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8-K - FORM 8-K - INSIGHT ENTERPRISES INCd582017d8k.htm

Exhibit 99.1

 

LOGO

 

 

FOR IMMEDIATE RELEASE   NASDAQ: NSIT

INSIGHT ENTERPRISES, INC. REPORTS SECOND QUARTER 2013 RESULTS

TEMPE, AZ – August 8, 2013 – Insight Enterprises, Inc. (NASDAQ: NSIT) (the “Company”) today reported results of operations for the quarter ended June 30, 2013.

For the second quarter of 2013:

 

   

Net sales decreased 7% compared to the second quarter of 2012 to $1.4 billion.

 

   

Gross profit declined 5% compared to the second quarter of 2012 to $190.9 million, with gross margin increasing approximately 30 basis points to 13.5% of net sales.

 

   

Earnings from operations were down 19% compared to the second quarter of 2012 to $44.6 million, or 3.1% of net sales.

 

   

Net earnings and diluted earnings per share were $26.5 million and $0.62, respectively, in the second quarter of 2013, at an effective tax rate of 39.6%.

 

   

Excluding severance and restructuring expenses, net earnings and diluted earnings per share on a non-GAAP basis were $29.1 million and $0.68, respectively, in the second quarter of 2013.*

 

   

The Company generated $87.8 million of cash from operations in the six months ended June 30, 2013, compared to $11.2 million during the first six months of 2012.

 

   

The Company completed a $50 million share repurchase program by purchasing and retiring approximately 2.3 million shares of its common stock during the quarter.

 

* A tabular reconciliation of financial measures prepared in accordance with United States generally accepted accounting principles (“GAAP”) to non-GAAP financial measures is included at the end of this press release.

“During the second quarter, we continued to see soft top line performance, but we drove gross margin expansion through higher services sales and a strategic focus on more profitable product sales. We also maintained strict discipline around the costs in our business,” stated Ken Lamneck, President and Chief Executive Officer, “We are continuing to focus on growing our solutions-selling expertise around key technologies and in select markets and verticals and believe that this will bring value to our clients and shareholders over time,” added Lamneck.

 

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Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480.760.8958


Insight Q2 2013 Results, Page 2     August 8, 2013

 

SEGMENT OVERVIEW

In North America, net sales were $923.1 million for the second quarter of 2013, down 7% compared to net sales of $993.0 million for the second quarter of 2012. Net sales of hardware and software decreased 10% and 4%, respectively, year to year, while net sales of services remained flat year over year. Gross profit of $124.7 million was down 4% year to year, with gross margin increasing to 13.5% from 13.1% in the second quarter of 2012. Selling and administrative expenses in North America in the second quarter of 2013 remained flat year over year. The year over year comparison was affected by a prior year gain of $1.2 million on the sale of a portfolio of non-core service contracts as a reduction of selling and administrative expenses in the second quarter of 2012. During the second quarter of 2013, North America recorded severance and restructuring expenses, net of adjustments, of $967,000, $638,000 net of tax, compared to $894,000, $552,000 net of tax, during the second quarter of 2012. As a result, earnings from operations in North America decreased 15% year to year to $33.4 million, or 3.6% of net sales, in the second quarter of 2013, compared to $39.1 million, or 3.9% of net sales, in the second quarter of 2012.

The Company’s EMEA operating segment reported net sales of $421.1 million for the second quarter of 2013, a decrease of 8% in U.S. dollars compared to the second quarter of 2012. Excluding the effects of foreign currency movements, net sales decreased 9% year to year. Net sales of services were up 42% year over year, while net sales of hardware and software declined 21% and 4%, respectively, year to year, all in U.S. dollars. Excluding the effects of foreign currency movements, net sales of services increased 41%, while net sales of hardware and software declined 19% and 6%, respectively, compared to the second quarter of 2012. Gross profit of $54.2 million was also down 8% year to year in U.S. dollars, 9% excluding the effects of foreign currency movements, with gross margin remaining flat at 12.9% in both periods. Selling and administrative expenses in EMEA in the second quarter of 2013 decreased 1%, or $623,000, compared to the second quarter of 2012 in U.S. dollars and, excluding the effects of foreign currency movements, were also down 1% compared to the prior year period. During the second quarter of 2013, EMEA recorded severance and restructuring expenses, net of adjustments, of $2.2 million, $1.9 million net of tax, compared to $1.5 million, $1.0 million net of tax, during the second quarter of 2012. As a result, earnings from operations in EMEA decreased 47% year to year to $5.7 million, or 1.4% of net sales, in the second quarter of 2013 compared to $10.8 million, or 2.4% of net sales, in the second quarter of 2012.

The Company’s APAC operating segment reported net sales of $72.4 million for the second quarter of 2013, a decrease of 5% compared to the second quarter of 2012 in U.S. dollars, a decrease of 2% excluding the effects of foreign currency movements. Gross profit was $12.0 million, an increase of 3% year over year in U.S. dollars, 5% excluding the effects of foreign currency movements, with gross margin increasing to 16.6% for the second quarter of 2013 from 15.3% in the second quarter of 2012. Selling and administrative expenses in APAC increased 4%, or $227,000, compared to the second quarter of 2012 in U.S. dollars. Excluding the effects of foreign currency movements, selling and administrative expenses increased 5% compared to the second quarter of last year. As a result, earnings from operations in APAC increased 2% year over year to $5.5 million, or 7.6% of net sales, in the second quarter of 2013 compared to $5.4 million, or 7.0% of net sales, in the second quarter of 2012.

Throughout this “Segment Overview” section, the Company refers to changes in net sales, gross profit and selling and administrative expenses in EMEA and APAC excluding the effects of foreign currency movements. In computing these changes and percentages, the Company compares the current year amount as translated into U.S. dollars under the applicable accounting standards to the prior year amount in local currency translated into U.S. dollars utilizing the average translation rate for the current period.

 

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Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958


Insight Q2 2013 Results, Page 3     August 8, 2013

 

Net of tax amounts referenced above were computed using the statutory tax rate for the taxing jurisdictions in the operating segment in which the related expenses were recorded, adjusted for the effects of valuation allowances on net operating losses in certain jurisdictions.

UPDATED GUIDANCE

The Company currently expects diluted earnings per share for the full year of 2013 to be between $1.70 and $1.85.

This outlook includes the following assumptions:

 

   

The remaining 2013 adverse effect on gross profit of previously announced partner program changes in the Company’s software category, which is estimated to be between $5 and $8 million in the back half of 2013; and

 

   

an effective tax rate of 39% for the balance of the year.

This outlook excludes severance and restructuring expenses incurred during 2013.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live web cast today at 5:00 p.m. ET to discuss second quarter 2013 results of operations. A live web cast of the conference call (in listen-only mode) will be accessible online through the investor relations section of the Company’s web site, www.insight.com, at http://nsit.client.shareholder.com/events.cfm, and a replay of the web cast will be available on the Company’s web site for a limited time following the call. To listen to the live web cast by telephone, call 1-877-402-8904 if located in the U.S., 678-809-1029 for international callers, and enter the access code 20607805.

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures exclude severance and restructuring expenses in 2013 and 2012, a gain on bargain purchase in 2012 and the tax effect of these items. The Company excludes these charges when internally evaluating earnings from operations, tax expense, net earnings and diluted earnings per share for the Company and earnings from operations for each of the Company’s operating segments. These non-GAAP measures are used to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare the Company’s results to those of the Company’s competitors. The Company believes that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and the Company’s competitors’ results and assist in forecasting performance for future periods. These non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

 

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Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958


Insight Q2 2013 Results, Page 4     August 8, 2013

 

FINANCIAL SUMMARY TABLE

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
      2013      2012      % change     2013      2012      % change  

Insight Enterprises, Inc.

                

Net sales

   $ 1,416,547       $ 1,529,175         (7 %)    $ 2,598,169       $ 2,773,357         (6%)   

Gross profit

   $ 190,927       $ 201,286         (5 %)    $ 349,064       $ 371,658         (6%)   

Earnings from operations

   $ 44,598       $ 55,308         (19 %)    $ 59,015       $ 80,912         (27%)   

Net earnings

   $ 26,513       $ 35,250         (25 %)    $ 35,589       $ 52,642         (32%)   

Diluted earnings per share

   $ 0.62       $ 0.79         (22 %)    $ 0.81       $ 1.18         (31%)   

North America

                

Net sales

   $ 923,063       $ 992,970         (7 %)    $ 1,670,067       $ 1,849,297         (10%)   

Gross profit

   $ 124,664       $ 130,357         (4 %)    $ 227,191       $ 243,993         (7%)   

Earnings from operations

   $ 33,402       $ 39,121         (15 %)    $ 45,676       $ 60,284         (24%)   

EMEA

                

Net sales

   $ 421,116       $ 459,714         (8 %)    $ 808,027       $ 808,548         —     

Gross profit

   $ 54,238       $ 59,249         (8 %)    $ 102,848       $ 109,663         (6%)   

Earnings from operations

   $ 5,725       $ 10,834         (47 %)    $ 6,904       $ 14,971         (54%)   

APAC

                

Net sales

   $ 72,368       $ 76,491         (5 %)    $ 120,075       $ 115,512         4%   

Gross profit

   $ 12,025       $ 11,680         3   $ 19,025       $ 18,002         6%   

Earnings from operations

   $ 5,471       $ 5,353         2   $ 6,435       $ 5,657         14%   

 

     North America     EMEA     APAC  
     Three Months Ended
June 30,
    Three Months Ended
June 30,
    Three Months Ended
June 30,
 
      2013     2012     % change*     2013     2012     % change*     2013     2012     % change*  

Sales Mix

                  

Hardware

     58     59     (10 %)      26     30     (21 %)      3     2     36

Software

     36     35     (4 %)      72     69     (4 %)      95     96     (7 %) 

Services

     6     6     —          2     1     42     2     2     16
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   
     100     100     (7 %)      100     100     (8 %)      100     100     (5 %) 
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

* Represents growth/decline in category net sales on a U.S. dollar basis.

 

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Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958


Insight Q2 2013 Results, Page 5     August 8, 2013

 

FORWARD-LOOKING INFORMATION

Certain statements in this release and the related conference call and web cast are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including the Company’s expected 2013 net sales, financial results, earnings performance and diluted earnings per share, and the assumptions relating thereto, including the gross profit effect of partner program changes and the effective tax rate, are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. There can be no assurances that the results discussed by the forward-looking statements will be achieved, and actual results may differ materially from those set forth in the forward-looking statements. Some of the important factors that could cause the Company’s actual results to differ materially from those projected in any forward-looking statements, include, but are not limited to, the following, which are discussed in “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012:

 

   

the Company’s reliance on partners for product availability and competitive products to sell as well as the Company’s competition with its partners;

 

   

the Company’s reliance on partners for marketing funds and purchasing incentives;

 

   

changes in the IT industry and/or rapid changes in technology;

 

   

disruptions in the Company’s IT systems and voice and data networks, including risks and costs associated with the integration and upgrade of the Company’s IT systems;

 

   

actions of the Company’s competitors, including manufacturers and publishers of products the Company sells;

 

   

general economic conditions;

 

   

failure to comply with the terms and conditions of the Company’s commercial and public sector contracts;

 

   

the security of the Company’s electronic and other confidential information;

 

   

the integration and operation of acquired businesses, including the Company’s ability to achieve expected benefits of the acquisitions;

 

   

the Company’s dependence on certain personnel;

 

   

the variability of the Company’s net sales and gross profit;

 

   

the risks associated with the Company’s international operations;

 

   

exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations; and

 

   

intellectual property infringement claims and challenges to the Company’s registered trademarks and trade names.

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

 

CONTACTS:    GLYNIS BRYAN    HELEN JOHNSON
   CHIEF FINANCIAL OFFICER    SENIOR VP, TREASURER
   TEL. 480-333-3390    TEL. 480-333-3234
   EMAIL glynis.bryan@insight.com    EMAIL helen.johnson@insight.com

 

 

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Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958


Insight Q2 2013 Results, Page 6     August 8, 2013

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Net sales

   $ 1,416,547      $ 1,529,175      $ 2,598,169      $ 2,773,357   

Costs of goods sold

     1,225,620        1,327,889        2,249,105        2,401,699   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     190,927        201,286        349,064        371,658   

Operating expenses:

        

Selling and administrative expenses

     143,158        143,601        284,146        286,995   

Severance and restructuring expenses

     3,171        2,377        5,903        3,751   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from operations

     44,598        55,308        59,015        80,912   

Non-operating (income) expense:

        

Interest income

     (337     (288     (649     (639

Interest expense

     1,556        1,490        3,174        3,048   

Gain on bargain purchase

     —          —          —          (2,022

Net foreign currency exchange gain

     (886     (470     (725     (1,298

Other expense, net

     342        389        716        633   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     43,923        54,187        56,499        81,190   

Income tax expense

     17,410        18,937        20,910        28,548   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ 26,513      $ 35,250      $ 35,589      $ 52,642   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings per share:

        

Basic

   $ 0.62      $ 0.79      $ 0.81      $ 1.19   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.62      $ 0.79      $ 0.81      $ 1.18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculations:

        

Basic

     42,862        44,420        43,766        44,285   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     43,024        44,708        44,044        44,731   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

- MORE -

 

Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958


Insight Q2 2013 Results, Page 7     August 8, 2013

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

(UNAUDITED)

 

     June 30,
2013
     December 31,
2012
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 142,165       $ 152,119   

Accounts receivable, net

     1,318,967         1,371,356   

Inventories

     125,705         100,896   

Inventories not available for sale

     25,847         31,249   

Deferred income taxes

     16,070         16,387   

Other current assets

     50,389         29,543   
  

 

 

    

 

 

 

Total current assets

     1,679,143         1,701,550   

Property and equipment, net

     136,992         143,513   

Goodwill

     26,257         26,257   

Intangible assets, net

     41,067         47,405   

Deferred income taxes

     60,547         64,013   

Other assets

     23,229         18,765   
  

 

 

    

 

 

 
   $ 1,967,235       $ 2,001,503   
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities:

     

Accounts payable

   $ 1,016,519       $ 982,611   

Accrued expenses and other current liabilities

     149,856         158,621   

Current portion of long-term debt

     86         602   

Deferred revenue

     32,928         40,287   
  

 

 

    

 

 

 

Total current liabilities

     1,199,389         1,182,121   

Long-term debt

     53,000         80,000   

Deferred income taxes

     1,527         2,312   

Other liabilities

     34,992         31,779   
  

 

 

    

 

 

 
     1,288,908         1,296,212   
  

 

 

    

 

 

 

Stockholders’ equity:

     

Preferred stock

     —           —     

Common stock

     423         446   

Additional paid-in capital

     348,999         369,300   

Retained earnings

     323,270         315,888   

Accumulated other comprehensive income – foreign currency translation adjustments

     5,635         19,657   
  

 

 

    

 

 

 

Total stockholders’ equity

     678,327         705,291   
  

 

 

    

 

 

 
   $ 1,967,235       $ 2,001,503   
  

 

 

    

 

 

 

 

- MORE -

 

Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958


Insight Q2 2013 Results, Page 8     August 8, 2013

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

     Six Months Ended
June 30,
 
     2013     2012  

Cash flows from operating activities:

    

Net earnings

   $ 35,589      $ 52,642   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     20,870        20,497   

Provision for losses on accounts receivable

     2,489        2,159   

Write-downs of inventories

     2,502        2,035   

Write-off of property and equipment

     51        34   

Non-cash stock-based compensation

     3,595        4,449   

Gain on bargain purchase

     —          (2,022

Excess tax benefit from employee gains on stock-based compensation

     (757     (1,939

Deferred income taxes

     2,995        4,334   

Changes in assets and liabilities:

    

Decrease (increase) in accounts receivable

     25,499        (142,125

(Increase) decrease in inventories

     (22,913     1,916   

Increase in other current assets

     (21,607     (5,100

(Increase) decrease in other assets

     (4,469     2,529   

Increase in accounts payable

     52,458        84,383   

Decrease in deferred revenue

     (8,387     (8,333

Decrease in accrued expenses and other liabilities

     (165     (4,293
  

 

 

   

 

 

 

Net cash provided by operating activities

     87,750        11,166   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Acquisition, net of cash acquired

     —          (3,831

Purchases of property and equipment

     (10,529     (15,943
  

 

 

   

 

 

 

Net cash used in investing activities

     (10,529     (19,774
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings on senior revolving credit facility

     541,035        520,603   

Repayments on senior revolving credit facility

     (571,035     (635,603

Borrowings on accounts receivable securitization financing facility

     434,000        355,000   

Repayments on accounts receivable securitization financing facility

     (431,000     (235,000

Payments on capital lease obligation

     (516     (507

Net borrowings under inventory financing facility

     362        6,465   

Payment of deferred financing fees

     —          (2,554

Proceeds from sales of common stock under employee stock plans

     —          889   

Excess tax benefit from employee gains on stock-based compensation

     757        1,939   

Payment of payroll taxes on stock-based compensation through shares withheld

     (2,729     (3,027

Repurchases of common stock

     (50,000     —     
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (79,126     8,205   
  

 

 

   

 

 

 

Foreign currency exchange effect on cash flows

     (8,049     1,080   
  

 

 

   

 

 

 

(Decrease) increase in cash and cash equivalents

     (9,954     677   

Cash and cash equivalents at beginning of period

     152,119        128,336   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 142,165      $ 129,013   
  

 

 

   

 

 

 

 

- MORE -

 

Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958


Insight Q2 2013 Results, Page 9     August 8, 2013

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Consolidated Earnings from Operations:

           

GAAP

   $ 44,598       $ 55,308       $ 59,015       $ 80,912   

Severance and restructuring expenses

     3,171         2,377         5,903         3,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP

   $ 47,769       $ 57,685       $ 64,918       $ 84,663   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Net Earnings:

           

GAAP

   $ 26,513       $ 35,250       $ 35,589       $ 52,642   

Severance and restructuring expenses, net of tax

     2,558         1,588         4,426         2,509   

Gain on bargain purchase, net of tax

     —           —           —           (1,699
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP

   $ 29,071       $ 36,838       $ 40,015       $ 53,452   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Diluted EPS:

           

GAAP

   $ 0.62       $ 0.79       $ 0.81       $ 1.18   

Severance and restructuring expenses, net of tax

     0.06         0.03         0.10         0.05   

Gain on bargain purchase, net of tax

     —           —           —           (0.04
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP

   $ 0.68       $ 0.82       $ 0.91       $ 1.19   
  

 

 

    

 

 

    

 

 

    

 

 

 

North America Earnings from Operations:

           

GAAP

   $ 33,402       $ 39,121       $ 45,676       $ 60,284   

Severance and restructuring expenses

     967         894         2,024         1,383   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP

   $ 34,369       $ 40,015       $ 47,700       $ 61,667   
  

 

 

    

 

 

    

 

 

    

 

 

 

EMEA Earnings from Operations:

           

GAAP

   $ 5,725       $ 10,834       $ 6,904       $ 14,971   

Severance and restructuring expenses

     2,204         1,483         3,879         2,368   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP

   $ 7,929       $ 12,317       $ 10,783       $ 17,339   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Insight Enterprises, Inc.   6820 South Harl Avenue   Tempe, Arizona 85283   800.467.4448   FAX 480-760-8958