Insight Enterprises (NSIT) 10-Q 2003 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended: March 31, 2003

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from           to

Commission File Number: 0-25092

INSIGHT ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Delaware	86-0766246
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]           No [   ]

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

Yes [X]          No [   ]

The number of shares outstanding of the issuer’s common stock as of May 1, 2003 was 46,136,840.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
		CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
Part II – OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-99.1
EX-99.2

INSIGHT ENTERPRISES, INC.
FORM 10-Q QUARTERLY REPORT
Three Months Ended March 31, 2003

TABLE OF CONTENTS

		Page
PART I - Financial Information
Item 1 - Financial Statements:
	Condensed Consolidated Balance Sheets - March 31, 2003 and December 31, 2002		4
	Condensed Consolidated Statements of Earnings - Three Months Ended March 31, 2003 and 2002		5
	Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income - Three Months Ended March 31, 2003		6
	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2003 and 2002		7
	Notes to Condensed Consolidated Financial Statements		8
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3 - Quantitative and Qualitative Disclosures about Market Risk			40
Item 4 – Controls and Procedures			40
PART II - Other Information			40
Item 1 – Legal Proceedings			40
Item 2 – Changes in Securities and Use of Proceeds			41
Item 3 – Defaults Upon Senior Securities			41
Item 4 – Submission of Matters to a Vote of Security Holders			41
Item 5 – Other Information			41
Item 6 - Exhibits and Reports on Form 8-K			42
Signatures			43
Certifications			44

2

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

FORWARD-LOOKING STATEMENTS

     Certain statements in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part 1 Item 2, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, projections of matters that affect sales, gross profit, operating expenses, earnings from operations or net earnings; projections of capital expenditures; projections for growth; hiring plans; plans for future operations, including the execution of acquisition integration plans; financing needs or plans; plans relating to our products and services; statements of belief; and statements of assumptions underlying any of the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking information. 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:

• risks associated with our integration and operation of past and future acquired businesses;

• reduced demand for products and services in our industry;

• current unfavorable economic conditions (including uncertainty created by international situations);

• actions of competitors;

• changes in supplier reimbursement and buying programs;

• our ability to manage growth successfully;

• changing methods of distribution;

• risks associated with international operations;

• reliance on suppliers;

• reliance on information and telephone systems;

• reliance on our outsourcing clients;

• rapid changes in product standards;

• dependence on key personnel;

• availability of short-term financing arrangements;

• changes in state sales or use tax collection requirements;

• recently enacted and proposed changes in securities laws and regulations;

• results of litigation; 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I Item 2 of this report.

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

3

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

			March 31,		December 31,
			2003		2002
			(unaudited)
ASSETS
Current assets:
	Cash		$	50,710	$	30,930
	Accounts receivable, net of allowances for doubtful accounts of $15,455 and $13,759, respectively			356,562		401,173
	Inventories, net			72,351		73,387
	Inventories not available for sale			19,772		19,808
	Deferred income taxes and other current assets			26,568		33,269
		Total current assets		525,963		558,567
Property and equipment, net				119,731		120,732
Goodwill, net				94,993		94,110
Other assets				211		322
			$	740,898	$	773,731
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	237,016	$	235,772
	Accrued expenses and other current liabilities			67,384		46,872
	Current portion of long-term debt and capital leases			3,159		3,414
	Short-term financing arrangements			30,000		91,178
		Total current liabilities		337,559		377,236
Long-term debt and capital leases, less current portion				11,668		13,146
Deferred income taxes				8,187		8,058
Stockholders’ equity:
	Preferred stock, $.01 par value, 3,000 shares authorized; no shares issued			—		—
	Common stock, $.01 par value, 100,000 shares authorized; 46,101 shares at March 31, 2003 and 46,073 shares at December 31, 2002 issued and outstanding			461		461
	Additional paid-in capital			253,173		252,624
	Retained earnings			119,624		112,597
	Accumulated other comprehensive income - foreign currency translation adjustment			10,226		9,609
		Total stockholders’ equity		383,484		375,291
			$	740,898	$	773,731

See accompanying notes to condensed consolidated financial statements.

4

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(unaudited)

				Three Months Ended
				March 31,
				2003			2002
Net sales				$	711,271		$	527,963
Costs of goods sold			��		626,286			462,393
		Gross profit			84,985			65,570
Operating expenses:
	Selling and administrative expenses				73,656			45,732
	Restructuring expenses				2,826			—
	Reductions in liabilities assumed in previous acquisition				(2,504	)		—
		Earnings from operations			11,007			19,838
Non-operating expenses, net					1,217			797
		Earnings before income taxes			9,790			19,041
Income tax expense					2,763			6,976
		Net earnings		$	7,027		$	12,065
Earnings per share:
		Basic		$	0.15		$	0.29
		Diluted		$	0.15		$	0.28
Shares used in per share calculation:
		Basic			46,093			42,173
		Diluted			46,128			43,620

See accompanying notes to condensed consolidated financial statements.

5

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
(unaudited)

			Common Stock				Additional				Other		Total
							Paid-in		Retained		Comprehensive		Stockholders’
			Shares		Par Value		Capital		Earnings		Income		Equity
Balances at December 31, 2002				46,073	$	461	$	252,624	$	112,597	$	9,609	$	375,291
	Issuance of common stock under stock plans and employee stock purchase plan			28		—		549		—		—		549
	Comprehensive income:
		Foreign currency translation adjustment		—		—		—		—		617		617
		Net earnings		—		—		—		7,027		—		7,027
	Total comprehensive income													7,644
Balances at March 31, 2003				46,101	$	461	$	253,173	$	119,624	$	253,173	$	383,484

See accompanying notes to condensed consolidated financial statements.

6

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

					Three Months Ended
					March 31,
					2003			2002
Cash flows from operating activities:
	Net earnings				$	7,027		$	12,065
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization				7,374			3,965
		Provision for losses on accounts receivable				2,358			2,414
		Write-down of obsolete, slow moving and non-salable inventories				3,126			1,949
		Tax benefit from stock options exercised				—			903
		Deferred income taxes				(2,372	)		(326	)
	Changes in assets and liabilities, net of acquisitions:
			Decrease (increase) in accounts receivable			42,310			(6,499	)
			Increase in inventories			(2,142	)		(1,081	)
			Decrease in other current assets			8,773			4,220
			(Increase) decrease in other assets			(752	)		612
			Increase in accounts payable			1,814			17,929
			Increase (decrease) in accrued expenses and other current liabilities			20,693			(7,320	)
				Net cash provided by operating activities		88,209			28,831
Cash flows from investing activities, net of acquisitions:
	Purchases of property and equipment					(6,214	)		(2,936	)
				Net cash used in investing activities		(6,214	)		(2,936	)
Cash flows from financing activities, net of acquisitions:
	Net repayments on financing arrangements and lines of credit					(61,171	)		(5,059	)
	Net repayment of long-term debt and capital leases					(1,471	)		(1,257	)
	Proceeds from sales of common stock through employee stock plans					549			10,721
				Net cash (used in) provided by financing activities		(62,093	)		4,405
Foreign currency impact on cash flow						(122	)		(162	)
Increase in cash						19,780			30,138
Cash at beginning of period						30,930			31,868
Cash at end of period					$	50,710		$	62,006

See accompanying notes to condensed consolidated financial statements.

7

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

1. Description of Business

     We are a leading provider of information technology (“IT”) products and services to businesses in the United States, Canada and the United Kingdom. Our offerings include brand name computing products, advanced IT services and outsourcing of business processes. Our business is organized along four operating segments:

• Single source provider of computing products and services – North America (referred to as “Insight North America”);

• Direct marketer of computing products and services – United Kingdom (referred to as “Insight UK”);

• Business process outsourcing provider (referred to as “Direct Alliance”); and

• Other: Internet service provider (referred to as “PlusNet”).

     Insight North America is one of the largest IT products and services resellers in North America, offering a broad line of more than 200,000 brand name products primarily to businesses in the United States and Canada. Insight North America also offers its United States customers IT services such as advanced integration, custom configuration, network design, deployment and installation, as well as third-party services such as warranties, training and leasing. Insight North America sells these products and services through a variety of means including a staff of customer-dedicated account executives utilizing proactive outbound telephone-based sales, a customer-focused face-to-face field sales force, electronic commerce (primarily the Internet) and marketing.

     Insight UK is a direct marketer of IT products, offering a broad line of more than 70,000 brand name products to businesses in the United Kingdom. Insight UK sells these products through a variety of means including a staff of customer-dedicated account executives utilizing proactive outbound telephone-based sales, a customer-focused face-to-face field sales force, a comprehensive catalog mailed to regular and prospective buyers, electronic commerce (primarily the Internet) and marketing.

     Direct Alliance provides marketplace solutions in the areas of logistics and supply chain management, financial services, direct sales and channel management, direct marketing and analytics using proprietary technology, infrastructure and processes. Direct Alliance’s services enable manufacturers of brand name products to sell directly to customers and support existing indirect sales channels in a cost-effective and timely manner.

     PlusNet offers broadband and dial-up Internet access to businesses and consumers in the United Kingdom.

2. Basis of Presentation

     In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2003, the results of operations for the three months ended March 31, 2003 and 2002, and the cash flows for the three months ended March 31, 2003 and 2002. The condensed consolidated balance sheet as of December 31, 2002 was derived from the audited consolidated financial statements at such date. The accompanying unaudited condensed consolidated financial statements and notes have been prepared in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by generally accepted accounting principles.

     Certain amounts in the condensed consolidated financial statements have been reclassified to conform to the current presentation. The results of operations for such interim periods are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, including the related notes thereto, in our Annual Report on Form 10-K for the year ended December 31, 2002.

8

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

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

     The condensed consolidated financial statements include the accounts of Insight Enterprises, Inc. and its subsidiaries, which are primarily wholly owned. Intercompany accounts and transactions have been eliminated in consolidation.

     References to “the Company,” “we,” “us,” “our” and the like refer to Insight Enterprises, Inc. and its consolidated subsidiaries, unless the context otherwise requires. References to Comark refer collectively to Comark, Inc. and Comark Investments, Inc. References to Action refer to Action plc and references to Kortex refer to Kortex Computer Center ltd.

3. Earnings Per Share

     Our basic earnings per share (“EPS”) is calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes additional dilution from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options.

     The reconciliation of the numerators and denominators of the basic and diluted EPS calculations were as follows for the three-month periods ended March 31, 2003 and 2002:

		Quarter ended March 31,
		2003		2002
Numerator:
	Net earnings	$	7,027	$	12,065
Denominator:
	Weighted-average shares used to compute basic EPS		46,093		42,173
	Dilutive potential common shares due to dilutive options and other stock based awards, net of tax effect		35		1,447
	Weighted-average shares used to compute diluted EPS		46,128		43,620
Net earnings per share:
	Basic	$	0.15	$	0.29
	Diluted	$	0.15	$	0.28

4. Financing Arrangements

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

     We have entered into an agreement to sell trade receivables periodically to a special purpose accounts receivable and financing entity (the “SPE”), which is exclusively engaged in purchasing trade receivables from us. The SPE is a wholly-owned, bankruptcy-remote entity that we have consolidated in our financial statements. The SPE funds its purchases by selling undivided interests in up to $200,000,000 of eligible receivables to a multi-seller conduit administered by an independent financial institution. The sales to the conduit do not qualify for sale treatment under SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and therefore the receivables remain recorded on our condensed consolidated financial statements. At March 31, 2003, the SPE owned $290,184,000 of receivables that are recorded at fair value and are included in our

9

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

condensed consolidated balance sheet, of which $153,400,000 was eligible for funding. The facility expires December 30, 2003 and accordingly, the $30,000,000 outstanding at March 31, 2003 is recorded as short-term debt. Interest is payable monthly and the interest rate on borrowed funds as of March 31, 2003 was 1.86%. We also pay a commitment fee on the facility equal to 0.35% of the unused balance. At March 31, 2003, $123,400,000 was available under the facility.

     As of March 31, 2003, we had no amounts outstanding under our $30,000,000 revolving line of credit. The line of credit bears interest, payable quarterly, at a rate chosen by us among available rates subject to our leverage ratio and other terms and conditions. The available rates are the financial institution’s floating rate or the LIBOR based rate (4.65% and 3.45%, respectively at March 31, 2003). Any amounts outstanding would be recorded as long-term liabilities. The credit facility expires on December 31, 2005. We have an outstanding letter of credit that reduces the availability on this line of credit by $10,000,000. At March 31, 2003, $20,000,000 was available under the line of credit.

     Our $40,000,000 secured inventory facility can be used to facilitate the purchases of inventories from certain suppliers and amounts outstanding are classified on the balance sheet as accounts payable. As of March 31, 2003, there was $6,536,000 outstanding under the inventory facility and $33,464,000 was available. This facility is non-interest bearing if paid within its terms and expires December 31, 2005.

     The facilities contain various covenants including the requirement that we maintain a specified amount of tangible net worth and do not exceed leverage and minimum fixed charge requirements. We were in compliance with all such covenants at March 31, 2003.

5. Income Taxes

     The effective tax rate was approximately 28.2% for the three-month period ended March 31, 2003 and 36.6% for the three-month period ended March 31, 2002. Our effective tax rate differs from the United States federal statutory rate of 35% primarily because of state income taxes, net of federal income tax benefit, income recorded for the reduction of certain UK liabilities assumed in connection with a previous acquisition which were not taxable and lower tax rates on earnings in Canada and the United Kingdom.

6. Goodwill

     The changes in the carrying amount of goodwill for the three months ended March 31, 2003 are as follows (in thousands):

	Insight North		Insight		Direct
	America		UK		Alliance		PlusNet			Total
Balance at December 31, 2002	$	80,783	$	—	$	—	$	13,327		$	94,110
Goodwill adjustments related to final Comark integration plan		839		—		—		—			839
Currency translation adjustment		297		—		—		(253	)		44
Balance at March 31, 2003	$	81,919	$	—	$	—	$	13,074		$	94,993

     During the quarter ended March 31, 2003, Insight UK settled certain liabilities assumed with the acquisition of Action plc in late 2001 for $2,504,000 less than the amounts originally recorded. Normally, these items would be recorded as a reduction to goodwill. However, Insight UK recorded a goodwill impairment

10

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

charge during the fourth quarter of 2002 which eliminated its entire goodwill balance; therefore, the $2,504,000 reduction in assumed liabilities was recorded in the statement of earnings. The income resulting from the reduction in assumed liabilities was not taxable.

7. Restructuring and Acquisition Integration Activities

Acquisition-Related Restructuring Costs Expensed in 2003

     During the first quarter of 2003, Insight North America recorded $2,283,000 in restructuring expenses associated with costs incurred to close Insight North America’s distribution facility in Indiana. The Indiana facility was closed in order to consolidate warehouse and distribution facilities in Illinois in accordance with the Comark integration plan. The restructuring expenses generally consist of employee termination benefits of $181,000, facilities based expenses of $954,000, and non-cash expenses related to abandoned assets of $1,148,000. The facilities based expenses consist of remaining lease obligations and expenses to remove leasehold improvements. Of the $954,000 recorded, cash payments of $104,000 were made during the quarter leaving an accrual of $850,000 at March 31, 2003. The employee termination benefits relate to severance and termination benefits paid during the quarter to 44 employees.

     Also during the first quarter, Insight UK recorded $543,000 of restructuring expenses relating to severance associated with the elimination of service technicians and certain support and management functions at the end of the quarter. These expenses generally consist of employee termination benefits for 26 employees. During the first quarter of 2003, $61,000 was paid leaving an accrual of $482,000 at March 31, 2003. The majority of this amount was paid in April 2003.

     We recorded the restructuring expenses in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”or SFAS No. 112,“Employers’ Accounting for Post-Employment Benefits,”as appropriate.

     The following table details the changes in these liabilities during the quarter ended March 31, 2003 (in thousands):

	Insight North America									Insight UK
	Employee									Employee
	Termination			Facilities			Segment			Termination			Segment
	Benefits			Based			Total			Benefits			Total			Total
Restructuring expenses	$	181		$	954		$	1,135		$	543		$	543		$	1,678
Cash Payments		(181	)		(104	)		(285	)		(61	)		(61	)		(346	)
Balance at March 31, 2003	$	—		$	850		$	850		$	482		$	482		$	1,332

Acquisition-Related Restructuring Costs Capitalized in 2002 as a Cost of Acquisition of Comark

     During 2002, Insight North America recorded $1,819,000 of restructuring costs in connection with the integration of Comark. These costs were accounted for under Emerging Issues Task Force (“EITF”) Issue No. 95-3, “Recognition of Liabilities in Connection with Purchase Business Combinations.” The acquisition-related restructuring costs recorded in 2002 were based on the restructuring plans that were committed to by management in 2002. Accordingly, these costs were recognized as liabilities assumed in the purchase business combination and included in the allocation of the costs to acquire Comark.

     The charge of $1,819,000 to restructure the organization consisted of employee termination benefits and facilities based costs, of which $595,000 was still accrued at December 31, 2002. During the first quarter of 2003, an additional accrual was made to the employee termination benefits related to severance payments and

11

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

transition bonuses of $839,000 for 17 additional employees who were terminated in connection with the elimination of certain duplicative activities resulting from the acquisition. These adjustments were offset by cash payments of $1,203,000 resulting in an accrual of $136,000 at March 31, 2003. The cash payments for facilities-based costs were $29,000, leaving an accrual of $66,000 at March 31, 2003.

     The following table details the changes in these liabilities during the quarter ended March 31, 2003 (in thousands):

	Employee
	Termination			Facilities
	Benefits			Based			Total
Balance at December 31, 2002	$	500		$	95		$	595
Adjustments		839			—			839
Cash payments		(1,203	)		(29	)		(1,232	)
Balance at March 31, 2003	$	136		$	66		$	202

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

     In 2001, Insight UK recorded costs of $18,440,000 relating to restructuring the operations of Action as part of the integration of this acquisition. These costs were accounted for under EITF Issue No. 95-3, “Recognition of Liabilities in Connection with Purchase Business Combinations.” The acquisition-related restructuring costs recorded in 2001 were based on the restructuring plans that were committed to by management in 2001. Accordingly, these costs were recognized as liabilities assumed in the purchase business combination and included in the allocation of the costs to acquire Action. Normally, adjustments to these amounts, other than foreign currency translation, would be recorded as a reduction to goodwill. However, Insight UK recorded a goodwill impairment charge during the fourth quarter of 2002 which eliminated its entire goodwill balance; therefore, any adjustments in assumed liabilities, other than foreign currency translation, are recorded in the statement of earnings in the line item “reductions in liabilities assumed in previous acquisition.” Foreign currency translation adjustments continue to be recorded directly in other comprehensive income as a separate component of stockholders’ equity.

     The $18,440,000 cost to restructure the organization consisted of employee termination benefits and facilities based costs of $3,532,000 and $14,908,000, respectively. Adjustments to the accrued costs in the first quarter of 2003 of $431,000 primarily represent decreases in the exchange rates for the United Kingdom and settlements of liabilities for amounts lower than originally recorded. Employee termination benefits of $11,000 were paid in the first quarter of 2003. The facilities based costs primarily consist of remaining lease commitments on unused facilities or estimated costs to terminate lease commitments, reduced by estimated subleases. Facilities based costs of $309,000 were paid in 2003, resulting in an ending accrual balance at March 31, 2003 of $8,970,000.

     The following table details the change in these liabilities for the quarter ended March 31, 2003 (in thousands):

	Employee
	Termination			Facilities			Segment
	Benefits			Based			Total
Balance at December 31, 2002	$	242		$	9,479		$	9,721
Adjustments		(231	)		(200	)		(431	)
Cash payments		(11	)		(309	)		(320	)
Balance at March 31, 2003	$	—		$	8,970		$	8,970

12

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

Acquisition-Related Restructuring Costs Expensed in Fiscal 2001

     In 2001, we recorded expenses relating to restructuring our existing operations as part of the integration of the acquisitions of Action and Kortex. The costs were accounted for under EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity” and have been included as a charge to the results of operations for the year ended December 31, 2001. Accordingly, these costs were recorded based on the restructuring plans that were committed to by management in 2001.

     The $3,653,000 charge to restructure the organization in 2001 consisted of employee termination benefits and facilities based expenses of $2,641,000 and $1,012,000, respectively. At December 31, 2002, facilities based costs of $279,000 remained accrued at Insight North America. The facilities based costs primarily consist of remaining lease commitments on unused facilities or estimated costs to terminate lease commitments. During the three months ended March 31, 2003, facilities based costs of $81,000 were paid and adjustments of $7,000 were made for foreign currency translation, resulting in an ending accrual of $205,000 at March 31, 2003.

     At March 31, 2003, facilities based costs of $19,000 remained accrued at Insight UK as there were no cash payments or adjustments made to the lease commitments associated with UK facilities that are no longer in use.

     The following table details the changes in the facilities based costs during the quarter ended March 31, 2003 (in thousands):

	Insight North
	America			Insight UK		Total
Balance at December 31, 2002	$	279		$	19	$	298
Adjustments		7			—		7
Cash Payments		(81	)		—		(81	)
Balance at March 31, 2003	$	205		$	19	$	224

8. Stock Based Compensation

     We apply the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations including FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25” to account for our fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123. Accordingly, we do not recognize compensation expense for any of our stock-based plans because we do not issue options at exercise prices below the market value at date of grant. Had compensation cost for our stock-based plans been determined consistent with SFAS No. 123, our net earnings and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands):

13

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

		Quarter ended March 31,
		2003			2002
Net earnings as reported		$	7,027		$	12,065
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(2,119	)		(2,345	)
Pro forma net earnings		$	4,908		$	9,720
Basic earnings per share:
	As reported	$	0.15		$	0.29
	Pro forma	$	0.11		$	0.23
Diluted earnings per share:
	As reported	$	0.15		$	0.28
	Pro forma	$	0.11		$	0.22

     We recognize the compensation expense associated with the issuance of restricted stock over the vesting period. The total compensation expense associated with restricted stock represents the value based upon the number of shares awarded multiplied by the closing price on the date of grant. Recipients of restricted stock are entitled to receive any dividends declared on our Common Stock and have voting rights, regardless of whether such shares have vested. Unvested shares of restricted stock are forfeited if the recipient resigns or is terminated with cause.

9. Contingencies

     We are a defendant in a lawsuit pending in the United States District Court, District of Arizona which alleges violations of Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. Three separate lawsuits filed by stockholders have been consolidated into a single action. The plaintiff in this action alleges we and certain of our officers made false and misleading statements pertaining to our business, operations and management in an effort to inflate the price of our common stock. The lawsuit also names as co-defendants: Eric J. Crown, the Chairman of our Board of Directors; Timothy A. Crown, our Chief Executive Officer and a director; and Stanley Laybourne, a director and our Executive Vice President, Chief Financial Officer and Treasurer. In the consolidated complaint, which was filed in December 2002, the plaintiff seeks class action status to represent all buyers of our common stock from September 3, 2001 through July 17, 2002. In February 2003, we filed a motion to dismiss which we expect will be argued in the Summer of 2003. We intend to defend the lawsuit vigorously. The costs associated with defending the allegations in this lawsuit and the potential outcome cannot be determined at this time and, accordingly, no estimate for such costs, other than the deductible amount under our directors and officers liability insurance policies have been included in these condensed consolidated financial statements.

     We are also a party to various legal proceedings arising in the ordinary course of business. In accordance with SFAS No. 5, “Accounting for Contingencies,” we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to material legal matters pending against us, as well as adequate provisions for any probable and estimable losses. It is possible, nevertheless, that the results of our operations or cash flows could be affected in any particular period by the resolution of a legal proceeding.

14

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

10. Segment Information

     During the fourth quarter of 2002, we reorganized our internal reporting structure in conjunction with the continuing integration of our acquisitions. As a result of this revised internal reporting structure, an increased focus on geographic information to make investment decisions and the investment community’s request to receive more detailed information, we have determined that, effective in the fourth quarter of 2002, we now have the following reportable operating segments:

• Single source provider of computing products and services – North America (referred to as “Insight North America”);

• Direct marketer of computing products and services – United Kingdom (referred to as “Insight UK”);

• Business process outsource provider (referred to as “Direct Alliance”), and

• Other: Internet service provider (referred to as “PlusNet”).

     All intercompany transactions are eliminated upon consolidation and there are no differences between the accounting policies used to measure profit and loss for our segments and on a consolidated basis. Net sales are defined as net sales from external customers. None of our customers exceeded ten percent of consolidated net sales.

     Insight North America, Insight UK and PlusNet have been disclosed below as separate operating segments for all periods presented to conform to their current reportable segment designation. Prior to the fourth quarter of 2002, the results of Insight North America, Insight UK and PlusNet were included in one segment, commonly referred to as “Insight.”

15

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

     The table below presents information about our reportable segments as of and for the three months ended March 31, 2003 and 2002 (in thousands):

		Quarter Ended March 31, 2003
		Insight
		North		Insight					Insight			Direct
		America		UK			PlusNet		Total			Alliance		Consolidated
Net sales		$	591,396	$	94,427		$	5,830	$	691,653		$	19,618	$	711,271
Costs of goods sold			526,431		81,363			3,585		611,379			14,907		626,286
	Gross profit		64,965		13,064			2,245		80,274			4,711		84,985
Operating expenses:
Selling and administrative expenses			58,730		11,997			1,731		72,458			1,198		73,656
Restructuring expenses			2,283		543			—		2,826			—		2,826
Reductions in liabilities assumed in previous acquisition			—		(2,504	)		—		(2,504	)		—		(2,504	)
	Earnings from operations	$	3,952	$	3,028		$	514	$	7,494		$	3,513	$	11,007
Total assets		$	732,771	$	98,194		$	25,582	$	856,547		$	51,547	$	740,898	*

		Quarter Ended March 31, 2002
		Insight
		North		Insight				Insight		Direct
		America		UK		PlusNet		Total		Alliance		Consolidated
Net sales		$	389,370	$	110,199	$	2,694	$	502,263	$	25,700	$	527,963
Costs of goods sold			344,839		96,082		1,162		442,083		20,310		462,393
	Gross profit		44,531		14,117		1,532		60,180		5,390		65,570
Operating expenses:
Selling and administrative expenses			32,148		11,108		1,158		44,414		1,318		45,732
	Earnings from operations	$	12,383	$	3,009	$	374	$	15,766	$	4,072	$	19,838
Total assets		$	453,763	$	200,216	$	6,338	$	660,317	$	46,953	$	622,201	*

*  Condensed consolidated total assets include net intercompany eliminations and corporate assets of $167,196 and $85,069 at March 31, 2003, and 2002, respectively.

16

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this report.

Critical Accounting Policies and Estimates

General

     Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue 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. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated condensed financial statements.

Sales Recognition

     The majority of our sales are product sales. Sales are recognized when the title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement for sale, delivery has occurred or services have been rendered, the sales price is determinable and collectibility is reasonably assured. The majority of our sales are product sales recognized upon shipment. Usual sales terms are FOB shipping point, at which time title and risk of loss are passed to the customer. From time to time, we enter into contracts to sell our products and services, and, while the majority of our sales agreements contain standard terms and conditions, there may be agreements that contain multiple elements or non-standard terms and conditions. As a result, significant contract interpretation may be required to determine the appropriate accounting, including how the price should be allocated among the deliverable elements if there are multiple deliverables, whether undelivered elements are essential to the functionality of delivered elements, and when to recognize revenue. We recognize revenue for delivered elements only when the following criteria are satisfied:

• Undelivered elements are not essential to the functionality of delivered elements;

• Uncertainties regarding customer acceptance are resolved;

• No significant obligations remain; and

• The fair value of each undelivered element is known.

Changes in the allocation of the sales price between deliverables might affect the timing of revenue recognition, but would not change the total revenue recognized on the contract.

     We also sell certain third-party service contracts and software assurance for which we are not the primary obligor. These sales do not meet the criteria for gross sales recognition and thus are recorded on a net sales recognition basis. As we enter into contracts with third-party service providers or vendors, we must evaluate whether the subsequent sales of such services should be recorded as gross sales or net sales. Under gross sales recognition, the entire selling price is recorded in sales and our cost to the third-party service provider or vendor is recorded in costs of goods sold. Under net sales recognition, the cost to the third-party service provider or vendor

17

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

is recorded as a reduction to sales resulting in net sales equal to the gross profit on the transaction and there are no costs of goods sold.

     We make provisions for estimated product returns that we expect to occur under our return policy, based upon historical return rates. Should customers return a different amount of product than originally estimated, our future net sales are adjusted to reflect historical return rates.

Consideration Received From Vendors

     We receive payments and credits from vendors, including consideration pursuant to volume incentive programs and cooperative marketing programs. Pursuant to Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor,” which we adopted January 1, 2003, vendor consideration received pursuant to volume incentive programs is classified as a reduction to costs of goods sold and is recognized upon certain product volume thresholds being met. Cooperative marketing programs, which represent a reimbursement of specific, incremental, identifiable costs, are included as a reduction of the related selling and administrative expenses in the period the program takes place. Consideration that exceeds the specific, incremental, identifiable costs is classified as a reduction of costs of goods sold. Additionally, vendor consideration based on volume purchase incentives, rather than volume sales incentives, is also allocated to inventories based on applicable incentive from each vendor.

     As a result of the adoption of EITF Issue No. 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor,” we recorded approximately $2.7 million of vendor consideration as a reduction to costs of goods sold during the quarter ended March 31, 2003 that prior to the adoption would have been classified as a reduction of selling and administrative expenses. The change in classification resulted in a four-tenths percentage point (0.4%) increase in gross margin and a corresponding increase in selling and administrative expenses as a percentage of net sales compared to the prior classification. The amount recorded as a reduction to inventories was not material.

Business Combinations

     We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. The determination of fair values requires us to make significant estimates and assumptions, especially with respect to acquired intangible assets. Critical estimates in valuing certain intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in our product portfolio and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

     Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. In addition, liabilities to integrate or restructure acquired organizations, including the termination of employees, are subject to change as we continue our assessment of operations and execute the approved plan.

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 future cash flows the assets are expected to generate. An impairment loss is recognized when 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) are less than the carrying

18

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

value of the asset. This approach uses our estimates of future market growth, forecasted revenue and costs, expected periods the assets will be utilized and appropriate discount rates.

     We assess whether goodwill is impaired on an annual basis. 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. 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.

     Such evaluations of impairment of long-lived assets including goodwill and purchased intangible assets are an integral part of, but not limited to, our strategic reviews of our business and operations performed in conjunction with restructuring actions. When an impairment is identified, the carrying amount of the asset is reduced to its estimated fair value. Deterioration of our business in a geographic region or within a business segment in the future could also lead to impairment adjustments as such issues are identified.

Allowances for Doubtful Accounts

     We maintain allowances for doubtful accounts for estimated losses on customer and vendor receivables based on historical write-offs, evaluation of the aging of the receivables and the current economic environment. Should actual collections of customer 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 necessary.

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 suppliers 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 protections and stock rotations, estimates are made regarding adjustments to the carrying amount of inventories. Additionally, assumptions about future demand, market conditions and decisions by manufacturers to discontinue certain product lines can affect the decision to write down inventories. If assumptions about future demand change or actual market conditions are less favorable than those projected by management, additional write-downs of inventories may be required. In any case, actual amounts could be different from those estimated.

Taxes on Earnings

     Our effective tax rate includes the impact of certain undistributed foreign earnings for which no United States taxes have been provided because such earnings are planned to be reinvested indefinitely outside the United States. 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 have considered future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies 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.

19

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

Restructuring and Acquisition Integration Activities

     During the first quarter of 2003, Insight North America recorded restructuring expenses associated with costs incurred to close Insight North America’s distribution facility in Indiana. The Indiana facility was closed in order to consolidate warehouse and distribution facilities in Illinois in accordance with the Comark integration plan. Also during the first quarter, Insight UK recorded restructuring expenses relating to severance associated with the elimination of service technicians and certain support and management functions at the end of the quarter. We recorded the restructuring expenses in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”or SFAS No. 112,“Employers’ Accounting for Post-Employment Benefits,”as appropriate.

     In connection with the integration of Comark in 2002, we incurred costs related to restructuring the operations. These costs were accounted for under EITF Issue No. 95-3,“Recognition of Liabilities in Connection with Purchase Business Combinations”and were based on the restructuring plan that was committed to by management in 2002. Accordingly, these costs were recognized as liabilities assumed in the purchase business combination and included in the allocation of the costs to acquire Comark.

     In connection with our acquisitions of Action and Kortex, management committed to plans in 2001 to restructure our existing operations. These costs were accounted for in accordance with EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.”

     Also, in connection with the 2001 plan for integration of the acquisitions of Action and Kortex, we incurred costs related to restructuring the operations of the acquired companies. These costs were accounted for under EITF Issue No. 95-3, “Recognition of Liabilities in Connection with Purchase Business Combinations” and accordingly were recognized as liabilities assumed in the purchase business combination and included in the allocation of the costs to acquire Action and Kortex.

     See further discussion about restructuring and acquisition integration activities in Note 7 in Part I Item 1.

RESULTS OF OPERATIONS

Overview

Acquisition of Comark

     On April 25, 2002, we acquired all of the outstanding stock of Comark, a leading provider of IT products and services in the United States. As a result, the fluctuations in the operating results of Insight Enterprises, Inc. and our Insight North America operating segment in the quarter ended March 31, 2003 as compared to the results for the quarter ended March 31, 2002 are due generally to the acquisition of Comark. The historical results section in our Management Discussion and Analysis in Item 2 presents a discussion of our condensed consolidated operating results using the historical results of Insight Enterprises Inc. prepared in accordance with generally accepted accounting principles (“GAAP”) for the quarters ended March 31, 2003 and 2002, including Comark’s results of operations from April 25, 2002 (the acquisition date).

     In order to provide additional information relating to our operating results, we also present a discussion of our historical operating results for the quarter ended March 31, 2003 prepared in accordance with GAAP compared with condensed consolidated operating results presented as if Insight Enterprises Inc. and Comark had been a combined company during the quarter ended March 31, 2002, (“Unaudited Pro Forma Combined Company Results”) in Part I Item 2. We have included this additional information in order to provide further insight into our operating results, prior period trends and current position. This supplemental information is

20

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

presented in a manner consistent with the disclosure requirements of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” Pro Forma information is useful in analyzing operating performance, but should be used only in conjunction with results reported in accordance with GAAP.

HISTORICAL RESULTS OF OPERATIONS

     The following discussion compares the historical condensed consolidated results of operations on a GAAP basis for the quarters ended March 31, 2003 and 2002 (in thousands):

	Quarter ended March 31,
	2003					2002
Net sales	$	711,271		100.0	%	$	527,963	100.0	%
Cost of goods sold		626,286		88.1			462,393	87.6
Gross profit		84,985		11.9			65,570	12.4
Operating expenses:
Selling and administrative expenses		73,656		10.4			45,732	8.6
Restructuring expenses		2,826		0.4			—	—
Reductions in liabilities assumed in previous acquisition		(2,504	)	(0.4	)		—	—
Earnings from operations		11,007		1.5			19,838	3.8
Non-operating expense, net		1,217		0.1			797	0.2
Earnings before income taxes		9,790		1.4			19,041	3.6
Income tax expense		2,763		0.4			6,976	1.3
Net earnings	$	7,027		1.0	%	$	12,065	2.3	%

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

     Net Sales.Net sales increased $183.3 million, or 35%, to $711.3 million for the three months ended March 31, 2003 from $528.0 million for the three months ended March 31, 2002 as a result of the acquisition of Comark during the second quarter of 2002, offset partially by decreases in IT spending in an uncertain economic and international environment.

     Gross Profit.Gross profit increased $19.4 million, or 30%, to $85.0 million for the three months ended March 31, 2003 from $65.6 million for the three months ended March 31, 2002. As a percentage of net sales, gross profit decreased from 12.4% for the three months ended March 31, 2002 to 11.9% for the three months ended March 31, 2003. The decrease in our gross profit as a percentage of sales is due primarily to lower gross margins of sales to large corporate enterprises added with the acquisition of Comark, declines in supplier reimbursement funds and decreases in freight margins in our Insight North America operating segment. These decreases were offset partially by decreases in write-downs of inventories and a change in accounting classification for certain funds received from vendors.

     Effective January 1, 2003, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor.” As a result of the adoption of this pronouncement, we recorded approximately $2.7 million of vendor consideration as a reduction to costs of goods sold during the quarter ended March 31, 2003 that prior to the adoption would have been classified as a reduction of selling and administrative expenses. The change in classification resulted in a four-tenths percentage point (0.4%) increase in gross margin and a corresponding increase in selling and administrative expenses as a percentage of net sales compared to the prior classification.

21

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

     Operating Expenses.

     Selling and Administrative Expenses.Selling and administrative expenses increased $28.0 million, or 61%, to $73.7 million for the three months ended March 31, 2003 from $45.7 million for the three months ended March 31, 2002, and increased as a percentage of net sales to 10.4% for the three months ended March 31, 2003 from 8.6% for the three months ended March 31, 2002. The increase was due primarily to:

• selling and administrative expenses attributable to Comark;

• additional costs, including stay bonuses, associated with maintaining duplicate support departments until the IT system conversion and final integration of Comark is completed;

• a change in accounting classification of certain funds received from vendors;

• $1.7 million of accelerated depreciation due to a change in the estimated useful life of certain software assets that will no longer be used after the IT systems conversion in Insight North America is completed; and

• selling and administrative expenses increasing at a higher rate than net sales.

     Restructuring Expenses.During the first quarter of 2003, Insight North America recorded $2.3 million in restructuring expenses associated with costs incurred to close Insight North America’s distribution facility in Indiana. The Indiana facility was closed in order to consolidate warehouse and distribution facilities in Illinois in accordance with the integration plan. These restructuring expenses primarily represented costs associated with terminated employees, abandoned assets and remaining lease obligations. Also during the first quarter, Insight UK recorded $543,000 of restructuring expenses relating to severance associated with the elimination of service technicians and certain support and management functions at the end of the quarter. See further discussion in Note 7 in Part I Item 1.

     Reductions in Liabilities Assumed in Previous Acquisition.During the quarter ended March 31, 2003, Insight UK settled certain liabilities assumed with the acquisition of Action plc in late 2001 for $2.5 million less than the amounts originally recorded. Normally, these items would be recorded as a reduction to goodwill. However, Insight UK recorded a goodwill impairment charge during the fourth quarter of 2002 which eliminated its entire goodwill balance; therefore, the $2.5 million reduction in assumed liabilities is recorded in the statement of earnings. The income resulting from the reduction in assumed liabilities was not taxable.

     Non-Operating Expense, Net.Non-operating expense, net, which consists primarily of interest expense and interest income, increased to $1.2 million for the three months ended March 31, 2003 from $797,000 for the three months ended March 31, 2002. Interest expense of $816,000 and $796,000 for the three months ended March 31, 2003 and 2002, respectively, primarily relates to borrowings associated with our credit facilities which were used to finance the acquisition of Comark in April 2002, working capital and capital expenditures. Interest expense has increased due to increases in interest-bearing debt incurred and assumed in connection with the acquisition of Comark. Interest income of $187,000 and $159,000 for the three months ended March 31, 2003 and 2002, respectively, was generated through short-term investments. The increase in interest income is due to the increase in cash invested in the United Kingdom at higher interest rates than the United States, offset partially by declining interest rates on short-term investments in the United States. Non-operating expenses, other than interest expense, consist primarily of bank fees associated with financing arrangements and cash management.

     Income Tax Expense.Our effective tax rate was 28.2% for the three months ended March 31, 2003 and 36.6% for the three months ended March 31, 2002. The effective tax rate decreased because income resulting from the reduction of certain UK liabilities assumed in connection with a previous acquisition was not taxable and Canadian tax rates were reduced. The effect was offset partially by higher state income tax rates and nondeductible expenses relating to our Chicago-based operations.

22

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

     Net Earnings.Net earnings decreased $5.1 million, or 42%, to $7.0 million for the three months ended March 31, 2003 from $12.1 million for the three months ended March 31, 2002. Diluted earnings per share decreased 46% to $0.15 for the three months ended March 31, 2003 from $0.28 for the three months ended March 31, 2002.

UNAUDITED PRO FORMA COMBINED COMPANY RESULTS

     As previously described, the following discussion includes the unaudited pro forma combined results of operations of Insight Enterprises, Inc. and Comark as if the acquisition of Comark had occurred as of the beginning of each of the periods presented. Pro forma adjustments have been made to: (a) eliminate historical sales and cost of sales between us and Comark; (b) reflect amortization of identifiable intangible assets; (c) reflect increased interest expense associated with the cash paid for the acquisition; (d) reflect additional shares of common stock issued as part of the purchase price; and (e) to reflect income taxes on the net earnings of Comark, which previously was a Subchapter S Corporation (in thousands):

	Quarter ended March 31,
	2003					2002
Net sales	$	711,271		100.0	%	$	862,256	100.0	%
Cost of goods sold		626,286		88.1			763,532	88.6
Gross profit		84,985		11.9			98,724	11.4
Operating expenses:
Selling and administrative expenses		73,656		10.4			71,374	8.3
Restructuring expenses		2,826		0.4			—	—
Reductions in liabilities assumed in previous acquisition		(2,504	)	(0.4	)		—	—
Amortization		—		—			467	—
Earnings from operations		11,007		1.5			26,883	3.1
Non-operating expense, net		1,217		0.1			1,788	0.1
Earnings before income taxes		9,790		1.4			25,095	3.0
Income tax expense		2,763		0.4			9,306	1.2
Net earnings	$	7,027		1.0	%	$	15,789	1.8	%

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

     Net Sales.Net sales decreased $150.9 million, or 18%, to $711.3 million for the three months ended March 31, 2003 from pro forma net sales of $862.2 million for the three months ended March 31, 2002. This decrease was attributable to decreases in IT spending in an uncertain economic and international environment.

     Gross Profit.Gross profit decreased $13.7 million, or 14%, to $85.0 million for the three months ended March 31, 2003 from pro forma gross profit of $98.7 million for the three months ended March 31, 2002. As a percentage of net sales, gross margin increased from pro forma gross margin of 11.4% for the three months ended March 31, 2002 to 11.9% for the three months ended March 31, 2003. The increase in pro forma gross profit as a percentage of sales is due primarily to decreases in write-downs of inventories and a change in accounting classification for certain funds received from vendors. These increases were offset partially by declines in supplier reimbursement funds and decreases in freight margins in our Insight North America operating segment.

     Effective January 1, 2003, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor.” As a result of the adoption of this pronouncement, we recorded approximately $2.7 million of vendor consideration as a reduction to costs of goods sold during the quarter ended March 31, 2003 that prior to the adoption would have been classified as a reduction of selling and administrative expenses. The change in classification resulted in a four-tenths percentage point

23

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

(0.4%) increase in gross margin and a corresponding increase in selling and administrative expenses as a percentage of net sales compared to the prior classification.

     Operating Expenses.

     Selling and Administrative Expenses.Selling and administrative expenses increased $2.3 million, or 3%, to $73.7 million for the three months ended March 31, 2003 from pro forma selling and administrative expenses of $71.4 million for the three months ended March 31, 2002, and increased as a percentage of net sales to 10.4% for the three months ended March 31, 2003 from 8.3% for the three months ended March 31, 2002. The increase was due primarily to:

• additional costs, including stay bonuses, associated with maintaining duplicate support departments until the IT system conversion and final integration of Comark is completed;

• a change in accounting classification of certain funds received from vendors;

• $1.7 million of accelerated depreciation due to a change in the estimated useful life of certain software assets that will no longer be used after the IT systems conversion in Insight North America is completed; and

• selling and administrative expenses not decreased at the same rate as net sales.

     Restructuring Expenses.During the first quarter of 2003, Insight North America recorded $2.3 million in restructuring expenses associated with costs incurred to close Insight North America’s distribution facility in Indiana. The Indiana facility was closed in order to consolidate warehouse and distribution facilities in Illinois in accordance with the Comark integration plan. These restructuring expenses primarily represented costs associated with terminated employees, abandoned assets and remaining lease obligations. Also during the first quarter, Insight UK recorded $543,000 of restructuring expenses relating to severance associated with the elimination of service technicians and certain support and management functions at the end of the quarter. See further discussion in Note 7 in Part I Item 1.

     Reductions in Liabilities Assumed in Previous Acquisition.During the quarter ended March 31, 2003, Insight UK settled certain liabilities assumed with the acquisition of Action plc in late 2001 for $2.5 million less than the amounts originally recorded. Normally, these items would be recorded as a reduction to goodwill. However, Insight UK recorded a goodwill impairment charge during the fourth quarter of 2002 which eliminated its entire goodwill balance; therefore, the $2.5 million reduction in assumed liabilities is recorded in the statement of earnings. The income resulting from the reduction in assumed liabilities was not taxable.

     Amortization.In accordance with SFAS No.142, the amortization of goodwill was discontinued as of January 1, 2002 and therefore there was no goodwill amortization expense recorded for the combined company for the quarters ended March 31, 2003 and 2002. Pro forma amortization expense for the quarter ended March 31, 2002 consists of the amortization of $1.4 million of intangible assets, namely the Comark trade name, obtained in connection with the acquisition of Comark.

     Non-Operating Expense, Net.Non-operating expense, net, which consists primarily of interest expense and interest income, decreased to $1.2 million for the three months ended March 31, 2003 from pro forma non-operating expense of $1.8 million for the three months ended March 31, 2002. Interest expense of $816,000 and pro forma interest expense of $1.8 million for the three months ended March 31, 2003 and 2002, respectively, primarily relates to borrowings associated with our credit facilities which were used to finance the acquisition of Comark, working capital and capital expenditures. Interest expense has decreased due the reduction in interest-bearing debt. Interest income of $187,000 and pro forma interest income of $159,000 for the three months ended March 31, 2003 and 2002, respectively, was generated through short-term investments. The increase in interest income is due to the increase in cash available for short-term investments. Non-operating expenses, other than interest expense, consist primarily of bank fees associated with financing arrangements and cash management.

24

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

     Income Tax Expense.Our effective tax rate was 28.2% for the three months ended March 31, 2003 compared to the pro forma tax rate of 37.1% for the three months ended March 31, 2002. The decrease in the effective tax rate was due primarily to the reduction of certain UK liabilities assumed in connection with a previous acquisition which were not taxable as well as a reduction in Canadian tax rates.

     Net Earnings.Net earnings decreased $8.8 million, or 55%, to $7.0 million for the three months ended March 31, 2003 from pro forma net earnings of $15.8 million for the three months ended March 31, 2002. Diluted earnings per share decreased 56% to $0.15 for the three months ended March 31, 2003 from pro forma diluted earnings per share of $0.34 for the three months ended March 31, 2002.

SEGMENT INFORMATION

     During the fourth quarter of 2002, we reorganized our internal reporting structure in conjunction with the continuing integration of our acquisitions. As a result of this revised internal reporting structure, an increased focus on geographic information to make investment decisions and the investment community’s request to receive more detailed information, we have determined that, effective in the fourth quarter of 2002, we now have the following reportable operating segments:

• Single source provider of computing products and services – North America (referred to as “Insight North America”);

• Direct marketer of computing products and services – United Kingdom (referred to as “Insight UK”);

• Business process outsource provider (referred to as “Direct Alliance”), and

• Other: Internet service provider – (referred to as “PlusNet”).

     A detailed description of each segment and reconciliation to condensed consolidated results of operations can be found in Note 10 to the condensed consolidated financial statements in Part I Item 1. We evaluate the performance of our operating segments based on earnings from operations. Future changes to this organizational structure may result in changes to the reportable segments disclosed.

     The following discussion compares the historical results of operations for each of our operating segments on a GAAP basis for the quarters ended March 31, 2003 and 2002. These results include Comark’s results of operations since April 25, 2002 (the acquisition date) (in thousands):

Insight North America

	Quarter ended March 31,
	2003				2002
Net sales	$	591,396	100.0	%	$	389,370	100.0	%
Cost of goods sold		526,431	89.0			344,839	88.6
Gross profit		64,965	11.0			44,531	11.4
Operating expenses:
Selling and administrative expenses		58,730	9.9			32,148	8.2
Restructuring expenses		2,283	0.4			—	—
Earnings from operations	$	3,952	0.7	%	$	12,383	3.2	%

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

     Net Sales.Net sales increased $202.0 million, or 52%, to $591.4 million for the three months ended March 31, 2003 from $389.4 million for the three months ended March 31, 2002. The increase in net sales resulted from the acquisition of Comark in the second quarter of 2002 offset partially by decreases in IT spending

25

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

in an uncertain economic and international environment. Insight North America’s average order size increased to $1,443 for the three months ended March 31, 2003 from $1,148 for the three months ended March 31, 2002 primarily resulting from an increase in larger enterprise customers obtained as a result of the acquisition of Comark.

     Sales to businesses, including government and education, were 98% of Insight North America’s net sales in the three months ended March 31, 2003 and 99% of net sales for the three months ended March 31, 2002. Insight North America had 1,715 account executives at March 31, 2003 as compared with 1,197 at March 31, 2002. The increase in account executives is due primarily to the acquisition of Comark.

     Gross Profit.Gross profit increased $20.5 million, or 46%, to $65.0 million for the three months ended March 31, 2003 from $44.5 million for the three months ended March 31, 2002. As a percentage of net sales, gross profit decreased from 11.4% for the three months ended March 31, 2002 to 11.0% for the three months ended March 31, 2003. The decrease is due primarily to the lower gross margins of sales to large corporate enterprises added with the acquisition of Comark, declines in supplier reimbursements and decreases in freight margins. This decline is offset partially by decreases in the write-down of inventories and a change in accounting classification for certain funds received from vendors.

     Effective January 1, 2003, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor.” As a result of the adoption of this pronouncement, Insight North America recorded approximately $2.3 million of vendor consideration as a reduction to costs of goods sold during the quarter ended March 31, 2003 that prior to the adoption would have been classified as a reduction of selling and administrative expenses. The change in classification resulted in a four-tenths percentage point (0.4%) increase in gross margin and a corresponding increase in selling and administrative expenses as a percentage of net sales compared to the prior classification.

     Operating Expenses.

     Selling and Administrative Expenses.Selling and administrative expenses increased $26.6 million, or 83%, to $58.7 million for the three months ended March 31, 2003 from $32.1 million for the three months ended March 31, 2002, and increased as a percentage of net sales to 9.9% for the three months ended March 31, 2003 from 8.2% for the three months ended March 31, 2002. The increase was due primarily to:

• additional costs, including stay bonuses, associated with maintaining duplicate support departments until the IT system conversion and final integration of Comark is completed;

• a change in accounting classification of certain funds received from vendors;

• $1.7 million of accelerated depreciation due to a change in the estimated useful life of certain software assets that will no longer be used after the IT systems conversion in Insight North America is completed; and

• selling and administrative expenses increasing at a higher rate than net sales.

     Overall unassisted web sales at Insight North America decreased to 6.9% of net sales for the three months ended March 31, 2003 from 15.3% for the three months ended March 31, 2002 due primarily to the acquisition of Comark, which transacts no unassisted web sales. An increase in the percentage of unassisted web sales reduces selling and administrative expenses as these sales are transacted without the assistance of an account executive. The percentage of shipments made using electronic “direct ship” programs with our suppliers decreased to 64% for the three months ended March 31, 2003 from 75% for the three months ended March 31, 2002 due to the acquisition of Comark, which process fewer direct shipments. Direct shipments from suppliers to our customers reduce selling and administrative expenses but increase costs of goods sold due to increased prices charged by suppliers for this service.

26

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

     Restructuring Expenses.During the first quarter of 2003, Insight North America recorded $2.3 million in restructuring expenses associated with costs incurred to close Insight North America’s distribution facility in Indiana. The Indiana facility was closed in order to consolidate warehouse and distribution facilities in Illinois in accordance with the Comark integration plan. These restructuring expenses primarily represent costs associated with terminated employees, abandoned assets and remaining lease obligations. See further discussion in Note 7 in Part I Item 1.

Insight UK

	Quarter ended March 31,
	2003					2002
Net sales	$	94,427		100.0	%	$	110,199	100.0	%
Cost of goods sold		81,363		86.2			96,082	87.2
Gross profit		13,064		13.8			14,117	12.8
Operating expenses:
Selling and administrative expenses		11,997		12.7			11,108	10.1
Restructuring expenses		543		0.6			—	—
Reductions in liabilities assumed in previous acquisition		(2,504	)	(2.7	)		—	—
Earnings from operations	$	3,028		3.2	%	$	3,009	2.7	%

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

     Net Sales. Net sales decreased $15.8 million, or 14%, to $94.4 million for the three months ended March 31, 2003 from $110.2 million for the three months ended March 31, 2002. The decrease in net sales was due primarily to a weakened IT spending environment over the past year, particularly in the larger corporate enterprises, offset partially by increases in the exchange rates for the United Kingdom.

     The average order size for Insight UK increased to $897 in first quarter of 2003 from $558 in the first quarter of 2002 due primarily to decreases in number of split shipments resulting from the expansion of electronic data interchange (“EDI”) relationships with vendors in the United Kingdom and an increase in notebooks as a percentage of net sales. Insight UK had 276 account executives at March 31, 2003 compared to 220 at March 31, 2002.

     Gross Profit. Gross profit decreased $1.0 million, or 7%, to $13.1 million for the three months ended March 31, 2003 from $14.1 million for the three months ended March 31, 2002. As a percentage of net sales, gross profit increased from 12.8% for the three months ended March 31, 2002 to 13.8% for the three months ended March 31, 2003. The increase in gross profit percentage over the prior year is due primarily to increases in product margin and a change in accounting classification for certain funds received from vendors. These increases were offset partially by an increase in write-down of inventories and a decrease in services gross margin.

     Effective January 1, 2003, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Reseller for Cash Consideration Received from a Vendor.” As a result of the adoption of this pronouncement, Insight UK recorded approximately $410,000 of vendor consideration as a reduction to costs of goods sold during the quarter ended March 31, 2003 that prior to the adoption would have been classified as a reduction of selling and administrative expenses. The change in classification resulted in a four-tenths percentage point (0.4%) increase in gross margin and a corresponding increase in selling and administrative expenses as a percentage of net sales compared to the prior classification.

27

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

     Operating Expenses.

     Selling and Administrative Expenses. Selling and administrative expenses increased $889,000, or 8%, to $12.0 million for the three months ended March 31, 2003 from $11.1 million for the three months ended March 31, 2002, and increased as a percentage of net sales to 12.7% for the three months ended March 31, 2003 from 10.1% for the three months ended March 31, 2002. The increase in selling and administrative expenses as a percentage of net sales is due primarily to the investment in additional account executives and senior sales management and the change in classification of vendor consideration, offset partially by reductions in support staff.

     Overall unassisted web sales at Insight UK increased to 16.9% of net sales for the quarter ended March 31, 2003 from 10.0% for the quarter ended March 31, 2002 due to increased focus on increasing customers’ use of Insight UK’s web site for routine purchases. An increase in the percentage of unassisted web sales reduces selling and administrative expenses as these sales are transacted without the assistance of an account executive. The percentage of shipments made using electronic “direct ship” programs with our suppliers increased to 53% for the quarter ended March 31, 2003 from 35% for the quarter ended March 31, 2002 due to the expansion of EDI relationships with vendors in the United Kingdom. Direct shipments from suppliers to our customers reduce selling and administrative expenses but increase costs of goods sold due to increased prices charged by suppliers for this service.

     Restructuring Expenses. During the first quarter, Insight UK recorded $543,000 of restructuring expenses relating to severance associated with the elimination of service technicians and certain support and management functions at the end of the quarter. These expenses generally consist of employee termination benefits for 26 employees. See further discussion in Note 7 in Part I Item 1.

     Reductions in Liabilities Assumed in Previous Acquisition.During the quarter ended March 31, 2003, Insight UK settled certain liabilities assumed with the acquisition of Action plc in late 2001 for $2.5 million less than the amounts originally recorded. Normally, these items would be recorded as a reduction to goodwill. However, Insight UK recorded a goodwill impairment charge during the fourth quarter of 2002 which eliminated its entire goodwill balance; therefore, the $2.5 million reduction in assumed liabilities is recorded in the statement of earnings. The income resulting from the reduction in assumed liabilities was not taxable.

Direct Alliance

	Quarter ended March 31,
	2003				2002
Net sales	$	19,618	100.0	%	$	25,700	100.0	%
Cost of goods sold		14,907	76.0			20,310	79.0
Gross profit		4,711	24.0			5,390	21.0
Operating expenses:
Selling and administrative expenses		1,198	6.1			1,318	5.2
Earnings from operations	$	3,513	17.9	%	$	4,072	15.8	%

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

     Net Sales.Net sales derived from Direct Alliance decreased $6.1 million, or 24%, to $19.6 million for the three months ended March 31, 2003 from $25.7 million for the three months ended March 31, 2002. The decline in net sales is due primarily to a reduction in freight services that Direct Alliance provides to its clients and a decrease in pass through product sales. Additionally, one of Direct Alliance’s clients is winding down a program that is scheduled to end in May 2003. This client represented approximately 8.4% and 17.5% of Direct Alliance’s net sales for the three months ended March 31, 2003 and 2002, respectively. Service fees decreased 19% to $17.8 million for the three months ended March 31, 2003 from $22.1 million for the three months ended March 31,

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

2002.     Pass-through product sales decreased 50% to $1.8 million from $3.6 million for the three months ended March 31, 2003 and 2002, respectively. For the three months ended March 31, 2003, Direct Alliance’s largest outsourcing client accounted for approximately 61% of Direct Alliance’s net sales.

     Gross Profit.Direct Alliance’s gross profit decreased $679,000 or 13% to $4.7 million for the first quarter of 2003, compared to $5.4 million for the first quarter of 2002. The decline in gross profit is due primarily to a decrease in sales performance fees from the client whose program will end in the second quarter of 2003 and a decrease in system customization projects performed for various clients. Direct Alliance’s gross profit as a percentage of net sales increased from 21.0% for the three months ended March 31, 2002 to 24.0% for the three months ended March 31, 2003.

     Operating Expenses.

     Selling and Administrative Expenses. Selling and administrative expenses at Direct Alliance decreased 9% or $120,000 to $1.2 million for the quarter ended March 31, 2003 from $1.3 million for the quarter ended March 31, 2002. The decrease in selling and administrative expenses was due to reductions in personnel and other cost-cutting measures. Selling and administrative expenses as a percentage of net sales were 6.1% for the quarter ended March 31, 2003 compared to 5.2% for the quarter ended March 31, 2002.

PlusNet

	Quarter ended March 31,
	2003				2002
Net sales	$	5,830	100.0	%	$	2,694	100.0	%
Cost of goods sold		3,585	61.5			1,162	43.1
Gross profit		2,245	38.5			1,532	56.9
Operating expenses:
Selling and administrative expenses		1,731	29.7			1,158	43.0
Earnings from operations	$	514	8.8	%	$	374	13.9	%

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

     Net Sales. PlusNet’s net sales increased $3.1 million or 116% to $5.8 million for the year ended March 31, 2003, compared to net sales of $2.7 million for the quarter ended March 31, 2002. PlusNet has experienced a shift in the primary source of its net sales from “dial-up” to broadband Internet access customers. Although broadband Internet access is sold at a lower gross margin percentage, it is providing an increase in net sales and earnings from operations for PlusNet. PlusNet expects broadband Internet access to continue to increase as a percentage of net sales.

     Gross Profit. PlusNet’s gross profit as a percentage of net sales decreased from 56.9% in the first quarter of 2002 to 38.5% in the first quarter of 2003 due to broadband Internet access, which is sold at lower gross margins, representing a higher percentage of net sales in the first quarter of 2003.

     Operating Expenses.

     Selling and Administrative Expenses. For the first quarter of 2003, PlusNet’s selling and administrative expenses were 29.7% of net sales compared to 43.0% in the same quarter in 2002. This decrease was due to an increase in net sales offset partially by increases in personnel expenses and bad debt expense.

29

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

Liquidity and Capital Resources

     Our primary capital needs have been to provide capital and to fund our working capital requirements, for potential acquisitions and capital expenditures necessitated by our growth. Capital expenditures for the quarters ended March 31, 2003 and 2002 were $6.2 million and $2.9 million, respectively. Capital expenditures for the quarter ended March 31, 2003 primarily relate to software associated with the system conversion. Capital expenditures for the quarter ended March 31, 2002 primarily relate to capitalized costs of computer software developed for internal use.

     Our net cash provided by operating activities was $88.2 million for the three months ended March 31, 2003 as compared to $28.8 million for the three months ended March 31, 2002. Cash flows from operations in the current quarter was primarily generated by a $42.3 million decrease in accounts receivable, a $20.7 million increase in accrued expenses and other current liabilities and $7.0 million in net earnings. The decrease in accounts receivable is due to reduced sales during the quarter along with a lower percentage of the quarter’s sales being made at the end of the quarter. The increase in accrued expenses and other liabilities resulted primarily from payments on binding customer contracts that have not yet been recognized as net sales.

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

     We have entered into an agreement to sell trade receivables periodically to a special purpose accounts receivable and financing entity (the “SPE”), which is exclusively engaged in purchasing trade receivables from us. The SPE is a wholly owned, bankruptcy-remote entity that we have consolidated in our financial statements. The SPE funds its purchases by selling undivided interests in up to $200,000,000 of eligible receivables to a multi-seller conduit administered by an independent financial institution. The sales to the conduit do not qualify for sale treatment under SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and therefore the receivables remain recorded on our condensed consolidated financial statements. At March 31, 2003, the SPE owned $290,184,000 of receivables that are recorded at fair value and are included in our condensed consolidated balance sheet of which $153,400,000 was eligible for funding. The facility expires December 30, 2003. Accordingly, the $30,000,000 outstanding at March 31, 2003 is recorded as short-term debt. Interest is payable monthly and the interest rate on borrowed funds as of March 31, 2003 was 1.86%. We also pay a commitment fee on the facility equal to 0.35% of the unused balance. At March 31, 2003, $123,400,000 was available under the facility.

     As of March 31, 2003, we had no amounts outstanding under our $30,000,000 revolving line of credit. The line of credit bears interest, payable quarterly, at a rate chosen by us among available rates subject to our leverage ratio and other terms and conditions. The available rates are the financial institution’s floating rate or the LIBOR based rate (4.65% and 3.45%, respectively at March 31, 2003). Any amounts outstanding would be recorded as long-term liabilities. The credit facility expires on December 31, 2005. We have an outstanding letter of credit that reduces the availability on this line of credit by $10,000,000. At March 31, 2003, $20,000,000 was available under the line of credit.

     Our $40,000,000 secured inventory facility can be used to facilitate the purchases of inventories from certain suppliers and amounts outstanding are classified on the balance sheet as accounts payable. As of March 31, 2003, there was $6,536,000 outstanding under the inventory facility and $33,464,000 was available. This facility is non-interest bearing if paid within its terms and expires December 31, 2005.

     The facilities contain various covenants including the requirement that we maintain a specified amount of tangible net worth and do not exceed leverage and minimum fixed charge requirements. We were in compliance with all such covenants at March 31, 2003.

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

     We have no off-balance sheet financing arrangements.

     Our future capital requirements include financing the following:

• the growth of working capital items such as accounts receivable and inventories;

• the purchase and internal development of software enhancements related to our IT system conversion;

• equipment, furniture and fixtures to support future growth;

• potential repurchases of our common stock; and

• capital needs for integration of recent acquisitions and potential acquisitions.

     We anticipate that cash flow from operations together with the funds available under our credit facilities will be adequate to support our presently anticipated cash and working capital requirements for operations in 2003. We may need additional debt or equity financing to continue funding our internal growth beyond 2003. In addition, as part of our long-term growth strategy, we intend to consider appropriate acquisition opportunities from time to time, which may require additional debt or equity financing.

Factors That May Affect Future Results and Financial Condition

     Integration and operation of past and future acquired businesses.Over the past eighteen months, we completed the acquisitions of Comark in the United States, Action in the United Kingdom and Kortex in Canada. These acquired operations now comprise a material portion of our business. Acquisitions involve numerous risks, including difficulties in the conversion of information systems and assimilation of operations of the acquired company, 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 liabilities and the potential loss of key employees and/or customers of the acquired company, all of which in turn could have a material adverse effect on our business, results of operations and financial condition. In particular, there are risks associated with the integration of Comark in 2003. While we have achieved our goals for the integration to date, the final phase of the integration includes the conversion of our United States direct marketing operation to one IT system platform and combined business processes.

     Our strategy includes the possible acquisition of other businesses to expand or complement our operations. The magnitude, timing and nature of any future acquisitions will depend on a number of factors, including the availability of suitable acquisition candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. There is no assurance that we will identify acquisition candidates that would result in successful combinations or that any such acquisitions will be consummated on acceptable terms. Any future acquisitions may result in potentially dilutive issuance of equity securities, the incurrence of additional debt, the utilization of cash, amortization of expenses related to identifiable intangible assets and future impairments of acquired goodwill, all of which could adversely affect our profitability.

     Reduced demand for products and services in our industry. The computer industry in general has felt the effects of the slowdown in the United States and European economies and we specifically have seen a decrease in demand for the products and services we sell. Sales can be dependent on specific product categories, and any change in demand for or supply of such products could have a material adverse effect on our sales 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 suppliers, reductions in the amount of supplier reimbursements that are made available, changes in customer 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 sales. Therefore, we may not be able to reduce spending in a timely manner to compensate for any unexpected

31

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

sales shortfall. As a result, comparisons of our quarterly financial results should not be relied upon as an indication of future performance.

     Current unfavorable economic conditions (including uncertainty created by international situations).Our results of operations are influenced by a variety of factors, including general economic conditions, the condition of the computer and related products industry, shifts in demand for or availability of computer and related products and industry introductions of new products, upgrades or methods of distribution. The potential for future terrorist attacks, the national and international responses to terrorist attacks or perceived threats to national security, and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations in ways that cannot be presently predicted.

     Actions of competitors.The IT products and services industry is intensely competitive. Competition is based primarily on price, product availability, speed of delivery, credit availability, ability to tailor specific solutions to customer needs and quality and breadth of product lines. We compete with manufacturers (including Dell and manufacturers whose products we sell such as Hewlett-Packard and IBM) as well as a large number and wide variety of marketers and resellers of IT products and services. These marketers and resellers include national direct marketers (such as Computer Discount Warehouse) and national and regional resellers including value-added resellers and specialty retailers, aggregators, distributors, national computer retailers, national computer retailers, computer superstores, Internet-only computer providers, consumer electronics and office supply superstores and mass merchandisers. Product manufacturers, in particular, have been increasing their efforts to sell directly to the business customer, particularly larger corporate customers, and thus have become more of a competitive threat to us than in the past.

     Certain of our competitors have longer operating histories and greater financial, technical, marketing, and other resources than us. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Many current and potential competitors also have greater name recognition and engage in more extensive promotional activities, offer more attractive terms to customers and adopt more aggressive pricing policies than we do. Additionally, several of our competitors have lower operating cost structures, allowing them to profitably employ more aggressive pricing strategies. 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.

     Additionally, product resellers and direct marketers are combining operations or acquiring or merging with other resellers and direct marketers to increase efficiency. Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products and services. 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 offset the effects of price reductions with an increase in the number of customers, higher sales, cost reductions or otherwise. Price reductions by our competitors that we either can not 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.

     Changes in supplier reimbursement and buying programs. Certain suppliers provide us with substantial incentives in the form of payment discounts, supplier reimbursements, price protections and rebates. Supplier funds are used to offset, among other things, cost of goods sold, marketing costs and other operating expenses. 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 could have a material adverse effect on our business, results of operations and financial condition. Additionally, Compaq Computer Corporation and

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Hewlett-Packard Company merged on May 3, 2002. Effective November 1, 2002, the merged entity, Hewlett-Packard, instituted changes to its supplier funding programs and its operating agreements. These changes will cause us to be more dependent on Hewlett-Packard’s successful execution of its business plan as we will start acquiring more products directly from Hewlett-Packard as opposed to distributors. The program changes are still relatively new and we cannot assure you that these changes will not have a material adverse effect on our business, results of operations and financial condition. There is no assurance that other manufacturers will not also institute similar or more restrictive changes.

     Management of growth. Since our inception, we have experienced substantial changes in and expansion of our business and operations through both acquisitions such as Comark and Action, which collectively are now a material portion of our business, and internal growth. The Comark and Action acquisitions have placed, and any future acquisitions may place, significant demands on our operational, financial, administrative and other resources. For example, we will need to integrate our information systems with those of Comark in order to realize the efficiencies we expected when we acquired Comark. Our operating expenses and staffing levels have increased and are expected to increase in the future as our business grows. In particular, we have retained a significant percentage of the Comark and Action employees and there can be no assurance that such persons will perform to our expectations. Competition for highly-qualified personnel is intense, and there can be no assurance that we will be able to continue to attract, assimilate and retain qualified persons in the future. In addition, we expect that any future expansion will continue to challenge our ability to hire, train, motivate and manage our employees. We also expect over time to expend considerable resources to expand/convert our information system and to implement a variety of new systems and procedures. System conversion decisions may result in write-downs of existing hardware and software that will not be used after the integration or conversion. If our sales do not increase in proportion to our operating expenses, our information systems do not expand to meet increasing demands, or we fail to attract, assimilate and retain qualified personnel or otherwise fail to manage our expansion effectively, there would be a material adverse effect on our business, results of operations and financial condition. There can be no assurance that we will achieve our growth strategy.

     Changing methods of distribution. The manner in which IT products and services are distributed and sold is changing. Hardware and software manufacturers have sold, and have publicly stated their intent to intensify their efforts to sell, their products directly to end-users. Certain manufacturers have instituted programs for the direct sales of large order quantities of hardware and software to certain major corporate accounts. These types of programs may continue to be developed and used by various manufacturers. In addition, manufacturers may attempt to increase the volume of software products distributed electronically to end-users. An increase in the volume of products sold through any of these competitive programs or distributed electronically to end-users could have a material adverse effect on our business, results of operations and financial condition.

     Risks associated with international operations. We initiated operations in Canada in 1997 and completed acquisitions in Europe in 1998 as part of our effort to penetrate international markets. In the fourth quarter of 2001, we completed additional acquisitions in Canada and the United Kingdom. Also in the fourth quarter of 2001, we closed down our German operation, which was acquired in 1998, in order to focus resources exclusively on the United Kingdom. In implementing our international strategy, we 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. These risks include local labor conditions and regulations, exposure to currency fluctuations, limitations on foreign investment and the additional expense and risks inherent in operating in geographically and culturally diverse locations. While we believe we will effectively integrate our international acquisitions with our own operations, we may be unable to integrate smoothly the acquired companies’ sales, administration, distribution and information systems, resulting in our inability to realize anticipated cost savings and/or sales growth. For a discussion of risks associated with past and future acquisitions, see risk factor “Risks associated with past and future acquisitions,” elsewhere in this section. Because we may continue to develop our international business through acquisitions, we may also be subject to risks associated with such acquisitions, including those relating to the marriage of different corporate cultures and

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shared decision-making. There can be no assurance that we will succeed in increasing our international business, or do so in a profitable manner.

     Reliance on suppliers.We acquire products for resale both directly from manufacturers and indirectly through distributors. Purchases from Tech Data Corporation and Ingram Micro, Inc., which are distributors, and Hewlett-Packard Company, a manufacturer, accounted for approximately 20.0%, 20.4% and 14.1%, respectively, of aggregate purchases in 2002. No other supplier accounted for more than 10% of purchases in 2002. However, the top five suppliers as a group (Ingram Micro, Inc.; Tech Data Corporation; Hewlett-Packard Company; Synnex Information Technologies, Inc. (a distributor) and IBM (a manufacturer)) accounted for approximately 68.5% of our total product purchases during 2002. The loss of Tech Data Corporation, Ingram Micro, Inc. or any other supplier could cause a short-term disruption in the availability of products. The reduction in the amount of credit granted to us by our suppliers could increase our cost of working capital and have a material adverse effect on our business, results of operations and financial condition. Additionally, there is no assurance that as manufacturers continue to sell directly to end users, they will not limit or curtail the availability of their product to resellers. Certain of the products offered from time to time by us are subject to manufacturer allocation, which limits the number of units of such products available to us. Our inability to obtain a sufficient quantity of product or an allocation of products from a manufacturer in a way that favors one of our competitors relative to us could cause us to be unable to fill customers’ orders in a timely manner, or at all, which could have a material adverse effect on our business, results of operations and financial condition.

     Reliance on information and telephone systems. 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 customers. Our ability to provide such services is largely dependent on the accuracy, quality and utilization of the information generated by our information systems, which affect our ability to manage our sales, distribution, inventory and accounting systems. Additionally, our success is dependent on our ability to successfully integrate our information system with those of acquired entities. We currently plan to convert to one software platform in our United States direct marketing operations by the end of 2003. Once this conversion is completed, we intend to convert our Canadian and United Kingdom operations to this software platform. There can be no assurances that these conversions will not cause material disruptions in our business, which would have a material adverse effect on our results of operations and financial condition. Although we have built redundancy into most of our systems, and have comprehensive data backup, we do not have a formal disaster recovery capability; therefore, a substantial interruption in our information systems or in our telephone communication systems would have a material adverse effect on our business, results of operations and financial condition.

     Reliance on our outsourcing clients. Through our operating segment, Direct Alliance, we perform business process outsourcing services for a small number of manufacturers in the computer and consumer electronics industry pursuant to various arrangements. For the quarters ended March 31, 2003 and, 2002, one outsourcing client accounted for approximately 61% and 52%, respectively, of Direct Alliance’s net sales. Although the contracts with this client are generally multi-year contracts, this client may cancel its contracts under certain circumstances on relatively short notice or elect to not renew them upon expiration. There is no assurance that we will be able to replace any outsourcing clients that terminate or fail to renew their relationships with us. Additionally, we seek to expand our offerings both within and outside of the computer industry. The failure to maintain current arrangements or the inability to enter into new ones within or outside the computer industry could have a material adverse effect on our business, results of operations and financial condition. Substantially all of our current outsourcing clients are manufacturers in the computer industry, and, therefore, are subject to the same risks as we are with respect to our Insight North America and Insight UK operations. These risks may negatively impact the amount of business our clients outsource to us.

     Rapid changes in product standards may result in substantial inventory obsolescence. The computer and related products industry is characterized by rapid technological change and the frequent introduction of new products and product enhancements, which can decrease demand for current products or render them obsolete. In addition, in order to satisfy customer demand, protect ourselves against product shortages, obtain greater

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purchasing discounts and react to changes in original equipment manufacturers’ terms and conditions, we may 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.

     Dependence on key personnel. Our future success will be largely dependent on the efforts of key management personnel. The loss of one or more of these key employees could have a material adverse effect on our business, results of operations and financial condition. We also believe that our future success will be largely dependent on our continued ability to attract and retain highly qualified management, sales and technical personnel. We cannot assure you that we will be able to attract and retain such personnel. Volatility or lack of positive performance in our stock price may also adversely affect our ability to retain key employees, all of whom have been granted stock options, or attract additional highly qualified personnel. Further, we make a significant investment in the training of our sales account executives. Our inability to retain such personnel or to train them rapidly enough to meet our expanding needs 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.

     The majority of our existing financing arrangements expire in 2003 and if we are unable to renew these arrangements or replace them on acceptable terms we may incur higher interest expenses or your equity interest may be diluted. Our financing arrangements include a $200 million accounts receivable securitization program, a $30 million revolving line of credit and a $40 million inventory financing facility. The availability under each of these facilities is subject to formulas based on our eligible accounts receivable or inventories. As of March 31, 2003, the aggregate outstanding balance under these facilities was $37 million and we had $176 million available. The accounts receivable securitization program expires December 30, 2003 and the line of credit and inventory facility each expire on December 31, 2005. We may be unable to renew our existing accounts receivable securitization program or secure alternative financing or, if we are able to renew our existing accounts receivable securitization program or secure alternative financing, it may be on less favorable terms such as higher interest rates. If we were unable to renew our existing accounts receivable securitization program or secure alternative financing, we may be required to seek other financing alternatives such as selling additional equity securities or convertible debt securities that would dilute the equity interests of current shareholders. We cannot assure you that we will be able to obtain such financing on terms favorable to us or at all.

     Changes in state sales or use tax collection requirements may increase our administrative burden and our prices to customers. We presently collect sales or use taxes in virtually all states which impose such taxes; however, the requirement to collect varies by each subsidiary’s activities. For subsidiaries targeting small-to-medium sized business (businesses with less than 1,000 computers), we collect sales or use tax in Arizona, California, Illinois, Indiana and Tennessee. In our subsidiaries targeting larger corporate enterprises (businesses with at least 1,000 computers) and governmental entities, we collect sales or use tax in most states. Various states have sought to impose on direct marketers the burden of collecting state sales or use taxes on the sales of products shipped to that state’s residents. On November 12, 2002, representatives of over thirty states voted to approve the Streamlined Sales and Use Tax Agreement (the “Agreement”), an agreement between states to simplify sales and use tax compliance for all sellers and to encourage and incent voluntary collection by remote sellers. The Agreement is only effective after at least ten states, comprising at least twenty percent of the total population of states with a sales tax, become members of the Agreement. The United States Supreme Court has affirmed its position that, under the Commerce Clause of the United States Constitution, a state cannot constitutionally impose sales or use tax collection obligations on an out-of-state mail order company whose only contacts with the state are the distribution of catalogs and other advertising materials through the mail and the subsequent delivery of purchased goods by United States mail or by interstate common carrier from a point outside of the state. While the Agreement cannot force direct marketers to collect tax, states hope it may aid their efforts to win Congressional approval of the power to require remote sellers to collect tax. If the Supreme Court changes its position or if legislation is passed to overturn the Supreme Court’s decision, the imposition of a sales or use tax collection obligation on the subsidiaries which do not currently collect sales or use tax may result in additional administrative expenses, price increases to the customer, or otherwise have a material adverse effect on our

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business. We also collect goods and services taxes in all provinces in Canada and value-added tax in the United Kingdom.

     Recently enacted and proposed changes in securities laws and regulations will increase our costs and divert management’s attention. The Sarbanes-Oxley Act of 2002 (the “Act”) that became law in July 2002 requires changes in some of our corporate governance, public disclosure and compliance practices. The Act also requires the SEC to promulgate new rules on a variety of subjects. In addition to final rules and rules already made, Nasdaq has proposed revisions to its requirements for companies, such as us, that are listed on the Nasdaq. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards. This investment will increase our legal and financial costs and divert management time and attention from other activities. We expect these changes to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These developments could make it more difficult for us to attract and retain executive officers and qualified members for our board of directors, particularly to serve on the audit committee. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of costs we will incur as a result of the Act.

     The results of litigation may affect our operating results.From time to time we will be made defendants to lawsuits both in the ordinary course of business and as a result of other circumstances. Depending on the claims made and the nature of the relief sought, any such lawsuit, if decided against us, could adversely affect our results of operations. We are a defendant in a lawsuit pending in the United States District Court, District of Arizona which alleges violations of Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. Three separate lawsuits filed by stockholders have been consolidated into a single action. The plaintiff in this action alleges we and certain of our officers made false and misleading statements pertaining to our business, operations and management in an effort to inflate the price of our common stock. The lawsuit also names as co-defendants: Eric J. Crown, the Chairman of our Board of Directors; Timothy A. Crown, our Chief Executive Officer and a director; and Stanley Laybourne, a director and our Executive Vice President, Chief Financial Officer and Treasurer. In the consolidated complaint, which was filed in December 2002, the plaintiff seeks class action status to represent all buyers of our common stock from September 3, 2001 through July 17, 2002. In February 2003, we filed a motion to dismiss which we expect will be argued in the Summer of 2003. We intend to defend the lawsuit vigorously. The costs associated with defending the allegations in these lawsuits and the potential outcome cannot be determined at this time and, accordingly, no estimate for such costs, other than the deductible amount under our directors and officers liability insurance policies have been included in these condensed consolidated financial statements.

     We issue options under our stock option plans and sell shares under our employee stock purchase plan, which dilute the interest of stockholders. We have reserved shares of our common stock for issuance under our Employee Stock Purchase Plan, our 1998 Long Term Incentive Plan (the “1998 LTIP”) and our 1999 Broad–Based Incentive Plan. As approved by our stockholders, our 1998 LTIP provides that additional shares may be reserved for issuance based on a formula contained in that plan. The formula provides that the total number of shares of common stock remaining for grant under the 1998 LTIP and any of our other option plans, plus the number of shares subject to unexercised options granted under any stock plan shall not exceed 20% of the outstanding shares of our common stock at the time of calculation of the additional shares. Therefore, we will reserve additional shares on an ongoing basis for issuance under this plan. At March 31, 2003, we had options outstanding to acquire 9,136,010 shares of common stock with a weighted average exercise price of $16.46. Based on the 1998 LTIP formula, we had 42,010 shares of common stock available for grant of stock options at March 31, 2003.

     Additionally, we have reserved shares of common stock of our subsidiaries, Direct Alliance Corporation and PlusNet Technologies Limited under the Direct Alliance 2000 Long-Term Incentive Plan and the PlusNet Technologies Limited 2000 Long-Term Incentive Plan. The amount of shares reserved for issuance under these plans represents 15% of the outstanding stock of the respective subsidiaries. At March 31, 2003 we had options

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

outstanding to acquire 2,857,500 shares of common stock of Direct Alliance Corporation at a weighted average exercise price of $1.42 and options to acquire 4,730,000 shares of common stock of PlusNet Technologies Limited at a weighted average exercise price of $0.33.

     When stock options with an exercise price lower than the current market price are exercised, our stockholders will experience dilution in the price of their shares and may experience a 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.

     Our stock price has experienced volatility.Our common stock has experienced in the past, and could experience in the future, substantial price volatility as a result of a number of factors, including:

• quarterly increases or decreases in net sales, gross margin or earnings, and changes in our business, operations or prospects or any of our segments;

• announcements by us, our competitors or our vendors;

• changes in net sales or earnings estimates by the investment community;

• speculation in the investment community about our strategic position and ability to integrate successfully the former Comark operations into our North American operations; and

• speculation about our ability to successfully convert our United States direct marketing operations, which includes the former Comark operations, onto one IT system platform.

     The stock market has also experienced extreme price and volume fluctuations, which have affected the market price of many companies and which at times have been unrelated to the operating performance of the specific companies whose stock is traded. Broad market fluctuations, developments in the IT industry, general economic conditions and political and current events may adversely affect the market price of our common stock.

     In addition, if our current security holders sell substantial amounts of our common stock, including shares issued upon acquisitions or exercise of outstanding options, in the public market, the market price of our common stock could decline.

     Some anti-takeover provisions contained in our certificate of incorporation, bylaws and stockholders rights agreement, as well as provisions of Delaware law, could impair a takeover attempt.We have provisions in our certificate of incorporation and bylaws, each of which could have the effect 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 its 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

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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”) on 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. 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.

     Any provision of our certificate of incorporation or bylaws 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 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 10,000,000 shares of preferred stock. These are “blank check” preferred shares, meaning our board of directors is authorized to designate and issue the shares from time to time without stockholder consent. No preferred shares are currently outstanding. 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.

     We have never paid dividends on our common stock and do not currently plan to do so in the foreseeable future. Our equity securities are entitled to receive any dividends that may be declared by our board of directors. We have not paid any cash dividends on our common stock and our credit facility prohibits the payment of cash dividends without lender approval. We intend to retain any future earnings to provide funds for operations of our business and currently do not expect to pay cash dividends in the foreseeable future.

Recently Issued Accounting Pronouncements

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes the former guidance of Emerging Issues Task Force Issue No. 94-3 (“EITF 94-3”), “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured when the liability is incurred (as opposed to upon the date of an entity’s commitment to a plan as provided for under EITF 94-3). The provisions of SFAS No. 146 are effective for any exit or disposal activities that are initiated by us after December 31, 2002. The provisions of EITF Issue No. 00-16 did not have a material effect on our condensed consolidated financial statements.

     In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”),”Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. The disclosure provisions of FIN 45 are effective for financial statements for years ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on our condensed consolidated financial statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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     In November 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The provisions of EITF Issue No. 00-21 are not expected to have a material effect on our condensed consolidated financial statements.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” which amends SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002 and are implemented in this document.

     In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. The provisions of FIN 46 did not have a material effect on our condensed consolidated financial statements.

     In January 2003, the EITF reached a consensus on Issue No. 02-16, “Accounting by a Reseller for Cash Consideration Received From a Vendor.” EITF Issue No. 02-16 provides guidance on how resellers of vendors’ products should account for cash consideration received from their vendors. The provisions of EITF Issue No. 02-16 applies to arrangements, including modifications of existing arrangements, entered into after December 31, 2002 and are implemented in this document. As a result of the adoption of this pronouncement, we recorded approximately $2.7 million of vendor consideration as a reduction to costs of goods sold during the quarter ended March 31, 2003 that prior to the adoption would have been classified as a reduction of selling and administrative expenses. The change in classification resulted in a four-tenths percentage point (0.4%) increase in gross margin and a corresponding increase in selling and administrative expenses as a percentage of net sales compared to the prior classification.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

     We have interest rate exposure arising from our financing arrangements, which have variable interest rates. These variable interest rates are affected by changes in short-term interest rates. We manage interest rate exposure through our conservative debt ratio target and our mix of fixed and variable rate debt. At March 31, 2003, the fair value of our long-term debt approximated its carrying value.

     We also have foreign currency translation exposure arising from the purchase and operation of foreign entities. We monitor our foreign currency exposure and may from time to time enter into hedging transactions to manage this exposure. There were no hedging transactions during the three months ended March 31, 2003 or hedging instruments outstanding at March 31, 2003.

Item 4. Controls and Procedures

     We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     An evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO of the effectiveness of our disclosure controls and procedures within 90 days prior to the date of the filing of this report. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as specified in the SEC’s rules and forms. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to this evaluation.

     Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, the CEO and CFO of the Company have provided certain certifications to the Securities and Exchange Commission.

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

     We are a defendant in a lawsuit pending in the United States District Court, District of Arizona which alleges violations of Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. Three separate lawsuits filed by stockholders have been consolidated into a single action. The plaintiff in this action alleges we and certain of our officers made false and misleading statements pertaining to our business, operations and management in an effort to inflate the price of our common stock. The lawsuit also names as co-defendants: Eric J. Crown, the Chairman of our Board of Directors; Timothy A. Crown, our Chief Executive Officer and a director; and Stanley Laybourne, a director and our Executive Vice President, Chief Financial Officer and Treasurer. In the consolidated complaint, which was filed in December 2002, the plaintiff seeks class action status to represent all buyers of our common stock from September 3, 2001 through July 17, 2002. In February 2003, we filed a motion to dismiss which we expect will be argued in the Summer of 2003. We intend to defend the lawsuit vigorously. The costs associated with defending the allegations in these lawsuits and the potential outcome cannot be determined at this time and, accordingly, no estimate for such costs, other than the deductible

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amount under our directors and officers liability insurance policies have been included in these condensed consolidated financial statements.

     We are also party to various legal proceedings arising in the ordinary course of business. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to material legal matters pending against us, as well as adequate provisions for any probable and estimable losses. It is possible, nevertheless, that the results of our operations or cash flows could be affected in any particular period by the resolution of a legal proceeding.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

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INSIGHT ENTERPRISES, INC.

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits. (unless otherwise noted, exhibits are filed herewith)

Exhibit No.		Description
3.1		Composite Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of our annual report on Form 10-K for the year ended December 31, 2001 filed on April 1, 2002).
3.2		Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of our annual report on Form 10-K for the year ended December 31, 1999 filed on March 30, 2000).
4.1		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of our Registration Statement on Form S-1 (No. 33-86142) declared effective January 24, 1995).
4.2		Stockholder Rights Agreement (incorporated by reference to Exhibit 4.1 of our current report on Form 8-K filed on March 17, 1999).
10.1	(1)	Summary Description of Bonus Agreement between Insight Services Corporation, Insight Direct Worldwide, Inc. and Joel Borovay effective January 1, 2003.
10.2	(1)	Summary Description of Bonus Agreement between Comark Inc. and Timothy McGrath effective January 1, 2003.
10.3	(1)	Separation Agreement and Release between Insight Enterprises, Inc. and Michael V. Wise dated February 25, 2003.
10.4	(1)	Second Amendment to Employment Agreement and Consulting Agreement between Insight Services Corporation, Insight Direct Worldwide, Inc. and Joel Borovay dated as of April 1, 2003.
99.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Management contract or compensatory plan or arrangement.

(b)   Current Reports on Form 8-K filed or furnished during the quarter covered by this Form 10-Q are as follows:

1.	A Form 8-K was filed on February 3, 2003, and included, under Item 5, a press release entitled “Insight Enterprises, Inc. Reports Fourth Quarter Results” containing consolidated financial statements and other information for the fourth quarter of 2002.
2.	A Form 8-K was furnished on April 24, 2003, and included, under Items 9 and 12, a press release entitled “Insight Enterprises, Inc. Reports First Quarter Results” containing financial statements and other information for the first quarter of 2003.

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INSIGHT ENTERPRISES, INC.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: May 13, 2003 INSIGHT ENTERPRISES, INC

By:	/s/ Timothy A. Crown
	Timothy A. Crown
	Chief Executive Officer
By:	/s/ Stanley Laybourne
	Stanley Laybourne
	Executive Vice President,
	Chief Financial Officer and Treasurer
	(Principal financial officer)

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INSIGHT ENTERPRISES, INC.

CERTIFICATIONS

I, Timothy A. Crown, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Insight Enterprises, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

By:	/s/ Timothy A. Crown
	Timothy A. Crown
	Chief Executive Officer

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INSIGHT ENTERPRISES, INC.

I, Stanley Laybourne, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Insight Enterprises, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 13, 2003

By:	/s/ Stanley Laybourne
	Stanley Laybourne
	Chief Financial Officer

45

EXHIBIT INDEX

Exhibit No.		Description
3.1		Composite Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of our annual report on Form 10-K for the year ended December 31, 2001 filed on April 1, 2002).
3.2		Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of our annual report on Form 10-K for the year ended December 31, 1999 filed on March 30, 2000).
4.1		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of our Registration Statement on Form S-1 (No. 33-86142) declared effective January 24, 1995).
4.2		Stockholder Rights Agreement (incorporated by reference to Exhibit 4.1 of our current report on Form 8-K filed on March 17, 1999).
10.1	(1)	Summary Description of Bonus Agreement between Insight Services Corporation, Insight Direct Worldwide, Inc. and Joel Borovay effective January 1, 2003.
10.2	(1)	Summary Description of Bonus Agreement between Comark Inc. and Timothy McGrath effective January 1, 2003.
10.3	(1)	Separation Agreement and Release between Insight Enterprises, Inc. and Michael V. Wise dated February 25, 2003.
10.4	(1)	Second Amendment to Employment Agreement and Consulting Agreement between Insight Services Corporation, Insight Direct Worldwide, Inc. and Joel Borovay dated as of April 1, 2003.
99.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Management contract or compensatory plan or arrangement.