UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number:
June 30, 1995 0-10211
INTER-TEL, INCORPORATED
Incorporated in the State of Arizona I.R.S. No. 86-0220994
7300 West Boston Street
Chandler, Arizona 85226
(602) 961-9000
Common Stock
(10,750,231 shares outstanding as of June 30, 1995)
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 periods that the registrant was
required file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE>
INDEX
INTER-TEL, INCORPORATED AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 3
1995 and December 31, 1994
Condensed consolidated statements of income--Three 4
and six months ended June 30, 1995 and June 30, 1994
Condensed consolidated statements of cash flows 5
--Three and six months ended June 30, 1995 and
June 30, 1994
Notes to condensed consolidated financial 6
statements--June 30, 1995
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION 12
SIGNATURES 13
EXHIBIT 11.1 14
<PAGE>
PART I. FINANCIAL INFORMATION
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(1)
(In thousands) June 30, Dec. 31,
ASSETS 1995 1994
-------- --------
CURRENT ASSETS
Cash $ 10,370 $ 15,530
Accounts receivable - net 20,099 16,895
Inventories 20,914 15,567
Net investment in sales-leases 3,191 1,613
Prepaid expenses and other assets 4,228 4,176
-------- --------
TOTAL CURRENT ASSETS 58,802 53,781
PROPERTY & EQUIPMENT 8,811 6,008
OTHER ASSETS 7,636 7,629
-------- --------
$ 75,249 $ 67,418
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,809 $ 5,534
Other current liabilities 11,103 11,002
-------- --------
TOTAL CURRENT LIABILITIES 19,912 16,536
OTHER LIABILITIES 6,655 5,784
SHAREHOLDERS' EQUITY
Common Stock 27,739 27,435
Retained earnings 21,160 18,049
Equity adjustment for foreign currency
translation (5) (122)
-------- --------
48,894 45,362
Less receivable from Employee Stock
Ownership Trust (212) (264)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 48,682 45,098
-------- --------
$ 75,249 $ 67,418
======== ========
(1) Financial data for all periods have been restated to reflect the
acquisitions of American Telcom Corp. of Georgia, Inc. and Access West,
Inc. in May 1995, each accounted for as a pooling of interests.
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (1)
(In thousands, except Three Months Six Months
per share amounts) Ended June 30, Ended June 30,
1995 1994 1995 1994
-------- -------- -------- --------
NET SALES $ 36,335 $ 30,379 $ 70,894 $ 58,465
Cost of Sales 21,224 18,114 41,830 35,508
-------- -------- -------- ---------
GROSS PROFIT 15,111 12,265 29,064 22,957
Research & Development 1,422 1,115 2,880 2,135
Selling general and
administrative 10,449 8,809 20,342 16,769
Special Charge 1,315 (2) - 1,315 (2) -
-------- -------- -------- ---------
13,186 9,924 24,537 18,904
-------- -------- -------- ---------
OPERATING INCOME 1,925 (2) 2,341 4,527 (2) 4,053
Interest and Other Income 254 148 565 285
Interest expense (44) (37) (77) (62)
-------- -------- -------- ---------
INCOME BEFORE INCOME TAXES 2,135 (2) 2,452 5,015 (2) 4,276
INCOME TAXES 811 935 1,906 1,626
-------- -------- -------- ---------
NET INCOME $ 1,324 (2) $ 1,517 $ 3,109 (2) $ 2,650
======== ======== ======== ========
NET INCOME PER SHARE $ 0.12 (2) $ 0.14 $ 0.28 (2) $ 0.24
======== ======== ======== ========
Average number of common
shares outstanding 11,191 10,851 11,129 10,848
======== ======== ======== ========
(1) Financial data for all periods have been restated to reflect the
acquisitions of American Telcom Corp. of Georgia, Inc. and Access West,
Inc. in May 1995, each accounted for as a pooling of interests.
(2) Operating Income includes a special charge of $1,315,000, which reduced net
income by $815,000 or $.07 per share. This special charge reflects the
costs associated with integrating the operations of the two acquired
companies. Without this special charge, the Company would have reported
operating income of approximately $3,240,000 and net income of
approximately $2,139,000, or $.19 per share, in the quarter ended June 30,
1995, and operating income of approximately $5,842,000 and net income of
approximately $3,924,000, or $.35 per share, in the six months ended June
30, 1995.
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(1)
(In thousands, except Three Months Six Months
per share amounts) Ended June 30, Ended June 30,
1995 1994 1995 1994
-------- -------- -------- --------
OPERATING ACTIVITIES
NET INCOME $ 1,324 $ 1,517 $ 3,109 $ 2,650
Adjustments to reflect operating
activities:
Depreciation and amortization 580 429 1,108 769
Changes in operating assets and
liabilities (4,984) (1,763) (7,686) (4,643)
Other 2,127 479 2,001 1,277
-------- -------- -------- --------
NET CASH PROVED BY (USED IN)
OPERATING ACTIVITIES (953) 662 (1,468) 53
INVESTING ACTIVITIES
Proceeds from disposal of property
and equipment (4) 0 1 5
Additions to property and
equipment (1,390) (594) (3,998) (1003)
-------- -------- -------- --------
NET CASH USED IN INVESTING
ACTIVITIES (1,394) (594) (3,997) (998)
FINANCING ACTIVITIES
Proceeds from exercise of stock
options 208 70 305 120
-------- -------- -------- --------
NET CASH USED IN FINANCING
ACTIVITIES 208 70 305 120
INCREASE (DECREASE) IN CASH (2,139) 138 (5,160) (825)
CASH AT BEGINNING OF PERIOD 12,509 13,736 15,530 14,699
-------- -------- -------- --------
CASH AT END OF PERIOD $ 10,370 $ 13,874 $ 10,370 $ 13,874
======== ======== ======== ========
(1) Financial data for all periods have been restated to reflect the
acquisitions of American Telcom Corp. of Georgia, Inc. and Access West,
Inc. in May 1995, each accounted for as a pooling of interests.
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the results for the interim periods presented have been included. Operating
results for the three and six months ended June 30, 1995 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1995. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1994.
NOTE B--INCOME PER SHARE
Primary income per share is based on the weighted average number of common
shares outstanding during each period and common stock equivalents.
NOTE C--RESTATEMENT FOR POOLING OF INTERESTS
The financial statements for all prior periods have been restated to include the
accounts of American Telcom Corp. of Georgia, Inc. ("American Telcom") and
Access West, Inc., ("Access West") which were acquired by the Company in
separate pooling of interests transactions in May 1995, in which 279,081 total
shares of Inter-Tel Common Stock were issued. Neither American Telcom nor Access
West constituted a significant subsidiary as defined under the regulations. In
the statements of income for the six months ended June 30, 1994 net sales
increased by $5,816,000 and net income decreased by $68,000 as a result of the
restatement. The restatement reduced earnings per share by $.02 per share for
the six months ended June 30, 1994. In the statements of income for the three
months ended March 31, 1995 net sales and net income increased by $3,905,000 and
$26,000, respectively, as a result of the restatement. The restatement did not
affect earnings per share for the period.
NOTE D--SPECIAL CHARGE
Net income in the three months and six months ended June 30, 1995 includes a
special charge reflecting the costs associated with integrating the operations
of the acquired companies. The special charge principally includes costs
associated with redundancy in inventories, equipment abandonment, the
combination and relocation of business operations, employee terminations, and
the write-off of intangible assets. Without this special charge, the Company
would have reported net income of $2.1 million, or $.19 per share for the second
quarter, an increase of 41% over net income of $1.5 million for the second
quarter of 1994, and $3.9 million, or $.35 per share, in the six months ended
June 30, 1995, an increase of 48.1% over net income of $2.7 million in the first
six months of 1994.
<PAGE>
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the second quarter of 1995 increased 19.6% to $36.3
million from $30.4 million in the second quarter of 1994. Net sales increased
21.3% to $70.9 million in the first six months of 1995 from $58.5 million in the
first six months of 1994. For these periods, the increases were primarily
attributable to increased shipments of AXXESS systems and software products
through the Company's dealer network and direct sales offices, and an increase
in sales of long distance services.
The following table sets forth certain statement of operations data of
the Company expressed as a percentage of net sales for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 58.4 59.6 59.0 60.7
----- ----- ----- -----
Gross profit 41.6 40.4 41.0 39.3
Research and development 3.9 3.7 4.0 3.7
Selling, general and
administrative 28.8 29.0 28.7 28.7
Special charge 3.6 -- 1.9 --
----- ----- ----- -----
Operating income 5.3 7.7 6.4 6.9
Interest and other income 0.7 0.5 0.8 0.5
Interest expense 0.1 0.1 0.1 0.1
Income taxes 2.2 3.1 2.7 2.8
----- ----- ----- -----
Net income 3.7 5.0 4.4 4.5
===== ===== ===== =====
Gross profit for the second quarter of 1995 increased 23.2% to $15.1
million from $12.3 million for the second quarter of 1994. Gross profit
increased to $29.1 million, or 41.0% of net sales, in the first six months of
1995 from $23.0 million, or 39.3% of net sales, in the first six months of 1994.
Gross margin increased during both periods primarily as a result of a higher
percentage of sales derived from AXXESS systems and software, which was offset
in part by a higher percentage of sales through dealers and increased sales of
the company's long distance services.
Research and development expenses for the second quarter of 1995
increased to $1.4 million from $1.1 million for the second quarter of 1994.
Research and development expenses increased to $2.9 million, or 4.0% of net
sales, in the first six months of 1995 from $2.1 million, or 3.7% of net sales,
in the first six months of 1994. This increase in both comparable periods was
primarily attributable to expenses relating to the introduction of new products,
including the AXXESS version 3.0, the Inter-Tel Axxent and AxxessoryTalk version
3.0. The Company expects that research and development expenses will continue to
increase in absolute dollars as the Company continues to develop and enhance
existing and new technologies and products. These expenses may vary, however, as
a percentage of net sales.
Selling, general and administrative expenses for the second quarter of
1995 increased 18.6% to $10.4 million from $8.8 million for the second quarter
of 1994. Selling, general and administrative expenses increased to $20.3
million, or 28.7% of net sales, in the first six months of 1995 from $16.8
million, or 28.7% of net sales, in the first six months of 1994. This increase
in absolute dollars in both periods was primarily attributable to the costs
associated with hiring and training sales personnel throughout Inter-Tel's 25
direct sales offices. Higher sales commissions were also paid based upon
increased levels of net sales. The Company expects that selling, general and
administrative expenses will increase in absolute dollars, but may vary as a
percentage of net sales.
Interest and other income in both periods consisted primarily of
interest income.
Net income for the second quarter was $1.3 million ($.12 per share)
compared to net income of $1.5 million ($.14 per share) for the second quarter
of 1994. Net income increased 17.3% to $3.1 million, or $.28 per share, in the
first six months of 1995 from $2.7 million, or $.24 per share, in the first six
months of 1994. Net income in both periods includes a special charge of
approximately $815,000, or $.07 per share, reflecting the costs associated with
integrating the operations of the two acquired companies. The special charge
principally includes costs associated with redundancy in inventories, equipment
abandonment, the combination and relocation of business operations, employee
terminations, and the write-off of intangible assets. Without this special
charge, the Company would have reported net income of $2.1 million, or $.19 per
share for the second quarter, an increase of 41% over net income of $1.5 million
for the second quarter of 1994, and $3.9 million, or $.35 per share, in the six
months ended June 30, 1995, an increase of 48.1% over net income of $2.7 million
in the first six months of 1994.
Inflation/Currency Fluctuation
Inflation and currency fluctuations have not previously had a material
impact on Inter-Tel's operations. International sales and procurement agreements
have traditionally been denominated in U.S. currency. Moreover, a significant
amount of contract manufacturing has been or is expected to be moved to domestic
sources. The expansion of international operations in the United Kingdom and
Europe and anticipated sales in Japan and Asia and elsewhere could result in
higher international sales as a percentage of total revenues, but international
revenues are currently not significant.
Liquidity and Capital Resources
The Company continues to expand its dealer network, which has required
and is expected to continue to require working capital for increased accounts
receivables and inventories. During the first six months of 1995, accounts
receivable and inventories increased approximately $9.1 million. This increase
was principally funded by operating cash flow and existing cash balances. The
Company also expended approximately $4.0 million during the first six months of
1995 for property and equipment. The Company intends to continue to make
significant capital expenditures through the end of 1995, principally relating
to the implementation of the Company's new MIS systems. At June 30, 1995, the
Company had $10.4 million in cash and equivalents, which represents a decrease
of approximately $5.0 million from December 31, 1994.
The Company has a loan agreement with Bank One, Arizona, N.A. This
agreement provides for a $5.0 million, unsecured, revolving line of credit,
which is being used primarily to support international letters of credit to
suppliers. Outstanding balances bear interest at the bank's prime rate. In the
fourth quarter of 1993, the Company repaid all long and short term debt from a
portion of the net proceeds received from its 1993 public offering. The
remaining proceeds were added to working capital.
The Company offers to its customers lease financing and other services,
including its Totalease program, through its Inter-Tel Leasing subsidiary. The
Company funds its Totalease program in part through the sale to financial
institutions of rental income streams under the leases. Resold Totalease rentals
totaling $27.0 million and $19.9 million remain unbilled at June 30, 1995 and
December 31, 1994, respectively. The Company is obligated to repurchase such
income streams in the event of defaults by lease customers and, accordingly,
maintains reserves based upon loss experience and past due accounts. Although
the Company to date has been able to resell the rental streams from leases under
the Totalease program profitably and on a substantially current basis, the
timing and profitability of lease resales could impact the Company's business
and operating results, particularly in an environment of fluctuating interest
rates. If the Company is required to repurchase rental streams and realize
losses thereon in amounts exceeding its reserves, its operating results will be
adversely affected.
The Company believes that its working capital and credit facilities,
together with the net proceeds from its recently announced pending public
offering and cash generated from operations, will be sufficient to fund
purchases of capital equipment, finance any cash acquisitions which the Company
may consider and provide adequate working capital for the foreseeable future.
However, to the extent that additional funds are required in the future to
address working capital needs and to provide funding for capital expenditures,
expansion of the business or additional acquisitions, the Company will seek
additional financing. There can be no assurance that additional financing will
be available when required or on acceptable terms.
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM l. LEGAL PROCEEDINGS--Not Applicable
ITEM 2. CHANGES IN SECURITIES--Not Applicable
ITEM 3. DEFAULTS ON SENIOR SECURITIES--Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On April 27, 1995, at the Company's annual meeting of shareholders, the
shareholders of the Company elected the following directors, each of
whom was a nominee of the Company:
Name Votes For Votes Withheld
---- --------- --------------
Steven G. Mihaylo 7,976,288 1,775
Gary D. Edens 7,976,288 1,775
Maurice H. Esperseth 7,976,288 1,775
C. Roland Haden 7,976,288 1,775
Norman Stout 7,976,288 1,775
Kathleen R. Wade 7,976,288 1,775
ITEM 5. OTHER INFORMATION
In May 1995, American Telcom Corp. of Georgia, Inc. and Access West,
Inc. were acquired by the Company in two separate pooling of interests
transactions. A total of 279,081 shares of Inter-Tel Common Stock was
exchanged for all the outstanding common stock of American Telcom
Corporation of Georgia, Inc. and Access West, Inc. Neither of these
corporations met the criteria of a significant subsidiary under the
regulations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
Exhibit 11.1 - Computation of Earnings Per Share
Exhibit 27.1 - Financial Data Schedule for June 30, 1995
Exhibit 27.2 - Financial Data Schedules (Restated) for March 31, 1995
and December 31, 1994
Reports on Form 8-K -- None
<PAGE>
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 thereunto duly authorized.
Date August 9, 1995 Steven G. Mihaylo
----------------- ----------------------------------
Steven G. Mihaylo,
Chairman of the Board
and Chief Executive Officer
Date August 9, 1995 Kurt R. Kneip
----------------- ----------------------------------
Kurt R. Kneip,
Vice President
and Chief Financial Officer
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Thousands, except Three Months Six Months
per share amounts) Ended June 30, Ended June 30,
1995 1994 1995 1994
-------- -------- -------- --------
PRIMARY
Average shares outstanding 10,729 10,613 10,700 10,601
Net effect of dilutive stock
options--based on the
treasury stock method
using average market
price 426 238 429 247
-------- -------- -------- --------
TOTAL 11,191 10,851 11,129 10,848
======== ======== ======== ========
Net Income $ 1,324 $ 1,517 $ 3,109 $ 2,650
======== ======== ======== ========
Per share amount $ 0.12 $ 0.14 $ 0.28 $ 0.24
======== ======== ======== ========
FULLY DILUTED
Average shares outstanding 10,729 10,613 10,700 10,601
Net effect of dilutive stock
options--based on the
treasury stock method using
the quarter-end market
price, if higher than the
average market price 512 238 512 247
-------- -------- -------- --------
TOTAL 11,241 10,851 11,212 10,848
======== ======== ======== ========
Net Income $ 1,324 $ 1,517 $ 3,109 $ 2,650
======== ======== ======== ========
Per share amount $ 0.12 $ 0.14 $ 0.28 $ 0.24
======== ======== ======== ========
Note: Financial data for all periods have been restate to reflect two
acquisitions in May 1995, each accounted for as a pooling of interests
in which 279,081 total shares were issued.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INTER-TEL, INCORPORATED AND SUBSIDIARIES FINANCIAL STATEMENTS FOR
THE SIX MONTHS ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 10370
<SECURITIES> 0
<RECEIVABLES> 21451
<ALLOWANCES> 1352
<INVENTORY> 20914
<CURRENT-ASSETS> 58802
<PP&E> 20817
<DEPRECIATION> 12006
<TOTAL-ASSETS> 75249
<CURRENT-LIABILITIES> 19912
<BONDS> 0
<COMMON> 27739
0
0
<OTHER-SE> (217)
<TOTAL-LIABILITY-AND-EQUITY> 75249
<SALES> 70894
<TOTAL-REVENUES> 70894
<CGS> 41830
<TOTAL-COSTS> 41830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 5015
<INCOME-TAX> 1906
<INCOME-CONTINUING> 3109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3109
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE INTER-TEL, INCORPORATED AND SUBSIDIARIES FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND YEAR ENDED DECEMBER 31,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH RESTATED
FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> MAR-31-1995 DEC-31-1994
<EXCHANGE-RATE> 1 1
<CASH> 12509 15530
<SECURITIES> 0 0
<RECEIVABLES> 17887 18101
<ALLOWANCES> 1321 1206
<INVENTORY> 15781 15567
<CURRENT-ASSETS> 54368 53781
<PP&E> 19604 17037
<DEPRECIATION> 11471 11029
<TOTAL-ASSETS> 69702 67418
<CURRENT-LIABILITIES> 17290 16536
<BONDS> 0 0
<COMMON> 27531 27435
0 0
0 0
<OTHER-SE> (312) (386)
<TOTAL-LIABILITY-AND-EQUITY> 46953 45098
<SALES> 34559 122617
<TOTAL-REVENUES> 34559 122617
<CGS> 20606 73482
<TOTAL-COSTS> 20606 73482
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 33 120
<INCOME-PRETAX> 2880 9597
<INCOME-TAX> 1095 3648
<INCOME-CONTINUING> 1785 5949
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1785 5949
<EPS-PRIMARY> .16 .55
<EPS-DILUTED> .16 .55
</TABLE>
