Cash Flow

Our primary uses of cash in the past few years have been to fund acquisitions, working capital requirements and capital expenditures and to repurchase our common stock. We generated very strong operating cash flows for the year ended December 31, 2007. Operating activities provided $99.4 million in cash, a 20% increase over the year ended December 31, 2006. Our strong operating cash flows, along with $28.6 million from the sale of PC Wholesale enabled us to not only reduce our outstanding debt by $52.0 million, but also fund $50.0 million of repurchases of our common stock during the year. Capital expenditures were $35.8 million for the year, a 4% increase over 2006, primarily related to expenditures for our mySAP upgrade. Additionally, 2007 benefited from a $9.9 million positive effect of foreign currency exchange rates on cash flow for 2007, compared to $3.3 million in 2006.

We sold PC Wholesale in March 2007 and have presented it as a discontinued operation. Excluding net earnings, amounts related to the discontinued operation have not been removed from the 2007, 2006 and 2005 cash flow statements because the effect is immaterial.

Net cash provided by operating activities. Cash flows from operations for the year ended December 31, 2007 resulted primarily from net earnings from continuing operations before depreciation and amortization, and an increase in accounts payable partially offset by an increase in accounts receivable. The increase in accounts payable can be primarily attributed to an increase in net sales, and the related costs of goods sold, offset partially by a decrease in days purchases outstanding, as discussed below. The higher accounts receivable balance at December 31, 2007 can be primarily attributed to an increase in sales as well as to a slow down in collections in our North American and EMEA operations due to internal collection productivity issues and slower customer payments. Cash flows from operations for the year ended December 31, 2006 resulted primarily from net earnings from continuing operations before depreciation and amortization, and increases in accounts payable and decreases in inventories. These increases in operating cash flows were partially offset by increases in accounts receivable. The increased accounts payable and accounts receivable balances can be primarily attributed to the Software Spectrum acquisition. Cash flows from operations for the year ended December 31, 2005 resulted primarily from net earnings from continuing operations before depreciation and amortization partially offset by increases in accounts receivable and inventories. The increase in accounts receivable was due to increases in net sales with terms longer than net 30 at the end of 2005 primarily related to our large enterprise and public sector clients. The increase in inventories was due primarily to increases in opportunistic purchases and a decision to carry additional inventories for our integration labs and upcoming projects with large enterprise and public sector clients at the end of 2005.

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

Our consolidated cash flow operating metrics for the years ended December 31, 2007, 2006 and 2005 are as follows:

		2007				2006				2005
Days sales outstanding in ending accounts receivable (“DSOs”)(a)			80				100				59
Inventory turns (excluding inventories not available for sale) (b)			42				29				24
Days purchases outstanding in ending accounts payable (“DPOs”) (c)			60				73				26

(a)		Calculated as the balance of accounts receivable, net at the end of the year divided by daily net sales. Daily net sales is calculated as net sales divided by 360 days.
(b)		Calculated as costs of goods sold divided by average inventories. Average inventories is calculated as the sum of the balances of beginning inventories plus ending inventories divided by two.
(c)		Calculated as the balances of accounts payable plus inventories financing facility at the end of the year divided by daily costs of goods sold. Daily costs of goods sold is calculated as costs of goods sold divided by 360 days.

The decrease in DSOs from the year ended December 31, 2006 is due primarily to the fact that 2006 DSOs included receivables acquired in the Software Spectrum acquisition and only four months of related net sales, thus skewing 2006 DSOs to appear higher than normal. Still, 2007 DSOs are higher than we would expect in the future due to a higher proportion of sales to clients with longer payment terms, a slow down in collections in our North America and EMEA operations and an increase in sales toward the end of the year. Improving our cash conversion cycle will be an area of focus in 2008 as we continue to focus on our return on invested capital. The decrease in DPOs from the year ended December 31, 2006 is due primarily to the similar effect on 2006 DPOs of the Software Spectrum acquisition which skew the 2006 DPOs to appear higher, offset by efforts in 2007 to improve this metric and better manage the timing of payments. The increase in inventory turns is primarily due to the inclusion of a full year of Software Spectrum’s operations in 2007 which require very little inventory.

Assuming sales continue to increase in the future, we expect that cash flow from operations will be used, at least partially, to fund working capital as we typically pay our partners on average terms that are shorter than the average terms granted to our clients in order to take advantage of supplier discounts.

Net cash used in investing activities. Capital expenditures of $35.8 million and $34.2 million for the years ended December 31, 2007 and 2006, respectively, primarily related to investments to upgrade our IT systems to mySAP, including capitalized costs of software developed for internal use, IT equipment and software licenses. Capital expenditures for the year ended December 31, 2005 of $35.0 million primarily related to capitalized costs of software developed for internal use, the purchase of a previously leased office facility, leasehold improvements primarily in our Illinois distribution center and in our London facility and computer equipment. We expect total capital expenditures in 2008 to be between $30.0 million and $35.0 million. During the year ended December 31, 2007, we received $28.6 million for the sale of PC Wholesale. During the year ended December 31, 2006, we received $46.3 million for the sale of Direct Alliance and used $321.2 million, net of cash acquired of $30.3 million, to acquire Software Spectrum. In January 2005, we received $26.5 million owed to us by an underwriter related to the 2004 sale of our investment in PlusNet, a discontinued operation.

Net cash (used in) provided by financing activities. During the year ended December 31, 2007, we reduced our outstanding debt by $52.0 million and funded repurchases of $50.0 million of our common stock. These uses of cash were partially offset by $24.5 million of proceeds from sales of common stock under employee stock plans. During the year ended December 31, 2006, the acquisition of Software Spectrum was partially financed by new term loan borrowings of $75.0 million under our amended and restated credit facility and $173.0 million under our amended accounts receivables securitization financing facility. During the year ended December 31, 2005, cash was provided by borrowings on our short-term financing facility and our line of credit and by cash received from common stock issuances as a result of stock option exercises. Cash was primarily used to make repayments on our short-term financing facility and to repurchase shares of our common stock.

On December 5, 2005, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock. During the year ended December 31, 2007, we repurchased 1.96 million shares on the open market at an average price of $25.57 per share, which represented the full amount authorized under the repurchase program. All shares repurchased have been retired. On November 13, 2007, our Board of Directors authorized the repurchase of up to an additional $50.0 million of our common stock. There were no repurchases under this new program as of December 31, 2007.

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

We anticipate that cash flows from operations, together with the funds available under our financing facilities and existing commitments to provide new facilities, will be adequate to support our presently anticipated cash and working capital requirements for operations over the next twelve months as well as the planned acquisition of Calence. Additionally, we expect to use any excess cash primarily to reduce outstanding debt and to fund additional acquisitions and/or repurchases of our common stock.

Cash and cash equivalents held by foreign subsidiaries are generally subject to U.S. income taxation upon repatriation to the U.S. For foreign entities not treated as branches for U.S. tax purposes, we do not provide for U.S. income taxes on the undistributed earnings of these subsidiaries as earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely outside of the U.S. As of December 31, 2007, cash and cash equivalents of $34.0 million were held by our foreign subsidiaries. The undistributed earnings of foreign subsidiaries that are deemed to be permanently invested outside of the U.S. were $10.6 million at December 31, 2007.

As part of our long-term growth strategy, we intend to consider additional acquisition opportunities from time to time, which may require additional debt or equity financing.

As of December 31, 2007, we failed to comply with a covenant, as defined in our accounts receivable securitization financing facility agreement, that requires us to have no more than a certain percentage of aged receivables as compared to total receivables.  In January 2008, we amended our securitization facility, effective December 31, 2007, to change the definition of the covenant, including an amendment to the definition of how the covenant is calculated and its maximum limit. At December 31, 2007, we were in compliance with the amended terms.

See Note 6 to the Consolidated Financial Statements in Part II, Item 8 of this report for a description of our financing facilities, including terms and covenants, amounts outstanding, amounts available and weighted average borrowings and interest rates during the year.

Off-Balance Sheet Arrangements

We have entered into off-balance sheet arrangements, which include guaranties and indemnifications, as defined by the SEC’s Final Rule 67, “Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.” The guaranties and indemnifications are discussed in Note 15 to the Consolidated Financial Statements in Part II, Item 8 of this report. We believe that none of our off-balance sheet arrangements have, or is reasonably likely to have, a material current or future effect on our financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations for Continuing Operations

At December 31, 2007, our contractual obligations for continuing operations were as follows (in thousands):

		Payments due by period
						Less than				1-3				3-5				More than 5
		Total				1 Year				Years				Years				Years
Long-Term Debt (a)			202,250				15,000				176,000				11,250				—
Operating lease obligations			62,499				13,260				19,125				14,043				16,071
Severance and restructuring obligations (b)			7,363				4,639				2,724				—				—
Other contractual obligations (c)			58,067				27,270				17,802				4,950				8,045
Total		$	330,179			$	60,169			$	215,651			$	30,243			$	24,116