Insight Enterprises Inc. Reports Second Quarter Results.TEMPE, Ariz. -- Net Sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight - $837 Million; GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. - $0.53; Non-GAAP Diluted EPS - $0.39 Insight Enterprises Inc. (Nasdaq: NSIT NSIT Networking Services and Information Technologies (University of Chicago) NSIT Nova Scotia Institute of Technology NSIT Not Safe In Taxis NSIT Netaji Subash Institute of Technology NSIT Network Systems and Information Technology ) (the "company") today reported results of operations for the three and six months ended June June: see month. 30, 2006. Second Quarter Highlights: --Quarterly net sales growth of 6.4% from $786.7 million in Q2 2005 to $837.1 million in Q2 2006. --26% year over year growth in non-GAAP(a) diluted EPS from $0.31 in Q2 2005 to $0.39 in Q2 2006 (104% year over year growth in GAAP diluted EPS from $0.26 in Q2 2005 to $0.53 in Q2 2006.) --Quarterly non-GAAP(a) operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: of 3.2%, excluding Direct Alliance Corp. ("Direct Alliance"), which is recorded as a discontinued operation discontinued operation A segment of a business that has been abandoned or sold or for which plans for one or another of these actions have been approved. See also continuing operations. (GAAP operating margin of 2.8%.) --Insight North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. quarterly net sales and non-GAAP(a) earnings from operations growth of 7.9% and 25%, respectively, over prior year (GAAP earnings from operations grew 38%). --Insight UK quarterly net sales declined 2.0% while non-GAAP(a) earnings from operations grew 5% over prior year (GAAP earnings from operations grew 11%). In British pounds sterling, quarterly net sales were basically flat while non-GAAP(a) earnings from operations grew 6% over prior year. --Sold non-core subsidiary, Direct Alliance, and recorded gain on sale of $15.1 million ($9.1 million, net of taxes).
FINANCIAL SUMMARY TABLE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
June 30,
-------------------------------
%
Insight Enterprises Inc. 2006 2005 change
------------------------ --------- --------- --------
Net sales $837,104 $786,743 6.4%
Net earnings - GAAP $25,887 $12,685 104%
Net earnings - non-GAAP(a) $19,192 $15,279 26%
Diluted earnings per share - GAAP $0.53 $0.26 104%
Diluted earnings per share - non-GAAP(a) $0.39 $0.31 26%
Insight North America
---------------------
Net sales $721,781 $669,061 7.9%
Earnings from operations - GAAP $20,562 $14,904 38%
Earnings from operations - non-GAAP(a) $23,361 $18,722 25%
Insight UK
----------
Net sales $115,323 $117,682 (2.0%)
Earnings from operations - GAAP $2,916 $2,638 11%
Earnings from operations - non-GAAP(a) $3,199 $3,052 5%
Six Months Ended
June 30,
-------------------------------
%
Insight Enterprises Inc. 2006 2005 change
------------------------ --------- --------- --------
Net sales $1,626,007 $1,548,034 5.0%
Net earnings - GAAP $40,101 $28,197 42%
Net earnings - non-GAAP(a) $36,139 $30,558 18%
Diluted earnings per share - GAAP $0.82 $0.57 44%
Diluted earnings per share - non-GAAP(a) $0.74 $0.62 19%
Insight North America
---------------------
Net sales $1,390,739 $1,311,737 6.0%
Earnings from operations - GAAP $37,578 $33,399 13%
Earnings from operations - non-GAAP(a) $44,264 $37,338 19%
Insight UK
----------
Net sales $235,268 $236,297 (0.4%)
Earnings from operations - GAAP $6,464 $6,366 2%
Earnings from operations - non-GAAP(a) $7,032 $6,116 15%
(a) A tabular reconciliation of financial measures prepared in
accordance with United States generally accepted accounting principles
("GAAP") to non-GAAP financial measures is included at the end of this
press release.
"The second quarter of 2006 has been a very exciting and successful quarter for Insight," said Rich Fennessy, chief executive officer. "We posted strong financial results, divested a non-core part of our business and are announcing today an acquisition that will solidify so·lid·i·fy v. so·lid·i·fied, so·lid·i·fy·ing, so·lid·i·fies v.tr. 1. To make solid, compact, or hard. 2. To make strong or united. v.intr. our value proposition as a trusted advisor to our clients." Use of Non-GAAP Financial Measures: The non-GAAP financial measures in the 2006 and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. 2005 periods exclude the gain on the sale of Direct Alliance, stock-based compensation expense, settlement expense, severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). expenses, income resulting from reductions in liabilities assumed in a previous acquisition, and the tax effects of these items. We exclude these items when internally evaluating gross profit, selling and administrative expenses, earnings from operations, tax expense, net earnings and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of for the company and when evaluating gross profit, selling and administrative expenses and earnings from operations for the individual operating segments. These non-GAAP measures are used to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare our results to competitors' financial results. We believe that these non-GAAP financial measures are useful to investors because they allow for greater transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. , facilitate comparisons to prior periods and competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. and assist in forecasting performance for future periods because they exclude items we believe to be outside of normal operating results. These non-GAAP financial measures are not prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Our effective tax rate for the three months ended June 30, 2006, was 35.0% compared to 38.6% for the three months ended June 30, 2005. The non-GAAP effective tax rate for the three months ended June 30, 2006, was 35.0% compared to 38.7% for the three months ended June 30, 2005. The decrease in the effective tax rate was due primarily to internal initiatives implemented during the quarter that reduced certain state income taxes, both historically and prospectively. Cash flows from operations for the six months ended June 30, 2006, and 2005 were $125.4 million and $67.3 million, respectively. Cash flows from operations for the six months ended June 30, 2006, resulted primarily from net earnings from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the before depreciation, decreases in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying and inventory and increases in accounts payable. Accounts receivable decreased due to improvements in the aging of accounts receivable. Inventory decreased due primarily to improvements in our supply chain activities and fewer opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik) 1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances. 2. purchases during the period. Accounts payable increased due to timing of payments at period end. Cash flows from operations for the six months ended June 30, 2006, resulted primarily from net earnings from continuing operations before depreciation, decreases in accounts receivable and increases in client payments received in advance of shipment. We had no outstanding balances under our line of credit and accounts receivable securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. facility at June 30, 2006. At June 30, 2006, we had $138.3 million in cash, including $46.5 million received from the sale of Direct Alliance. Stock-Based Compensation Expense On Jan. 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 123R"), which requires stock-based compensation to be measured based on the grant-date fair value of the award and recognized over the period during which an employee is required to provide service in exchange for the award. We adopted SFAS No. 123R using the modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. prospective transition method. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the adoption date and compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption. Prior periods have not been restated. However, we recorded stock-based compensation expense in prior periods related to the amortization of the fair value of restricted stock shares and units over their vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period. Stock-based compensation expense is classified in the same line item of the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge as other payroll-related expenses for the specific employee. Stock-based compensation expense for the three and six months ended June 30, 2006 and 2005 was recorded in continuing operations in the financial statements as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2006 2005 2006 2005
-------- ------- -------- -------
Insight North America
Selling and administrative
expenses $2,799 $168 $5,686 $289
======== ======= ======== =======
Insight UK
Selling and administrative
expenses $283 $- $568 $-
======== ======= ======== =======
Consolidated
Selling and administrative
expenses $3,082 $168 $6,254 $289
======== ======= ======== =======
Stock-based compensation expense disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). only in the footnotes to the consolidated financial statements for the three and six months ended June 30, 2005, was $3.2 million and $6.6 million, respectively. OPERATING SEGMENTS We are a leading provider of information technology ("IT") products and services to businesses in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of and the United Kingdom. Our offerings include brand name computing computing - computer products and IT services. Following the disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of of Direct Alliance on June 30, 2006, we are organized in the following operating segments: --Provider of IT products and services - North America ("Insight North America"); and --Provider of IT products and services - United Kingdom ("Insight UK"). The operations of Direct Alliance are shown in the consolidated financial statements as a discontinued operation. Insight North America Insight North America's net sales for the three months ended June 30, 2006, increased 7.9% to $721.8 million, compared to net sales of $669.1 million for the three months ended June 30, 2005. "We saw growth among sales to all of our client segments," said Fennessy. "Sales to small- to medium-sized Me´di`um-sized` a. 1. Having a medium size; as, a medium-sized man s>. Adj. 1. medium-sized - intermediate in size medium-size, moderate-size, moderate-sized business customers continue to show improvements. As we stated at the end of the last two quarters, several of our large clients had deferred some of their IT projects and we benefited from the deployment Installing, setting up, testing and running. This military term, which means the placement of troops and equipment in the field, is widely used with computers as an alternate to the word "implementation. of some large projects during this quarter." Insight North America's gross profit as a percentage of net sales was 12.0% for the three months ended June 30, 2006, compared to 11.7% for the three months ended June 30, 2005. "The increase from the second quarter of 2005 was due primarily to decreases in the reserve for vendor receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed , increases in sales of services, increases in product margin, increases in supplier reimbursements and increases in referral fees for Microsoft (Microsoft Corporation, Redmond, WA, www.microsoft.com) The most successful and influential software company. Microsoft's software and Intel's hardware pioneered the PC and revolutionized the computer industry. enterprise software agreement renewals. These increases were offset partially by decreases in freight The price or compensation paid for the transportation of goods by a carrier. Freight is also applied to the goods transported by such carriers. The liability of a carrier for freight damaged, lost, or destroyed during shipment is determined by contract, statute, or margins and increases in the write-downs of inventories," said Stanley Stanley, town (1991 pop. 1,557), capital of the Falkland Islands, S Atlantic Ocean, on East Falkland island. It is the main port and trading center of the islands. The name is sometimes written as Port Stanley. Laybourne, chief financial officer. Insight North America's selling and administrative expenses were 8.8% (non-GAAP) of net sales for the three months ended June 30, 2006, compared to 8.9% (non-GAAP) for the three months ended June 30, 2005. The non-GAAP selling and administrative expenses excludes stock-based compensation expense of $2.8 million and $168,000 for the three months ended June 30, 2006 and 2005, respectively. Selling and administrative expenses in the second quarter of 2006 also include approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $720,000 of accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. related to portions of our current operating system operating system (OS) Software that controls the operation of a computer, directs the input and output of data, keeps track of files, and controls the processing of computer programs. that will not be utilized after we upgrade to mySAP SAP's brand name for a variety of its products. mySAP Business Suite includes modules for enterprise resource planning (ERP), customer relationship management (CRM), product life cycle management (PLM), supplier relationship management (SRM) and supply chain management (SCM). See mySAP.com and SAP. . "Compared to the second quarter of 2005, we have benefited from increases in net sales, decreases in marketing expenses and increases in efficiencies due to operational improvements and restructuring activities that were implemented at the end of Q2 2005. These savings have been offset by increases in sales incentive Noun 1. sales incentive - remuneration offered to a salesperson for exceeding some predetermined sales goal bonus, incentive - an additional payment (or other remuneration) to employees as a means of increasing output plans, increases in bonus expenses due to increased financial performance, accelerated depreciation and other IT expenses related to the mySAP upgrade," Laybourne said. Insight North America's earnings from operations as a percentage of net sales for the three months ended June 30, 2006, were 3.2% (non-GAAP) compared to 2.8% (non-GAAP) for the three months ended June 30, 2005. The non-GAAP earnings from operations for the three months ended June 30, 2006, excludes stock-based compensation expense of $2.8 million. The non-GAAP earnings from operations for the three months ended June 30, 2005, excludes severance and restructuring expenses of $3.7 million and stock-based compensation of $168,000. Insight UK Insight UK's net sales for the three months ended June 30, 2006, decreased by 2.0% to $115.3 million, compared to net sales of $117.7 million for the three months ended June 30, 2005. In British pounds sterling, net sales were basically flat compared to the three months ended June 30, 2005. In British pounds sterling, sales per day actually increased by 2.7%, as Insight UK had only 61 shipping days in the second quarter of 2006 compared to 63 days in the second quarter of 2005. "We continue to be very pleased with the results of our UK operation given the overall challenging UK market," said Fennessy. Insight UK's gross profit as a percentage of net sales was 15.1% for the three months ended June 30, 2006, compared to 13.7% for the three months ended June 30, 2005. "The increase in gross margin from the second quarter of 2005 was due primarily to increases in product margin, increases in referral fees from Microsoft enterprise software agreement renewals and increases in supplier discounts, partially offset by decreases in supplier reimbursements as a percentage of sales," said Laybourne. For the three months ended June 30, 2006, Insight UK's selling and administrative expenses were 12.3% (non-GAAP) of net sales compared with 11.1% (GAAP and non-GAAP) in the same quarter of 2005. "The increase in selling and administrative expenses as a percentage of net sales was due primarily to increases in sales compensation plans and facility costs related to our new London New London, city (1990 pop. 24,540), New London co., SE Conn., on the Thames River near its mouth on Long Island Sound; laid out 1646 by John Winthrop, inc. 1784. office, offset partially by a property tax rebate tax rebate n → devolución f de impuestos; reembolso fiscal tax rebate n → ristourne f d'impôt tax rebate received during the quarter," said Laybourne. The non-GAAP selling and administrative expenses exclude stock-based compensation expense of $283,000 for the three months ended June 30, 2006. Insight UK's earnings from operations as a percentage of net sales in the three months ended June 30, 2006, were 2.8% (non-GAAP), compared to 2.6% (non-GAAP) in the three months ended June 30, 2005. The non-GAAP earnings from operations exclude stock-based compensation expense of $283,000 for the three months ended June 30, 2006, and severance and restructuring expenses of $414,000 for the three months ended June 30, 2005. Discontinued Operation On June 30, 2006, the company completed the sale of 100% of the outstanding stock of Direct Alliance to TeleTech Holdings Inc. ("TeleTech") for a purchase price of $46.5 million, subject to a working capital adjustment. The purchase price did not include real estate and intercompany receivables, which had an estimated fair value of $49.4 million and were distributed to the company immediately prior to closing. In addition to payment of the purchase price, TeleTech will be obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. under the agreement to make a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. bonus payment to the company if Direct Alliance achieves certain gross profit levels for the year ending Dec. 31, 2006 ("Earn Out"). Additionally, TeleTech will be entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to a claw back claw back Verb 1. to get back (something) with difficulty 2. to recover (a part of a grant or allowance) in the form of a tax or financial penalty of the purchase price of up to $5.0 million if certain Direct Alliance client contracts are not renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. on terms prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). in the agreement. Also, the company paid $2.7 million to the holders of 1,997,500 exercised Direct Alliance stock options, this amount will be further adjusted for the above described working capital adjustment, Earn Out and claw back. Adjustments for the above described working capital adjustment, Earn Out, clawback Clawback 1. Previously given monies or benefits that are taken back due to specially arising circumstances. 2. A retraction of stock prices or of the market in general. Notes: 1. and payments to holders of exercised Direct Alliance stock options will also adjust the gain recorded on the sale. The operations of Direct Alliance are shown in the consolidated financial statements as a discontinued operation. CONFERENCE CALL AND WEBCAST We will host a conference call and live webcast today at 5 p.m. ET to discuss the quarterly results of operations. A live webcast of the conference call (in listen-only mode) will be available on our corporate Web site at www.insight.com and a replay of the webcast will be available on our corporate Web site for a limited time. FORWARD-LOOKING for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. INFORMATION Certain statements in this release are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statement. Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements include, but are not limited to, the following: --our integration and operation of acquired businesses; --changes in the information technology industry and/or the economic environment; --our reliance on suppliers for product availability, marketing funds, purchasing incentives and competitive products to sell; --disruptions in our information technology and voice and data networks; --actions of our competitors, including manufacturers of products we sell; --failure to comply with the terms and conditions of public sector contracts; --the risks associated with international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. ; --our dependence on key personnel; --rapid changes in product standards; --our ability to renew or replace short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. financing facilities; --intellectual property infringement The encroachment, breach, or violation of a right, law, regulation, or contract. The term is most frequently used in reference to the invasion of rights secured by Copyright, patent, or trademark. claims; and --risks that are otherwise described from time to time in our Securities and Exchange Commission reports, including but not limited to the items discussed in "Factors That Could Affect Future Results" set forth in "Risk Factors" in Item 1A of our Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the quarter ended March 31, 2006, as filed with the Securities and Exchange Commission. We assume no obligation to update, and do not intend to update, any forward-looking statements.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------
2006 2005 2006 2005
--------- --------- ----------- -----------
Net sales $837,104 $786,743 $1,626,007 $1,548,034
Costs of goods sold 732,851 692,162 1,422,702 1,362,054
--------- --------- ----------- -----------
Gross profit 104,253 94,581 203,305 185,980
Operating expenses:
Selling and
administrative expenses 80,775 72,975 159,263 142,815
Severance and
restructuring expenses - 4,064 - 4,064
Reductions in liabilities
assumed in a previous
acquisition - - - (664)
--------- --------- ----------- -----------
Earnings from
operations 23,478 17,542 44,042 39,765
Non-operating (income)
expense:
Interest income (340) (804) (1,262) (1,605)
Interest expense 195 233 992 526
Other expense, net (518) 254 (325) 413
--------- --------- ----------- -----------
Earnings from
continuing operations
before income taxes 24,141 17,859 44,637 40,431
Income tax expense 8,450 6,898 15,773 15,633
--------- --------- ----------- -----------
Net earnings from
continuing operations 15,691 10,961 28,864 24,798
Earnings from
discontinued
operation, net of
taxes of $660, $1,068,
$1,258 and $2,102,
respectively 1,052 1,724 2,093 3,399
Gain on sale of
discontinued
operation, net of
taxes of $5,978, $0,
$5,978 and $0,
respectively 9,144 - 9,144 -
--------- --------- ----------- -----------
Net earnings from
discontinued operation 10,196 1,724 11,237 3,399
--------- --------- ----------- -----------
Net earnings $25,887 $12,685 $40,101 $28,197
========= ========= =========== ===========
Net earnings per share -
Basic:
Net earnings from
continuing operations $0.33 $0.22 $0.60 $0.50
Net earnings from
discontinued operation 0.21 0.04 0.23 0.07
--------- --------- ----------- -----------
Net earnings per share $0.54 $0.26 $0.83 $0.57
========= ========= =========== ===========
Net earnings per share -
Diluted:
Net earnings from
continuing operations $0.32 $0.22 $0.59 $0.50
Net earnings from
discontinued operation 0.21 0.04 0.23 0.07
--------- --------- ----------- -----------
Net earnings per share $0.53 $0.26 $0.82 $0.57
========= ========= =========== ===========
Shares used in per share
calculations:
Basic 48,277 48,601 48,140 49,087
========= ========= =========== ===========
Diluted 48,735 49,084 48,710 49,608
========= ========= =========== ===========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, Dec. 31,
2006 2005
--------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $138,252 $35,145
Accounts receivable, net 429,978 480,458
Inventories 91,549 121,223
Inventories not available for sale 21,800 35,528
Deferred income taxes and other current assets 31,289 29,624
--------- ---------
Total current assets 712,868 701,978
Property and equipment, net 129,773 133,017
Goodwill 87,404 87,124
Other assets 32 221
--------- ---------
$930,077 $922,340
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $185,718 $183,501
Accrued expenses and other current liabilities 71,694 54,926
Client payments in advance of shipment 23,887 24,747
Inventories financing facility - 4,281
Short-term financing facility - 45,000
Line of credit - 21,309
--------- ---------
Total current liabilities 281,299 333,764
Deferred income taxes and other long-term
liabilities 16,826 22,552
Stockholders' equity:
Preferred stock - -
Common stock 483 477
Additional paid-in capital 314,301 299,043
Retained earnings 292,414 252,318
Accumulated other comprehensive income -
foreign currency translation adjustment 24,754 14,186
--------- ---------
Total stockholders' equity 631,952 566,024
--------- ---------
$930,077 $922,340
========= =========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
------------------
2006 2005
--------- --------
Cash flows from operating activities:
Net earnings from continuing operations 28,864 24,798
Plus: net earnings from discontinued operation 11,237 3,399
--------- --------
Net earnings 40,101 28,197
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 9,086 7,244
Provision for losses on accounts receivable 1,483 3,037
Write-downs of inventories 4,748 3,936
Non-cash stock-based compensation 6,254 289
Gain on sale of discontinued operation (15,122) -
Tax benefit from employee gains on stock-based
compensation - 1,495
Excess tax benefit from employee gains on
stock-based compensation (2,232) -
Deferred income taxes (6,724) 3,012
Changes in assets and liabilities:
Decrease in accounts receivable 20,048 22,183
Decrease in inventories 39,379 5,104
(Increase) decrease in other current assets (2,120) 1,620
Increase in other assets (14,625) (209)
Increase (decrease) in accounts payable 55,459 (15,350)
Decrease in inventories financing facility (4,281) (13,055)
(Decrease) increase in client payments in
advance of shipment (6,521) 20,805
Increase (decrease) in accrued expenses and
other current liabilities 515 (961)
--------- --------
Net cash provided by operating activities 125,448 67,347
--------- --------
Cash flows from investing activities:
Proceeds from sale of discontinued operation 46,500 -
Purchases of property and equipment (17,187) (16,438)
Cash receipt of underwriter receivable, net - 27,363
--------- --------
Net cash provided by investing activities 29,313 10,925
--------- --------
Cash flows from financing activities:
Repayments on short-term financing facility (45,000) (40,000)
Borrowings on short-term financing facility - 15,000
Net (repayments) borrowings on line of credit (21,309) 2,491
Proceeds from sales of common stock under
employee stock plans 7,391 3,782
Excess tax benefit from employee gains on
stock-based compensation 2,232 -
Repurchase of common stock - (24,998)
--------- --------
Net cash used in financing activities (56,686) (43,725)
--------- --------
Cash flows from discontinued operation:
Net cash used in operating activities (8,885) (1,532)
Net cash provided by (used in) investing
activities 11,710 (1,864)
Net cash used in financing activities (2,696) (84)
--------- --------
Net cash provided by (used in)
discontinued operation 129 (3,480)
Foreign currency exchange effect on cash flow 4,903 (3,772)
--------- --------
Increase in cash and cash equivalents 103,107 27,295
--------- --------
Cash and cash equivalents at beginning of period 35,145 38,443
--------- --------
Cash and cash equivalents at end of period $138,252 $65,738
========= ========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
QUARTERLY OPERATING STATISTICS TABLE
(UNAUDITED)
Three Months Ended
June 30,
-----------------------------------
Insight Enterprises Inc. 2006 2005 Change
------------------------ --------- --------- ---------
Working capital (in thousands) $431,569 $368,456 17%
Days sales outstanding in ending
accounts receivable ("DSOs") 46 47 (1 day)
Annualized inventory turns (a) 32 32 -
Days costs of goods sold 1 day
outstanding in ending accounts
payable ("DPOs") 24 23
Effective tax rate (GAAP) 35.0% 38.6% (3.6%)
Effective tax rate (Non-GAAP) 35.0% 38.7% (3.7%)
Insight North America
---------------------
Number of shipping days 64 64 -
Number of account executives 1,069 1,054 1%
Average account executive tenure
(years) 4.1 3.8 0.3 years
Percentage of account executives
with tenure of:
less than 1 year 25% 22% 3%
1-2 years 12% 17% (5%)
2-3 years 10% 9% 1%
greater than 3 years 53% 52% 1%
Net sales per average account
executive $673,617 $618,642 9%
Gross profit per average account
executive $81,036 $72,513 12%
Direct shipments % 58% 64% (5%)(b)
Electronic net sales % 20% n/a (c) n/a (c)
Electronic transactions % 30% n/a (c) n/a (c)
Product mix (as a % of net
product sales):
Notebooks and PDAs 16% 18% (4%) (d)
Desktops and servers 15% 16% 1% (d)
Software 11% 12% 2% (d)
Storage devices 7% 8% (5%) (d)
Networking and connectivity 18% 13% 53% (d)
Printers 7% 7% 6% (d)
Monitors and video 6% 6% 4% (d)
Memory and processors 5% 5% 18% (d)
Supplies and accessories 7% 7% (1%) (d)
Miscellaneous 8% 8% 6% (d)
(a) Excluding inventories not available for sale.
(b) Represents percentage decline in number of direct shipments.
(c) No prior year information is available as we changed our
methodology in the second quarter of 2006 for capturing electronic
net sales and transactions.
(d) Represents percentage of net sales growth/decline in product
category.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
QUARTERLY OPERATING STATISTICS TABLE (CONTINUED)
(UNAUDITED)
Three Months Ended
June 30,
-----------------------------------
Insight UK 2006 2005 Change
---------- ---------- --------- ---------
Number of shipping days 61 63 (2 days)
Number of account executives 276 303 (9%)
Average account executive tenure
(years) 2.3 2.0 0.3 years
Percentage of account executives
with tenure of:
less than 1 year 41% 47% (6%)
1-2 years 20% 22% (2%)
2-3 years 14% 10% 4%
greater than 3 years 25% 21% 4%
Net sales per average account
executive $425,548 $392,925 8%
Gross profit per average account
executive $64,292 $53,947 19%
Direct shipments % 48% 46% 1% (a)
Electronic net sales % 22% n/a (b) n/a (b)
Electronic transactions % 39% n/a (b) n/a (b)
Product mix (as a % of net
product sales):
Notebooks and PDAs 17% 18% (7%) (c)
Desktops and servers 14% 15% (9%) (c)
Software 16% 15% 8% (c)
Storage devices 8% 9% (4%) (c)
Networking and connectivity 10% 8% 15% (c)
Printers 8% 8% (7%) (c)
Monitors and video 9% 9% (11%) (c)
Memory and processors 4% 4% 4% (c)
Supplies and accessories 8% 8% 2% (c)
Miscellaneous 6% 6% (4%) (c)
(a) Represents percentage growth/decline in number of direct
shipments.
(b) No prior year information is available as we changed our
methodology in the second quarter of 2006 for capturing electronic
net sales and transactions.
(c) Represents percentage net sales growth/decline in product
category.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
OPERATING SEGMENT STATEMENT OF EARNINGS INFORMATION
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended June 30, 2006
--------------------------------------
Insight
North America Insight UK Consolidated
------------- ----------- ------------
Net sales $721,781 $115,323 $837,104
Costs of goods sold 634,951 97,900 732,851
------------- ----------- ------------
Gross profit 86,830 17,423 104,253
Operating expenses:
Selling and administrative
expenses 66,268 14,507 80,775
------------- ----------- ------------
Earnings from operations $20,562 $2,916 23,478
============= ===========
Non-operating income, net (663)
------------
Earnings from continuing
operations before income
taxes 24,141
Income tax expense 8,450
------------
Net earnings from
continuing operations 15,691
Net earnings from
discontinued operation 10,196
------------
Net earnings $25,887
============
Total assets $1,184,765 $123,913 $930,077(a)
============= =========== ============
(a) Consolidated total assets include net intercompany eliminations
and corporate assets of $378,601.
Six Months Ended June 30, 2006
---------------------------------------
Insight
North America Insight UK Consolidated
--------------- ---------- ------------
Net sales $1,390,739 $235,268 $1,626,007
Costs of goods sold 1,222,455 200,247 1,422,702
--------------- ---------- ------------
Gross profit 168,284 35,021 203,305
Operating expenses:
Selling and administrative
expenses 130,706 28,557 159,263
--------------- ---------- ------------
Earnings from operations $37,578 $6,464 44,042
=============== ==========
Non-operating income, net (595)
------------
Earnings from continuing
operations before income
taxes 44,637
Income tax expense 15,773
------------
Net earnings from
continuing operations 28,864
Net earnings from
discontinued operation 11,237
------------
Net earnings $40,101
============
Total assets $1,184,765 $123,913 $930,077(a)
=============== ========== ============
(a) Consolidated total assets include net intercompany eliminations
and corporate assets of $378,601.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
OPERATING SEGMENT STATEMENT OF EARNINGS INFORMATION
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended June 30, 2005
-------------------------------------
Insight
North America Insight UK Consolidated
------------- ---------- ------------
Net sales $669,061 $117,682 $786,743
Costs of goods sold 590,638 101,524 692,162
------------- ---------- ------------
Gross profit 78,423 16,158 94,581
Operating expenses:
Selling and administrative
expenses 59,869 13,106 72,975
Severance and restructuring
expenses 3,650 414 4,064
------------- ---------- ------------
Earnings from operations $14,904 $2,638 17,542
============= ==========
Non-operating income, net (318)
------------
Earnings from continuing
operations before income
taxes 17,859
Income tax expense 6,898
------------
Net earnings from continuing
operations 10,961
Net earnings from
discontinued operation 1,724
------------
Net earnings $12,685
============
Total assets $919,706 $156,784 $852,537(a)
============= ========== ============
(a) Consolidated total assets include net intercompany eliminations,
assets of a discontinued operation and corporate assets of $223,953.
Six Months Ended June 30, 2005
-------------------------------------
Insight
North America Insight UK Consolidated
------------- ---------- ------------
Net sales $1,311,737 $236,297 $1,548,034
Costs of goods sold 1,157,570 204,484 1,362,054
------------- ---------- ------------
Gross profit 154,167 31,813 185,980
Operating expenses:
Selling and administrative
expenses 117,118 25,697 142,815
Severance and restructuring
expenses 3,650 414 4,064
Reductions in liabilities
assumed in a previous
acquisition - (664) (664)
------------- ---------- ------------
Earnings from operations $33,399 $6,366 39,765
============= ==========
Non-operating income, net (666)
------------
Earnings from continuing
operations before income
taxes 40,431
Income tax expense 15,633
------------
Net earnings from continuing
operations 24,798
Net earnings from
discontinued operation 3,399
------------
Net earnings $28,197
============
Total assets $919,706 $156,784 $852,537(a)
============= ========== ============
(a) Consolidated total assets include net intercompany eliminations,
assets of a discontinued operation and corporate assets of $223,953.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
RECONCILIATION OF CONSOLIDATED GAAP TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2006 2005 2006 2005
--------- -------- --------- ---------
Selling and Administrative
Expenses:
--------------------------
GAAP $80,775 $72,975 $159,263 $142,815
Settlement expense - - (1,000) -
Stock-based compensation
expense (3,082) (168) (6,254) (289)
--------- -------- --------- ---------
Non-GAAP $77,693 $72,807 $152,009 $142,526
========= ======== ========= =========
Non-GAAP selling and
administrative expenses as
a percentage of net sales 9.3% 9.3% 9.3% 9.2%
Earnings from Operations:
-------------------------
GAAP $23,478 $17,542 $44,042 $39,765
Settlement expense - - 1,000 -
Stock-based compensation
expense 3,082 168 6,254 289
Severance and restructuring
expense - 4,064 - 4,064
Reductions in liabilities
assumed in a previous
acquisition - - - (664)
--------- -------- --------- ---------
Non-GAAP $26,560 $21,774 $51,296 $43,454
========= ======== ========= =========
Non-GAAP earnings from
operations as a
percentage of net sales
("Operating Margin") 3.2% 2.8% 3.2% 2.8%
Effective Tax Rate:
-------------------
GAAP 35.0% 38.6% 35.3% 38.7%
Tax rate effect of
adjustments 0.0% 0.1% 0.3% (0.3%)
--------- -------- --------- ---------
Non-GAAP 35.0% 38.7% 35.6% 38.4%
========= ======== ========= =========
Net Earnings from Continuing
Operations:
----------------------------
GAAP $15,691 $10,961 $28,864 $24,798
Settlement expense, net of
tax - - 605 -
Severance and restructuring
expense - 2,491 - 2,491
Stock-based compensation
expense, net of tax 2,008 100 3,949 173
Reductions in liabilities
assumed in a previous
acquisition, net of tax - - - (306)
--------- -------- --------- ---------
Non-GAAP $17,699 $13,552 $33,418 $27,156
========= ======== ========= =========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
RECONCILIATION OF CONSOLIDATED GAAP TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2006 2005 2006 2005
--------- -------- --------- ---------
Net Earnings from
Discontinued Operation:
------------------------
GAAP $10,196 $1,724 $11,237 $3,399
Gain on sale of
discontinued operation,
net of tax (9,144) - (9,144) -
Stock-based compensation
expense, net of tax 441 3 628 3
--------- -------- --------- ---------
Non-GAAP $1,493 $1,727 $2,721 $3,402
========= ======== ========= =========
Net Earnings:
-------------
GAAP $25,887 $12,685 $40,101 $28,197
Settlement expense, net of
tax - - 605 -
Stock-based compensation
expense, net of tax 2,449 103 4,577 176
Severance and
restructuring expenses,
net of tax - 2,491 - 2,491
Reductions in liabilities
assumed in a previous
acquisition, net of tax - - - (306)
Gain on sale of
discontinued
operation, net of tax (9,144) - (9,144) -
--------- -------- --------- ---------
Non-GAAP $19,192 $15,279 $36,139 $30,558
========= ======== ========= =========
Diluted Earnings Per Share:
---------------------------
GAAP $0.53 $0.26 $0.82 $0.57
Settlement expense, net of
tax - - 0.01 -
Stock-based compensation
expense, net of tax 0.05 - 0.10 -
Severance and
restructuring expenses,
net of tax - 0.05 - 0.06
Reductions in liabilities
assumed in a previous
acquisition, net of tax - - - -
Gain on sale of
discontinued
operation, net of tax (0.19) - (0.19) -
--------- -------- --------- ---------
Non-GAAP $0.39 $0.31 $0.74 $0.62
========= ======== ========= =========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
RECONCILIATION OF OPERATING SEGMENT GAAP
TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PERCENTAGES)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2006 2005 2006 2005
-------- --------- --------- ---------
Insight North America:
----------------------
Selling and Administrative
Expenses:
GAAP $66,268 $59,869 $130,706 $117,118
Stock-based compensation
expense (2,799) (168) (5,686) (289)
Settlement expense - - (1,000) -
-------- --------- --------- ---------
Non-GAAP $63,469 $59,701 $124,020 $116,829
======== ========= ========= =========
Non-GAAP selling and
administrative expenses as a
percentage of net sales 8.8% 8.9% 8.9% 8.9%
Earnings from Operations:
GAAP $20,562 $14,904 $37,578 $33,399
Stock-based compensation
expense 2,799 168 5,686 289
Settlement expense - - 1,000 -
Severance and restructuring
expenses - 3,650 - 3,650
-------- --------- --------- ---------
Non-GAAP $23,361 $18,722 $44,264 $37,338
======== ========= ========= =========
Non-GAAP earnings from
operations as a percentage
of net sales ("Operating
Margin") 3.2% 2.8% 3.2% 2.8%
Insight UK:
-----------
Selling and Administrative
Expenses:
GAAP $14,507 $13,106 $28,557 $25,697
Stock-based compensation
expense (283) - (568) -
-------- --------- --------- ---------
Non-GAAP $14,224 $13,106 $27,989 $25,697
======== ========= ========= =========
Non-GAAP selling and
administrative expenses as a
percentage of net sales 12.3% 11.1% 11.9% 10.9%
Earnings from Operations:
GAAP $2,916 $2,638 $6,464 $6,366
Stock-based compensation
expense 283 - 568 -
Severance and restructuring
expenses - 414 - 414
Reductions in liabilities
assumed in a previous
acquisition - - - (664)
-------- --------- --------- ---------
Non-GAAP $3,199 $3,052 $7,032 $6,116
======== ========= ========= =========
Non-GAAP earnings from
operations as a percentage
of net sales ("Operating
Margin") 2.8% 2.6% 3.0% 2.6%
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