Insight makes $61 million accounting error

by Andrew Johnson - May. 12, 2009
The Arizona Republic

An accounting error dating back to 1996 will cost Tempe-based Insight Enterprises Inc. $61.2 million..

The Fortune 500 information-technology reseller on Tuesday said it completed an earnings restatement following an internal investigation of customer trade credits on its balance sheet.

In February, company executives announced they had incorrectly accounted for the credits between December 1996 and September 2008.

The announcement raised analysts' eyebrows, sent Insight's stock price spiraling down and prompted an ongoing investigation by the U.S. Securities and Exchange Commission. The error also delayed the filing of Insight's 2008 annual results and 2009 first-quarter earnings, which the company reported Tuesday.

Sales for the quarter ended March 31 were $951.2 million, down 13.8 percent from the year-ago quarter. Insight also posted a net loss of $6.8 million, or 15 cents per share, down from a net profit of $8.2 million, or 17 cents per share, a year ago.

Insight, which sells computer hardware, software and IT management services to businesses, has been hurt by the economic downturn, which has caused customers to reduce IT spending.

Chief Executive Officer Rich Fennessy said in a conference call that the company saw some signs of a rebound with orders picking up in March and continuing in April.

"The good news is we don't feel the market is getting worse at this stage," Fennessy said.

With the restatement process finished, the company now will focus on executing its business plan, he added. Based on current demand, Insight estimates earnings per share of 80 cents to 87 cents for 2009.

Investors responded favorably to the company's outlook Tuesday, with Insight shares closing up 92 cents, or 17.2 percent, to $6.27.

Still, Chief Financial Officer Glynis Bryan said it could take several years to finish settling with customers affected by how Insight accounted for credits due them.

For example, Insight would issue a credit memo to a customer who returned a purchased product or a customer who overpaid for a purchase.

If a customer did not claim the credit within 12 to 18 months, Insight would move the credits from its balance sheet to its income statement, which would reduce the cost of goods sold and increase its stated gross profits on financial statements.

Bryan said Tuesday the accounting problem stemmed from states having different laws on accounting for such credits.

Some states require a business to wait longer than 18 months before including an unclaimed credit in gross profit. Others require businesses to pay the credit to the state, which holds the money until the customer claims it, Bryan said.

Reach the reporter at andrew.johnson@arizonarepublic.com or 602-444-8280. Read his blog at innovation.azcentral.com.