UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number:
December 31, 1995 0-10211
INTER-TEL, INCORPORATED
Incorporated in the State of Arizona I.R.S. No. 86-0220994
120 North 44th Street, Suite 200
Phoenix, Arizona 85034-1822
(602) 302-8900
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(12,780,724 shares outstanding as of March 22, 1996)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K - [ ].
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the last reported sales price in NASDAQ National
Market System on March 22, 1996, was approximately $167,000,000. Shares of
Common Stock held by each executive officer and director have been excluded in
that such persons may be deemed to be affiliates.
<PAGE>
Materials have been incorporated by reference into this Report from the
following documents: (1) materials from the registrant's Proxy Statement
relating to its 1995 Annual Meeting of Shareholders have been incorporated by
reference into Part III and Part IV and (2) documents from the registrant's Form
S-1 Registration Statements (Nos. 2-70437 and 33-70054), Form S-3 Registration
Statements (Nos. 33-58161, 33-61437 and 333-01735), Form S-8 Registration
Statements (Nos. 2-94805, 33-40353 and 33-73620), Annual Reports on Form 10-K
for the years December 31, 1984 and 1988, and current reports on Form 8-K dated
July 17, 1987, August 3, 1988 have been incorporated by reference into Part IV,
Item 14. Portions of the Annual Report to Shareholders for the year ended
December 31, 1995 are incorporated by reference into Part II.
<PAGE>
INTER-TEL, INCORPORATED
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1 Business 4
Item 2 Properties 19
Item 3 Legal Proceedings 19
Item 4 Submission of Matters to a Vote
of Security Holders 19
PART II
Item 5 Market for the Registrant's Common Stock
and Related Stockholder Matters 20
Item 6 Selected Financial Data 22
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 23
Item 8 Financial Statements and Supplementary
Data 29
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 43
PART III
Item 10 Directors and Executive Officers of the
Registrant 43
Item 11 Executive Compensation 43
Item 12 Security Ownership of Certain Beneficial
Owners and Management 43
Item 13 Certain Relationships and Related
Transactions 43
PART IV
Item 14 Exhibits, Financial Statement Schedule
and Reports on Form 8-K 44
<PAGE>
PART I
ITEM 1. BUSINESS
The Company
Inter-Tel is a single point of contact, full service provider of
digital communication platforms, computer telephone integration (CTI), unified
messaging software, long distance and network services, network and data
products and leasing services. Because of the modular design and high level of
software content in the Company's products, including its AXXESS and Inter-Tel
Axxent systems, customers can readily increase the size and functionality of
their systems as their future telecommunications needs change.
The Company has developed a broad distribution network of direct sales
offices, dealers and value added resellers (VARs) which sell the Company's
products to small-to-medium-size organizations and to divisions or departments
of larger organizations, including Fortune 500 companies, large service
organizations and governmental agencies. The Company has 25 direct sales offices
in the United States, one in the United Kingdom, one in Japan and a growing
network of hundreds of dealers and VARs who purchase directly from the Company.
The Company is also in the process of expanding its international dealer
network.
The Company's strategy is to offer to its customers, through a broad
distribution network, the Total Solution for their communications needs--a
single source for their full range of telephony requirements, and to provide to
its market segment, on a cost-effective basis, advanced technologies that have
achieved acceptance in the market for larger systems.
Industry Background
Recent changes in telecommunication laws should help to define the
focus of information services in the future. The Telecommunication Act of 1996
and AT&T's announcement that it will divide itself into three enterprises will
have an impact on the communication industry. The Telecommunication Act of 1996
opens the market for telephone and cable television services, forcing telephone
companies to open their networks to competitors and giving consumers a choice of
local phone carriers. Conversely, local phone companies are now able to offer
long distance services. In addition, cable companies can offer telephone
services and Internet access.
These events injected an element of confusion into the market. This
should provide an opportunity for Inter-Tel to offer additional products and
services to its customers and to supply solutions to a fragmented marketplace.
Because of the complex communication offerings available today, customers should
benefit from a single source solution. Inter-Tel's philosophy is to provide this
total communication solution through its offering of advanced products and
services, and to provide the technologies that companies seek to eliminate the
confusion and expense of dealing with multiple vendors.
Products and Services
The company's broad spectrum of products and services span six market
segments, including:
Digital Communication Platforms
Computer Telephone Integration
Voice Processing and Unified Messaging Software
Network Services and Long Distance
Network and Data Products
Flexible Financing
Digital Communication Platforms
Inter-Tel offers an extensive line of digital communication platforms
and software to meet the requirements of small-to-medium-sized companies. The
Inter-Tel Axxent and AXXESS incorporate the power and flexibility of Computer
Telephone Integration (CTI) technology. Using this technology, companies can
tailor applications to enhance their operations.
Because Inter-Tel's digital communication platforms conform to
established computer telephony industry standards such as MAPI, TAPI and TSAPI
and interface standards such as MVIP and SCSA, customers can choose from a
variety of either system level or desktop applications. In addition, advanced
digital services, including T-1 and Integrated Services Digital Network
("ISDN"), are used with Inter-Tel's platforms, providing some of the best
combinations of services available.
AXXESS
The Company commenced commercial shipments of the AXXESS system in the
fourth quarter of 1993. In 1994, the Company released AXXESS version 2.0, a
system that supports a total of 12 to 120 telephones and trunk lines. AXXESS
version 3.0, released in the third quarter 1995, expanded the system to 256
ports and enhanced the AXXESSORY Talk voice processing system by adding fax
applications. AXXESS version 4.0, scheduled for release second quarter 1996,
will expand the system to 512 ports and add such advanced capabilities as
primary rate ISDN support, integrated call recording and voice prompts in
multiple languages. The suggested retail price for the AXXESS system ranges from
approximately $10,000 to $400,000.
The system incorporates fully-digital processing and transmission to
the desktop and open architecture interfaces which allow the system to be
integrated with and controlled by attached computers such as PCs and
workstations. The system incorporates over one million lines of proprietary,
object-oriented C++ software developed by the Company, which facilitates
upgrades and incorporation of additional features and functionality.
AXXESS system telephones incorporate user-friendly, 6 by 16 character
LCD displays with menu keys that permit the user to select from multiple menu
choices or access additional menu screens. AXXESSORY Talk, the integrated voice
processing application, permits push-button selection of voice processing
commands to appear on the LCD display, as well as voice-prompted selections
through the telephone keypad. Version 4.0 of the system is multi-lingual,
offering English or Japanese voice prompts and LCD displays and allowing the
user to switch from one language to the other. Additional languages can be added
in the future.
The open architecture interface permits tight integration with a PC or
workstation system bus, using several industry-standard interfaces to provide
efficient access to voice processing and other applications on the PC or
workstation. Applications include database look-up (which utilizes Caller-ID
information to retrieve customer information automatically from a computerized
database), automated attendant, interactive voice response, automatic call
distribution (which queues and prioritizes incoming calls), and call accounting
(which permits the monitoring of telephone usage and toll cost). The AXXESS
system is managed through a Microsoft Windows-based interface on a PC to
facilitate installation, system configuration and programming.
The AXXESS system utilizes advanced software to configure and utilize
real-time digital signal processing ("DSP") semiconductor components
incorporated into the system hardware. The use of DSPs and related software
lowers system costs, permits higher functionality and increases system
flexibility. For example, DSPs can be configured by the system manager for
different combinations of speakerphones, conference capabilities and other
DSP-based facilities. The system's speakerphones incorporate full-duplex
technology, which permits speakerphones to transmit in both directions at the
same time without the necessity to override one speaker's voice to prevent
feedback interference.
The AXXESS software is written in a high-level, object-oriented
language which can operate on many commonly used processors. Accordingly, the
software can be readily ported to other hardware platforms. The Company intends
to port the AXXESS software to faster microprocessors which will permit the
AXXESS to grow to a much larger size, in order to enhance the functionality and
performance of these larger systems and to permit a migration path from the
smaller AXXESS system as a customer's system requirements increase.
Inter-Tel Axxent
The Company introduced its newest product line, the Inter-Tel Axxent,
in the third quarter of 1995. The system supports 16 lines and 8 trunks.
Software version 2.0, scheduled to be released third quarter 1996, will increase
the system capacity to 24 lines and 12 trunks. Small businesses are demanding
advanced telephony applications formerly reserved only for large corporations.
The Inter-Tel Axxent is designed to bring many of the advanced features and
functionality of the AXXESS system to smaller installations on a cost-effective
basis while enabling users to migrate to an AXXESS system as their
telecommunications needs evolve. The Inter-Tel Axxent provides leading edge
capabilities such as computer telephone integration, DSP technology, real-time
ACD reporting, and integrated voice processing. Housed in a compact PC type
mid-tower, the Inter-Tel Axxent platform also offers the convenience of a
default database so the system is fully operational as soon as it is plugged in.
Basic database programming can also be performed through the digital telephone
terminals. The system is sold through direct sales offices and direct dealers to
professional businesses such as doctors, lawyers, and architects. The suggested
retail price ranges from approximately $3,000 to $20,000.
In addition to its line of digital communication platforms, the Company
continues to have success in its direct sales offices and dealer distribution
channels with its traditional IMX and G-Series family of products. These
products economically bring advanced communication services to the company's
customers, however, without the advantages of the open architecture capabilities
of the AXXESS and Inter-Tel Axxent. These products include:
GLX and GLX+
GMX-48
IMX 1224/2448/2460
IMX/GMX 256
IMX/GMX 416/832
Inter-Tel also distributes other leading telecommunications products
from its Factored Products Division through its direct sales offices, dealers
and VARs. Factored Products represents products that Inter-Tel has endorsed as
the leading communications peripherals utilized in many day-to-day functions.
Businesses require telecommunications products to provide increased
productivity, ease of operations and reliability. Many of these products
interface with Inter-Tel telephone systems. Inter-Tel's product selection
consists of videoconferencing, battery backup, headsets, surge protection,
paging equipment, wireless communications and data multiplexers.
Computer Telephone Integration (CTI)
CTI technology links two of the most important business tools -- the
computer and the telephone -- into one seamless environment for the
communication needs of a company. CTI technology allows users to perform
multiple tasks, from data handling to answering telephone calls, on the desktop
PC. Inter-Tel is bringing CTI technology to many diverse companies through
desktop and system level applications. Its advanced communication platforms
enable users to process calls using their PC and Windows interface.
AXXESSORY Connect software provides a Windows interface for the AXXESS
platform, allowing users to answer phone calls from their desktop PCs. Using the
desktop interface, AXXESSORY Connect provides industry standard protocols to
integrate with other Windows applications such as personal information managers.
Incoming calls will trigger a "screen pop" containing customer records or other
pertinent information to a user, reducing wait times and enhancing customer
service. Inter-Tel is working with a number of third party software developers
to create a seamless working environment for database, personal organizer and
terminal emulation programs with AXXESSORY Connect.
In addition, system level applications can help companies manage calls
at peak efficiency. Automatic Call Distribution, for example, routes incoming
calls, based on various criteria, to call center agents. It also collects,
analyzes and reports real-time call-processing information.
The market for CTI is rapidly expanding. As CTI technology becomes more
widespread, Inter-Tel will continue to work to create products and services that
are intended to help companies increase their productivity.
Voice Processing and Unified Messaging Software
The manner in which companies process their information can be as
important as the information itself. Inter-Tel has developed its own voice
processing software that integrates tightly with communication platforms.
Inter-Tel offers the following voice processing platforms to work with
its communication platforms: AXXESSORY Talk, Axxent Talk, and the IVX500. All
three platforms include the open, industry-standard Multi-Vendor Interface
Protocol ("MVIP"), a standard for connecting multi-vendor PC-based boards in
voice processing, data switching and video applications. AXXESSORY Talk also
offers a fax back feature, which allows customers to have documents faxed to
them, freeing employees from spending valuable time at the fax machine.
As the need to merge different types of messages continues to evolve,
Inter-Tel is developing unified messaging software. Unified messaging software
integrates e-mail, fax and voice mail through one universal in-box at both the
PC and the phone. Using a Graphical User Interface (GUI) such as Windows, users
are able to see and control all of the different types of messages they have
received.
Inter-Tel is developing unified messaging software to work in
conjunction with the Microsoft Exchange messaging client, which is included with
Windows 95. Inter-Tel's software will conform to the Messaging Application
Programming Interface (MAPI) standard developed by Microsoft and will work with
the AXXESSORY Talk digital voice processing platform.
The first release, scheduled for 1996, will provide users with access
to voice mail from their PCs and will be used in conjunction with Microsoft
Exchange and a GUI media player to play back messages. The system will have the
ability to pull voice messages over to the PC as an object, allowing the user to
embed voice messages into e-mail or fax messages.
Unified messaging should provide the flexibility to retrieve messages
anywhere from a phone or a PC connected to a modem.
Network Services and Long Distance
Effective communication begins with effective network services. These
services include domestic and international long distance, dedicated services
such as T-1 and ISDN, and videoconferencing, which can enhance the way a company
sends and receives information. Inter-Tel provides these services and more
through its NetSolutions division.
Using digital fiber optic technology and high capacity T-1, 56K and
ISDN facilities, NetSolutions provides advanced telecommunication solutions.
Also, as part of its long distance service, Inter-Tel NetSolutions offers a
feature-rich calling card that can be used worldwide. Offering both cost
efficiency and reliability, the NetSolutions calling card provides the
convenience and features of its long distance services. One telephone call
accesses the network, and individual account codes help track calls for easy
account management.
In addition, Inter-Tel NetSolutions offers call accounting services
which feature detailed invoices and customized reports that can help customers
identify individual costs, potential needs and specific calling patterns. Each
month, customers can receive three reports--area code summary, traffic summary,
and frequently called numbers--in addition to their billing statement.
Specialized management reports are also available that address many diverse
business needs.
As company travel budgets continue to shrink, videoconferencing is also
becoming more accepted in today's business environment. Videoconferencing
services can help companies save time and money by reducing business travel and
allowing for fast, efficient decision-making. Along with group and desktop
platforms offered by Inter-Tel's Factored Products division, NetSolutions
provides videoconferencing network services including ISDN, Switched 56, and T-1
to businesses of any size.
Network And Data Products
Inter-Tel's networking solutions connect computers within a building or
across the country. Local Area Networks (LANs) and Wide Area Networks (WANs) are
the means by which data and communication are relayed throughout organizations.
Inter-Tel designs, installs and services total communication and data
packages, including LANs and WANs, that help companies effectively relay
information. Inter-Tel has the resources and technology to get different types
of equipment "talking" to each other. As the importance and quantity of data
traffic has steadily increased, the successful transmission of data traffic has
become the primary reason for companies to create strong, efficient LANs and/or
WANs.
Flexible Financing
Inter-Tel combines all of its products and services with a full range
of affordable financing programs. With Inter-Tel, customers can acquire their
telephony and computer platforms, software applications and services, as well as
financing, all from a single source.
Inter-Tel's Totalease program provides the customer with a total system
solution at a fixed monthly cost. The Totalease includes full system maintenance
and training, fixed equipment add-on and upgrade provisions, risk of loss,
guaranteed renewal options and other services. With Totalease, Inter-Tel manages
the responsibilities and risks associated with ownership of communications
equipment. Customers can then focus their time on their business.
Inter-Tel also offers a full line of lease purchase financing. Lease
terms range from 24 to 84 months with $1.00, fixed and fair market value
purchase options. In addition, Inter-Tel offers customized financing packages
and new business leases for customers with special financial needs. By offering
this type of financing to acquire Inter-Tel products and services, the customer
can maintain a direct, long term relationship with Inter-Tel.
Leasing is a viable option for businesses that want technology without
paying up front acquisition costs. Inter-Tel's leasing programs provide a total
solution at a set monthly cost, making advanced technology affordable.
Sales and Distribution
The Company has developed a broad distribution network of direct sales
offices, dealers and value added resellers (VARs) which market the Company's
products to small to medium size organizations and divisions or departments of
larger organizations. In the United States, the Company has 25 direct sales
offices and a growing network of hundreds of dealers who purchase systems
directly from the Company. Direct dealers are typically located in geographic
areas in which the Company does not maintain direct sales offices. The Company
is additionally pursuing distribution of its products through value added
resellers (VARs). These resellers have traditionally sold complex data solutions
to customers, and the Company is seeking to leverage this distribution to
capitalize on the merging of the computer and telephony industries. The Company
maintains a dealer support office and direct sales office in the United Kingdom
and has a network of approximately 20 dealers in the United Kingdom and Europe.
In addition, in 1993 the Company opened a dealer support office and direct sales
office in Japan and is in the process of establishing dealers in Asia.
The Company believes that its success depends in part upon the strength
of its distribution channels and the ability of the Company to maintain close
access to its end user customers. In recent periods, the Company has sought to
improve its access to end user customers by effecting strategic acquisitions of
resellers of telephony products and services in markets in which the Company has
existing direct sales offices and in other strategic markets. To this end, in
1995 the Company acquired American Telcom Corp. of Georgia, Inc. and Access
West, Inc.. The Company has expanded its direct sales office personnel from a
total of 367 persons at December 31, 1991 to a total of 473 at December 31,
1995.
The Company's sales through its direct sales offices as a percentage of
total sales have increased slightly from 58.7% of net sales in 1992 to 59.1% of
net sales in 1995. Sales to distributors, dealers, and VARs have decreased from
34.0% of net sales in 1992 to 31.5% of net sales in 1995. Sales through the
Company's long distance and network services operation have increased from 3.9%
of net sales in 1992 to 4.4% of net sales in 1995.
Sales of systems through the Company's direct dealers typically
generate lower gross margins than sales through the Company's direct sales
organization, although direct sales typically require higher levels of sales,
marketing, general and administrative expenses. Accordingly, the Company's
margins may vary from period to period depending upon the mix of dealer and
direct sales. Direct dealers and VARs typically enter into non-exclusive
reseller contracts for a term of one or more years. The Company generally
provides support and other services to the reseller pursuant to the terms of the
agreement. The agreements often include requirements that the reseller meet or
use its best efforts to meet minimum annual purchase quotas. The Company's
experience is that dealers and VARs maintain low inventories of the Company's
products and, accordingly, the Company has experienced insignificant stock
rotation returns and price protection credits to date.
International sales, which to date have been made through the Company's
United Kingdom and Japan subsidiaries, accounted for approximately 1.7%, of net
sales in 1995. In order to sell its products to customers in other countries,
the Company must comply with local telecommunications standards. The Company's
new AXXESS system can be readily altered through software modifications, which
the Company believes will facilitate compliance with these local regulations.
However, the Company has experienced delays in the United Kingdom in achieving
final regulatory approval of its products. In addition, the AXXESS system has
been designed to support multi-lingual functionality, and currently supports
English and Japanese. The Company is presently establishing dealer networks in
Japan and Asia and is expanding its dealer network in the United Kingdom and
Europe.
Research and Development
The Company's research and development efforts over the last several
years have been focused primarily on developing new products like the Inter-Tel
Axxent system, enhancing the CTI capabilities of the AXXESS product, as well as
expanding the capacity of the Company's AXXESS and AxxessoryTalk systems.
Current efforts are related to support of industry standard CTI interfaces,
development of additional applications and features, and the development of a
LAN-based Communications Server incorporating the Company's Call Processing and
Voice Processing software. New applications under development include Primary
and Basic Rate ISDN, telecommunications networking, and unified messaging
software. The software-based architecture of the AXXESS system facilitates
maintenance and support, upgrades, and incorporation of additional features and
functionality.
The Company had a total of 73 personnel engaged in research and
development as of December 31, 1995. Research and development expenses were
$5,763,517; $4,536,882 and $4,114,385 for 1995, 1994 and 1993, respectively.
Manufacturing
The Company manufactures substantially all of its systems through third
party subcontractors located in the United States, China, and the Philippines.
These subcontractors use both standard and proprietary integrated circuits and
other electronic devices and components to produce telephone switches,
telephones and printed circuit boards to the Company's engineering
specifications and designs. The suppliers also inspect and test the equipment
before delivering them to the Company, which performs systems integration,
software loading, final testing and shipment. The Company maintains written
agreements with its principal suppliers. The Company provides a forecast
schedule to its suppliers and revises the forecast on a periodic basis.
Foreign manufacturing facilities are subject to changes in governmental
policies, imposition of tariffs and import restrictions, and other factors
beyond the Company's control. Certain of the microprocessors, integrated
circuits and voice processing interface cards used in the Company's systems are
currently available from a single or limited sources of supply. From time to
time, the Company experiences delays in the supply of components and finished
goods. Delay or lack of supply from existing sources or the inability to develop
alternative sources if and when required in the future could materially and
adversely affect operating results.
Customer Service and Support
The Company believes that customer service and support is a critical
component of customer satisfaction and the success of the Company's business.
The Company operates a Technical Support "hotline" to provide a full range of
telephone support to its distributors, dealers and end user customers, free of
charge through a toll-free number. The Company also provides on-site customer
support and, through remote diagnostic procedures, has the ability to detect and
correct system problems from its Technical Support facilities.
Information taken from customer call records allows feedback into
Inter-Tel's Quality First continuous improvement process, thus providing a road
map for continuous product and service enhancements. Each direct sales office is
given a periodic service activity report summarizing the reasons that
technicians are asking for assistance and common issues that give rise to
technical inquiries. This allows them to analyze trends in their service
operations and provide better customer service.
Quality
The Company believes that the quality of its systems, customer service
and support, and other aspects of its organization is a critical element of
meeting the needs of its customers. Through its Quality First continuous
improvement process initiated in 1991, Inter-Tel implements quality processes
throughout its business operations. The Company has established formal
procedures to ensure responsiveness to customer requests, to monitor response
times and to measure customer satisfaction. The Company has also established
means by which all end users, including customers of the Company's resellers,
can make product enhancement requests directly to the Company. The Company
supports its dealers and VARs through an extensive training program at the
Company's facility and at dealer sites, a toll-free telephone number for sales
and technical support, and the provision of end user marketing materials. The
Company typically provides a one year warranty on its systems to end users. In
manufacturing, the Company continuously monitors the quality of the products
produced on its behalf by the Company's manufacturing subcontractors, and is
extending the Company's Quality First continuous improvement process to its
suppliers.
Competition
The market for the Company's products is highly competitive and in
recent periods has been characterized by pricing pressures and business
consolidations. The Company's competitors include AT&T and Northern Telecom, as
well as Comdial, Executone, Iwatsu, Mitel, NEC, Nitsuko, Panasonic, ROLM,
Toshiba and others. Many of these competitors have significantly greater
financial, marketing and technical resources than the Company. The Company also
competes against the regional Bell operating companies (RBOCs), which offer
systems produced by one or more of the aforementioned competitors and also offer
Centrex systems in which automatic calling facilities are provided through
equipment located in the telephone company's central office.
The Telecommunication Act of 1996 and AT&T's announcement that it will
divide itself into three enterprises will have an impact on competition in the
communication industry. The Telecommunication Act of 1996 opens the market for
telephone and cable television services, forcing telephone companies to open
their networks to competitors and giving consumers a choice of local phone
carriers. Conversely, local phone companies are now able to offer long distance
services. In addition, cable companies can offer telephone services and Internet
access. These changes will increase competition in the communication industry
and will create additional competition and opportunities in customer premise
equipment as these new services and interfaces become available.
In the market for voice processing applications, including voice mail,
the Company competes against Centigram Communications Corporation, Octel
Corporation, AVT and other competitors, certain of which have significantly
greater resources than the Company. In the market for long distance services,
the Company competes against AT&T, MCI, US Sprint and other competitors, many of
which have significantly greater resources than the Company. With the recent
Telecommunications Act, the Company will also compete with RBOCs and cable
companies for long distance business. Key competitive factors in the sale of
telephone systems and related applications include performance, features,
reliability, service and support, name recognition, distribution capability and
price. The Company believes that it competes favorably in its markets with
respect to the performance, features and price of its systems, as well as the
level of service and support that the Company provides to its customers. Certain
of the Company's competitors have significantly greater name recognition and
distribution capabilities than the Company, although the Company believes that
it has developed a competitive distribution presence in certain markets,
particularly those where the Company has direct sales offices. The Company
expects that competition will continue to be intense in the markets addressed by
the Company, and there can be no assurance that the Company will be able to
continue to compete successfully.
Intellectual Property Rights
In addition to the factors discussed above, the Company's ability to
compete successfully depends on its ability to protect the proprietary
technology contained in its products. The Company relies principally upon a
combination of copyright and trade secret laws and contractual provisions to
establish and protect its proprietary rights in its systems. The Company
generally enters into confidentiality agreements with its employees and
suppliers, and limits access to its proprietary information. There can be no
assurance that these protections will be adequate to deter misappropriation of
the Company's technologies or independent third party development of similar
technologies or product features.
From time to time, the Company is subject to assertions that the
Company's products infringe the intellectual property rights of third parties.
Such claims could require the Company to expend significant sums in litigation,
could require the Company to pay damages, and could require the Company to
develop non-infringing technology or to acquire licenses to the technology which
is the subject of the claimed infringement.
Employees
As of December 31, 1995, the Company had a total of 928 employees, of
whom 739 were engaged in sales, marketing and customer support, 72 in quality,
manufacturing and related operations, 73 in research and development, and 44 in
finance and administration. The Company's future success will depend upon its
ability to attract, retain and motivate highly qualified employees, who are in
great demand. The Company believes that its employee relations are excellent.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
- ---- --- --------
Steven G. Mihaylo 52 Chairman of the Board of
Directors and Chief
Executive Officer
Thomas C. Parise 41 President and Chief
Operating Officer
Craig W. Rauchle 40 Executive Vice President
W. Kris Brown 42 Vice President
Michael J. Sargent 46 Vice President
Hiroshige Sugihara 36 Vice President
Ross McAlpine 44 President of Inter-Tel
Leasing, Inc.
Kurt R. Kneip 33 Vice President, Chief
Financial Officer, and
Secretary/Treasurer
Gary Edens 54 Director
Maurice H. Esperseth 70 Director
C. Roland Haden 55 Director
Norman Stout 38 Director
Kathleen R. Wade 42 Director
MR. MIHAYLO, the founder of the Company, has served as Chairman of the
Board of Directors of the Company since September 1983, as President from March
1984 until December 1994, and as Chief Executive Officer of the Company since
its formation in July 1969. Mr. Mihaylo also served as President of the Company
from July 1969 until September 1983 and as Chairman of the Board of Directors
from July 1969 to October 1982. Mr. Mihaylo also is a director of MicroAge, Inc.
and Microtest, Inc.
MR. PARISE was elected President of the Company in December 1994. He
has been Senior Vice President of the Company since 1986. He is also President
of Inter-Tel Integrated Services, Inc., a wholly owned research and development,
manufacturing and distribution subsidiary of the Company. Mr. Parise joined the
Company in 1981 and became Branch General Manager of the Phoenix Direct Sales
Office in 1982. In 1983, he became the Mountain Regional Vice President, and in
January 1985 he was appointed Vice President of Operations and Sales Support.
Mr. Parise also is a director of Globe Business Resources, Inc.
MR. RAUCHLE was elected Executive Vice President in December 1994. He
had been Senior Vice President of the Company and continues as President of
Inter-Tel DataCom, Inc., a wholly owned sales subsidiary of the Company. In
addition, he currently serves the Company and all subsidiaries in corporate
strategic planning and mergers and acquisitions activities. Mr. Rauchle joined
the Company in 1979 as Branch General Manager of the Denver Direct Sales Office
and in 1983 was appointed the Central Region Vice President and subsequently the
Western Regional Vice President. From 1990 to 1992, Mr. Rauchle served as
President of Inter-Tel Communications, Inc.
MR. BROWN became a Vice President of the Company in December 1994 when
he was promoted to President of Inter-Tel Communications, which is one of the
Company's Regional Direct Sales Subsidiaries. In 1987, he was promoted to
Regional Vice President of the Southeast Region. Mr. Brown joined the Company in
1985 as the General Manager of the Tampa office, the first direct office in
Florida, and has expanded the Florida direct offices to include Tallahassee, Ft.
Lauderdale and, most recently, North Miami. Mr. Brown obtained a B.A. in
Marketing in 1980 from the University of South Florida at Tampa.
MR. SARGENT was promoted to Vice President, Marketing and Strategic
Programs in January 1995. In this position, he is responsible for business
development and strategic analysis of current practices with the goal of
attaining substantial corporate growth. Mr. Sargent joined Inter-Tel in 1984 as
a software design engineer and progressed through sales engineering and sales
management, serving as the Director of Sales and Marketing for the past four
years. Mr. Sargent holds a Bachelor of Science Degree in Computer Systems
Engineering.
MR. SUGIHARA has been Vice President of the Company and President of
Inter-Tel Japan, Inc. since June 1993. Born in Osaka, Japan, Mr. Sugihara was
employed by Forval Corporation, a publicly traded Japanese company, from 1984 to
1992 and in 1989 established Forval America, Inc., where he served as Vice
President/Secretary/Treasurer and member of the Board of Directors.
MR. MCALPINE has served as President of Inter-Tel Leasing, Inc., a
wholly-owned subsidiary of the Company, since April 1993. He also served as Vice
President of Inter-Tel Communications, Inc. from April 1991 to April 1992 and
Treasurer since April 1992. He joined the Company in July 1991 when Inter-Tel
acquired Telecommunications Specialists, Inc. Prior to joining Inter-Tel, Mr.
McAlpine worked 17 years in the leasing and financial services industry. Mr.
McAlpine holds an undergraduate degree in Accounting from Southwest Texas State
University.
MR. KNEIP has served as Vice President and Chief Financial Officer of
the Company since September 1993. He was elected Secretary and Treasurer in
October 1994. He joined the Company in May 1992 as Director of Corporate Tax,
after seven years with the accounting firm of Ernst & Young. Mr. Kneip is a
Certified Public Accountant, and holds an undergraduate degree in Commercial
Economics from South Dakota State University and a Masters Degree in
Professional Accountancy from the University of South Dakota.
MR. EDENS was elected as a director of the Company in October 1994. He
has been a broadcasting media executive from 1970 to 1994, serving as Chairman
and Chief Executive Officer of Edens Broadcasting, Inc. from 1984 to 1994 when
that corporation's nine radio stations were sold. He presently is President of
The Hanover Companies, Inc., an investment firm. He is an active leader in
various business, civic and philanthropic organizations.
MR. ESPERSETH has been a director of the Company since October 1986.
Mr. Esperseth joined the Company in January 1983 as Senior Vice
President-Research and Development, after a 32-year career with GTE, and served
as Executive Vice President of Inter-Tel from 1986 to 1988. Mr. Esperseth
retired as an officer of the Company on December 31, 1989.
DR. HADEN has been a director of the Company since 1983. Dr. Haden has
been Vice Chancellor and Dean of Engineering of Texas A&M University since 1993.
Previously, he served as Vice Chancellor of Louisiana State University from 1991
to 1993, Dean of the College of Engineering and Applied Sciences at Arizona
State University from 1989 to 1991, Vice President for Academic Affairs at
Arizona State University from 1987 to 1988, and Dean of the College of
Engineering and Applied Sciences from 1978 to 1987. Dr. Haden holds a doctoral
degree in Electrical Engineering from the University of Texas and has served on
the faculties of the University of Oklahoma and Texas A & M University.
MR. STOUT was elected a director of the Company in October 1994. Mr.
Stout has been President of Superlite Block, a manufacturer of concrete block
since February 1993. Prior thereto he was employed by Bouhem-Fields, Inc. of
Dallas, Texas, a manufacturer of crushed stone, as Chief Executive Officer from
1990 to 1993 and as Chief Financial Officer from 1986 to 1990. Previously, Mr.
Stout was a Certified Public Accountant with Coopers & Lybrand.
MS. WADE was elected a director of the Company in April 1994. Ms. Wade
is a former director and Co-Chief Executive Officer of Continental Homes Holding
Corporation, having been employed by this multi-market production homebuilder
and mortgage company and its predecessor from 1978 to 1995. In September 1995
Ms. Wade resigned from Continental Homes and is currently acting as a consultant
to Continental Homes. Prior thereto, Ms. Wade, a Certified Public Accountant,
was employed by Ernst & Ernst, an international accounting firm.
The Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Directors Wade, Stout and
Esperseth, is charged with reviewing the Company's annual audit and meets with
the Company's independent auditors to review the Company's internal controls and
financial management practices. The Compensation Committee, consisting of
Messrs. Esperseth, Edens and Haden, recommends to the Board of Directors
compensation for the Company's key employees and administers the Company's stock
option plans.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters at 120 North 44th
Street, Suite 200, Phoenix, Arizona pursuant to a lease that expires in 2000. It
also maintains its distribution and support operations in an 85,000 square foot
building located in Chandler, Arizona pursuant to a lease that expires in 2008.
In addition, the Company leases sales and support offices in a total of 25
locations in the United States and two locations overseas. The Company's
aggregate monthly payments under these leases are currently $192,000. The
Company believes that its existing facilities are adequate to meet its current
needs and that additional or alternative space will be available as necessary in
the future on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company has no legal proceedings in process or pending for which it
believes an unfavorable outcome would have a material adverse impact on the
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters are submitted to a vote of security holders in
addition to the proposal to elect the directors of Inter-Tel, Incorporated to
serve for the ensuing year. Please refer to the 1995 Proxy Statement for
detailed information regarding each of these proposals:
FIRST AMENDMENT TO
THE 1990 DIRECTORS STOCK OPTION PLAN
(Proposal No. 2)
Amend Section 4(b)(iii) of the Plan to read in full as follows:
"Each Eligible Director shall automatically receive, five (5) days after the
date of his or her election or reelection in 1996 only, an Option to purchase
2,500 additional shares of the Company's Common Stock. Beginning in 1996, and
continuing annually thereafter, each Eligible Director shall automatically
receive, five (5) days after the meeting of the Board of Directors for the
Company's third quarter of each year, an Option to purchase 2,500 additional
shares of the Company's Common Stock."
Approval of the Adoption of
an Amendment to Article IX, Paragraph 1 of
the Company's Restated Articles of Incorporation
(Proposal No. 3)
1. Paragraph 1 of Article IX of the Restated Articles of Incorporation is
amended in its entirety to reads as follows:
"The corporation shall indemnify any and all of its existing and former
directors and officers to the fullest extent permitted by Arizona law; provided,
however, that the corporation shall have the right to refuse indemnification in
any instance in which the person to whom indemnification would otherwise have
been applicable shall have unreasonably refused to permit the corporation, at
its own expense and through counsel of its own choosing, to defend him or her in
the action."
Approval of the Adoption of
an Amendment to Article IX, Paragraph 2 of
the Company's Restated Articles of Incorporation
(Proposal No. 4)
2. Paragraph 2 of Article IX is amended in its entirety to read as
follows:
"Director Liability: The liability of a director or former director to
the corporation or its shareholders shall be eliminated to the fullest extent
permitted by Section 10-202.B.1 of the Arizona Revised Statutes. If the Arizona
Business Corporation Act is amended to authorize corporate action further
eliminating or limiting the liability of directors, the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the Arizona Business Corporation Act, as amended. Any repeal or
modification of this Article IX, Paragraph 2 shall not adversely affect any
right or protection of a director of the corporation existing hereunder with
respect to any act or omission occurring prior to or at the time of such
repeal."
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Inter-Tel Common Stock is traded over-the-counter (symbol INTL) and
since February 1983 has been included in the NASDAQ National Market System. As
of February 1, 1996 there were of record approximately 1,000 shareholders of the
Company's common stock. The Company believes there are approximately 2,000
additional beneficial holders of the Company's Common Stock. The following table
sets forth high and low closing prices reported by NASDAQ.
Inter-Tel has never paid a cash dividend on its common stock and
presently does not intend to do so. Future dividend policy will depend on
Company earnings, capital requirements for growth, financial conditions and
other factors.
1995 High Low
First Quarter 13 6 7/8
Second Quarter 16 1/8 11 9/16
Third Quarter 19 3/4 14 7/8
Fourth Quarter 17 3/8 13 7/8
1994 High Low
First Quarter 12 1/8 8 5/8
Second Quarter 11 8 1/2
Third Quarter 10 1/8 7
Fourth Quarter 9 3/4 6
Statements contained in this Form 10-K which are not historical facts
are forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties include fluctuations in
customer demand, and timing and acceptance of new product introductions and
general economic conditions, as well as other risks detailed in the Company's
filings with the Securities and Exchange Commission, including its most recent
Form S-3, annual report and Proxy Statement filings.
<PAGE>
- --------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Financial Summary (1)
<CAPTION>
(In thousands, except
per share amounts and ratios) For the years ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net sales $148,846 $122,617 $102,377 $87,211 $71,509
Cost of sales 87,031 73,482 62,791 53,585 44,229
Research & development 5,764 4,537 4,114 3,928 3,638
Selling, general and
administrative 42,609 35,785 29,032 24,545 21,521
Special charge 1,315 (2) -- -- -- --
- -------------------------------------------------------------------------------------------------------
Operating income 12,127 (2) 8,813 6,440 5,153 2,121
- -------------------------------------------------------------------------------------------------------
Interest and other income 1,674 904 282 664 515
Interest expense (101) (120) (445) (727) (944)
- -------------------------------------------------------------------------------------------------------
Income before income taxes and
discontinued operations, 13,700 (2) 9,597 6,277 5,090 1,692
Income taxes 5,249 3,648 2,381 1,901 676
- -------------------------------------------------------------------------------------------------------
Income from continuing
operations 8,451 (2) 5,949 3,896 3,189 1,016
Loss from discontinued
operations -- -- -- -- (5,148)
- -------------------------------------------------------------------------------------------------------
Net income (loss) $8,451 (2) $5,949 $3,896 $3,189 $ (4,132)
- -------------------------------------------------------------------------------------------------------
Net Income (loss) per share:
Continuing operations $0.71 (2) $0.55 $0.43 $0.37 $0.12
Discontinued operations -- -- -- -- (.61)
- -------------------------------------------------------------------------------------------------------
Net income (loss) $0.71 (2) $0.55 $0.43 $0.37 $ (.49)
- -------------------------------------------------------------------------------------------------------
Average shares outstanding 11,953 10,852 8,982 8,612 8,405
- -------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $118,402 $67,418 $57,270 $37,568 $41,118
Working capital 75,511 37,245 34,198 12,514 8,228
Long-term debt -- -- 188 2,184 6,007
Shareholders' equity 85,045 45,098 38,542 19,382 16,806
- -------------------------------------------------------------------------------------------------------
KEY RATIOS
Current ratio 4.39 3.25 3.32 1.87 1.49
Term debt/equity -- -- -- 0.11 0.36
Return on equity-continuing operations 0.19 0.15 0.20 0.19 0.05
- -------------------------------------------------------------------------------------------------------
</TABLE>
(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 $13.4 million and net income of approximately $9.3 million, or
$.78 per share, in the year ended December 31, 1995.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Inter-Tel provides single point of contact, total communication
solutions to small and medium sized businesses. Inter-Tel's products and
services include digital communication platforms and software, computer
telephone integration (CTI), unified messaging software, network services,
network and data products, and flexible financing. The Company's Common Stock is
quoted on the NASDAQ National Market System under the symbol INTL.
The Company has developed a network of direct sales offices, dealers
and value added resellers (VARs) which sells the Company's products, and in
recent periods the Company has focused on expanding its direct sales
capabilities and its dealer and VAR network. The Company has effected a number
of strategic acquisitions of resellers of telephony products and integrated
these operations with its existing direct sales operations in the same
geographic areas and in other strategic markets.
Sales of systems through the Company's dealers and VARs typically
generate lower gross margins than sales through the Company's direct sales
organization, although direct sales typically require higher levels of selling,
general and administrative expenses. In addition, the Company's long distance
and network services typically generate lower gross margins than sales of
software and system products. Accordingly, the Company's margins may vary from
period to period depending upon distribution channel and product mix. In the
event that sales through dealers or sales of long distance services increase as
a percentage of net sales, the Company's overall gross margin could decline.
This is possible, because other high margins products, like software, could
offset lower margin products.
The Company's operating results depend upon a variety of factors,
including the volume and timing of orders received during a period, the mix of
products sold and mix of distribution channels, general economic conditions,
patterns of capital spending by customers, the timing of new product
announcements and releases by the Company and its competitors, pricing pressures
and the availability and cost of products and components from the Company's
suppliers. In addition, the Company is subject to seasonality in its operating
results, as net sales for the first and third quarters are frequently less than
those experienced during the fourth and second quarters, respectively.
The markets served by the Company have been characterized by rapid
technological changes and increasing customer requirements. The Company has
sought to address these requirements through the development of software
enhancements and improvements to existing systems and the introduction of new
products and applications. The Company's research and development efforts over
the last several years have been focused primarily on developing new products
like the Inter-Tel Axxent system, enhancing the CTI capabilities of the AXXESS
digital communications platform, as well as expanding the capacity of the
Company's AXXESS and AxxessoryTalk systems. Current efforts are related to
support of industry standard CTI interfaces, development of additional
applications and features, and the development of a LAN-based Communications
Server incorporating the Company's Call Processing and Voice Processing
software. New applications under development include Primary and Basic Rate
ISDN, networking, and unified messaging. The software-based architecture of the
AXXESS system facilitates maintenance and support, upgrades, and incorporation
of additional features and functionality.
The Company offers to its customers a unique package of lease financing
and other services under the name Totalease. Totalease provides to customers
lease financing, maintenance and support services, long distance services, fixed
price upgrades and other benefits. The Company finances this program through the
resale of lease rental streams to financial institutions, and formerly through
its bank credit facility.
Net sales of the Company have increased substantially in each of the
past three years. Such increases were 21%, 20% and 17% in 1995, 1994 and 1993,
respectively, over the preceding year. All periods have been restated to reflect
the acquisitions of American Telcom Corp. of Georgia, Inc. and Access West, Inc.
in May 1995. Each transaction was accounted for as a pooling of interests.
Results of Operations
The following table sets forth certain statement of operations data of
the Company expressed as a percentage of net sales for the periods indicated:
Year Ended December 31
1995 1994 1993
Net sales 100.0% 100.0% 100.0%
Cost of sales 58.5 59.9 61.3
---- ---- ----
Gross margin 41.5 40.1 38.7
Research and development 3.9 3.7 4.0
Selling, general and administrative 28.6 29.2 28.5
Special charge 0.9 0.0 0.0
--- --- ---
Operating income 8.1 7.2 6.2
Interest and other income 1.1 0.7 0.3
Interest expense 0.1 0.1 0.4
Income taxes 3.4 3.0 2.3
--- --- ---
Net income 5.7% 4.8% 3.8%
--- --- ---
Year Ended December 31, 1995 Versus Year Ended December 31, 1994
Net sales increased 21.4% to $148.8 million in 1995 from $122.6 million
in 1994. Sales from direct sales offices accounted for approximately $9.7
million of the increase, with wholesale distribution sales increasing
approximately $10.7 million. The remaining increases occurred in long distance
sales and other operations.
Gross profit increased to $61.8 million, or 41.5% of net sales in 1995
from $49.1 million, or 40.1% of net sales in 1994. This reflected the transition
to the direct dealer network and the expansion of AXXESS software and systems
sales.
Research and development expenses increased to $5.8 million, or 3.9% of
net sales in 1995 from $4.5 million, or 3.7% of net sales, in 1994. These
expenses in both 1995 and 1994 were directed principally to the continued
development of the AXXESS and Inter-Tel Axxent software and systems, unified
messaging and voice processing software applications and CTI applications.
Selling, general and administrative expenses increased to $42.6
million, or 28.6% of net sales in 1995, from $35.8 million, or 29.2% of net
sales, in 1994. This reflected increased incentive and other compensation, costs
associated with the implementation of new information systems, additional
personnel to support the direct dealer network and expanded long distance
operations, and expenses associated with expansion of operations of the
Company's Asian subsidiary.
Interest and other income increased in 1995 principally from the
investment of the funds received from the August 1995 public offering and funds
generated through operating cash flow.
Net income increased 42.1% to $8.5 million, or $.71 per share, in 1995
after a special charge recognized in the second quarter, from $5.9 million, or
$.55 per share, in 1994. Without the special charge, net income would have been
$9.3 million, or $.78 per share, for the year. In addition, net income per share
in 1995 is based on an additional 2 million average shares outstanding in August
1995, reflecting the 1995 public stock offering.
The special charge reflects the costs associated with integrating the
operations of American Telcom Corp. of Georgia, Inc. and Access West, Inc. The
special charge principally includes costs associated with redundancy in
inventories, equipment abandonment, the combination and relocation of business
operations, employee reductions and the write-off of intangible assets.
Year Ended December 31, 1994 Versus Year Ended December 31, 1993
Net sales increased 19.8% to $122.6 million in 1994 from $102.4 million
in 1993. The increase in net sales was primarily attributable to increased sales
of telephone systems through the Company's direct sales offices and its dealer
network. The remaining increases occurred in long distance sales and other
operations. Wholesale shipments to the expanded direct dealer network more than
offset decreased shipments to Premier Telecom. Shipments to this former private
label distributor are no longer significant.
Gross profit increased to $49.1 million, or 40.1% of net sales, in 1994
from $39.6 million, or 38.7% of net sales, in 1993. This increase in gross
margins reflected the transition from Premier and other distributors to the
direct dealer network and the expansion of AXXESS software and systems sales.
Research and development expenses increased to $4.5 million, or 3.7% of
net sales in 1994 from $4.1 million, or 4.0% of net sales, in 1993. These
expenses in both 1994 and 1993 were directed principally to the continued
development of the AXXESS software and systems and voice processing software
applications.
Selling, general and administrative expenses increased to $35.8
million, or 29.2% of net sales in 1994, from $29.0 million, or 28.5% of net
sales, in 1993. This reflected increased incentive and other compensation,
additional personnel to support the direct dealer network, and expenses
associated with the start up of the Company's Asian subsidiary.
Interest and other income increased in 1994 principally from the
investment for a full year of the funds received in the 1993 public offering and
funds generated through operating cash flow.
Net income increased 52.7% to $5.9 million, or $.55 per share, in 1994
from $3.9 million, or $.43 per share, in 1993. Net income per share in 1994 is
based on an additional 1.8 million average shares outstanding in 1994,
reflecting the 1993 public stock offering.
Discontinued Operations
In 1993, the Company sold a facility related to previously discontinued
operations subject to remediation related to fuel tank leakage. The Company had
reserved for such remediation approximately $400,000, which management believes
is adequate to cover such possible costs.
Inflation/Currency Fluctuation
Inflation and currency fluctuations have not previously had a material
impact on Inter-Tel's operations. International 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 increased 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 require working capital for increased accounts receivable and
inventories. During 1995, receivables and inventories increased approximately
$17.7 million. This increase was principally funded by operating cash flow and
existing cash balances. The Company also expended approximately $7.9 million
during 1995 for property and equipment, principally relating to the
implementation of the Company's new MIS systems. At December 31, 1995, the
Company had $39.6 million in cash and equivalents, which represents an increase
of approximately $24.0 million from December 31, 1994.
The Company has a loan agreement with Bank One, Arizona, N.A. This
agreement provides for a $5 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 August 1995, The
Company received approximately $30.7 million from a public offering. The
proceeds were used in 1995 for working capital, capital expenditures and other
general corporate purposes. A portion of the net proceeds may be used to finance
acquisitions of resellers of telephony products, other strategic acquisitions or
corporate alliances. 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 $37.3 million and $19.9 remain unbilled at December 31, 1995 and 1994,
respectively. The Company is obligated to repurchase such income streams in the
event of defaults by lease customers and, accordingly, maintains reserves based
on 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 realizes 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 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 may be 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 consider
additional financing. There can be no assurance that additional financing will
be available when required or on acceptable terms.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("Statement 121"), which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt Statement 121 in the first
quarter of 1996 and, based on current circumstances, does not believe the effect
of the adoption will be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Inter-Tel, Incorporated
We have audited the accompanying consolidated balance sheets of Inter-Tel,
Incorporated and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Inter-Tel,
Incorporated and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/Ernst & Young LLP
Phoenix, Arizona
March 20, 1996
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In thousands)
- --------------------------------------------------------------------------------
1995 1994
ASSETS
CURRENT ASSETS
Cash and equivalents $ 39,577 $ 15,530
Accounts receivable, less allowances of
$1,811 in 1995 and $1,172 in 1994 29,635 16,895
Inventories, less allowances of $1,975 in
1995 and $1,785 in 1994 20,505 15,567
Net investment in sales-leases 3,629 1,613
Prepaid expenses and other assets 4,467 4,176
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 97,813 53,781
PROPERTY, PLANT & EQUIPMENT 11,773 6,008
OTHER ASSETS 8,816 7,629
- --------------------------------------------------------------------------------
$ 118,402 $ 67,418
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,167 $ 5,534
Other current liabilities 11,135 11,002
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 22,302 16,536
DEFERRED TAX LIABILITY 7,228 3,057
OTHER LIABILITIES 3,827 2,727
SHAREHOLDERS' EQUITY
Common stock, no par value - authorized
30,000,000 shares, issued and
outstanding -- 12,764,681 shares
in 1995 and 10,658,025 shares in 1994 58,816 27,435
Retained earnings 26,500 18,049
Currency translation adjustment (112) (122)
- --------------------------------------------------------------------------------
85,204 45,362
Less receivable from Employee Stock Ownership Trust (159) (264)
- --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 85,045 45,098
- --------------------------------------------------------------------------------
$ 118,402 $ 67,418
See accompanying notes.
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years
Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(In thousands, except per share data)
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
NET SALES $ 148,846 $ 122,617 $ 102,377
Cost of sales 87,031 73,482 62,791
- --------------------------------------------------------------------------------
GROSS PROFIT 61,815 49,135 39,586
Research and development 5,764 4,537 4,114
Selling, general and administrative 42,609 35,785 29,032
Special charge 1,315 -- --
- --------------------------------------------------------------------------------
OPERATING INCOME 12,127 8,813 6,440
- --------------------------------------------------------------------------------
Other income 1,674 904 282
Interest expense (101) (120) (445)
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 13,700 9,597 6,277
INCOME TAXES
Current 1,007 2,929 1,279
Deferred 4,242 719 1,102
- --------------------------------------------------------------------------------
5,249 3,648 2,381
NET INCOME $ 8,451 $ 5,949 $ 3,896
- --------------------------------------------------------------------------------
NET INCOME PER SHARE $ 0.71 $ 0.55 $ 0.43
- --------------------------------------------------------------------------------
Average number of common
shares outstanding 11,953 10,852 8,982
- --------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
<TABLE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY Years Ended December 31, 1995, 1994 and 1993
(In thousands)
- -------------------------------------------------------------------------------------------
<CAPTION>
Currency Receivable
Common Retained Translation From
Stock Earnings Adjustment ESOP Total
----- -------- ---------- ---- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $11,863 $8,204 $(181) $(456) $19,430
Issuance of 1,800,000 shares
of common stock 14,766 14,766
Exercise of stock options 283 283
Tax benefit from stock options 110 110
Stock issued in acquisition 82 82
Net income 3,896 3,896
Loss on currency translation (112) (112)
Collection from ESOP 87 87
- --------------------------------------------------------------------------------------------
Balance at December 31, 1993 27,104 12,100 (293) (369) 38,542
Exercise of stock options 187 187
Tax benefit from stock options 103 103
Stock issued in acquisition 41 41
Net income 5,949 5,949
Gain on currency translation 171 171
Collection from ESOP 105 105
- --------------------------------------------------------------------------------------------
Balance at December 31, 1994 27,435 18,049 (122) (264) 45,098
Issuance of 2,000,000 shares
of common stock 30,670 30,670
Exercise of stock options 503 503
Tax benefit from stock options 208 208
Net income 8,451 8,451
Gain on currency translation 10 10
Collection from ESOP 105 105
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------------------
Balance at December 31, 1995 $58,816 $26,500 $(112) $(159) $85,045
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
(In thousands)
- -------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
OPERATING ACTIVITIES:
Net income $ 8,451 $ 5,949 $ 3,896
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,244 1,647 1,499
Provision for losses on receivables 1,570 936 781
Provision for inventory valuation 595 551 264
Net contribution to ESOP 105 105 87
Increase in other liabilities 1,111 603 1242
(Gain) loss on sale of property and equipment 16 (18) (14)
Deferred income taxes 4,242 719 1,102
Effect of exchange rate changes 10 171 (112)
Changes in operating assets and liabilities (17,575) (5,929) (3,464)
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 769 4,734 5,281
- -------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to property and equipment (7,904) (3,834) (1,080)
Proceeds from sale of property and equipment 9 63 254
Cash used in acquisitions -- (131) (812)
- -------------------------------------------------------------------------------
NET CASH USED IN INVESTING
ACTIVITIES (7,895) (3,902) (1,638)
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from credit line -- -- 81,857
Payments on credit line -- -- (85,681)
Proceeds from new term notes -- -- 110
Payments on long-term debt -- (188) (2,637)
Net proceeds from stock offering 30,670 -- 14,766
Proceeds from exercise of stock options 503 187 283
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 31,173 (1) 8,698
- -------------------------------------------------------------------------------
INCREASE IN CASH AND EQUIVALENTS 24,047 831 12,341
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR 15,530 14,699 2,358
- -------------------------------------------------------------------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 39,577 $ 15,530 $ 14,699
- -------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
INTER-TEL, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company is in the business of developing
and providing telephone systems, voice processing and long distance calling
services to businesses principally throughout the United States, as well as
providing leasing, support and maintenance services through a direct sales and
reseller network.
Principles of Consolidation: The consolidated financial statements
include the accounts of Inter-Tel, Incorporated and all significant subsidiaries
(the Company). Intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Equivalents: Cash and equivalents include all highly liquid
investments with a remaining maturity of three months or less at date of
acquisition. Excess cash and equivalents are primarily invested in mutual funds
comprised of foreign and domestic high quality dollar denominated money market
instruments rated A-1 by Standard & Poor's Ratings Group, or equivalent.
Inventories: Inventories, consisting principally of telephone systems,
computer equipment and related components, are stated at the lower of cost
(first-in, first-out method) or market.
Property, Plant and Equipment: Property, plant and equipment is stated
at cost. Depreciation is computed using the straight-line method over the
estimated useful life of the related property. Leasehold improvements are
depreciated over the shorter of the related lease terms or the estimated useful
lives of the improvements.
Excess of Purchase Price Over Net Assets Acquired: Purchase prices of
acquired businesses that are accounted for as purchases have been allocated to
the assets and liabilities acquired based on the estimated fair market values on
the respective acquisition dates. Based on these values the excess purchase
prices over the fair market value of the net assets acquired are being amortized
over 5 to 40 years. Accumulated amortization through December 31, 1995 was
$485,056.
Sales-Leases: The discounted present values of minimum rental payments
under sales-type leases are recorded as sales, net of provisions for continuing
administration and other expenses over the lease period. The costs of systems
installed under these sales-leases, net of residual values at the end of the
lease periods, are recorded as costs of sales. Gains or losses resulting from
the sale of rental income from such leases are recorded as adjustments to the
original sales amounts.
Income Taxes: Deferred income taxes result from temporary differences
in the recognition of revenues and expenses for financial reporting and income
tax purposes.
Advertising: The cost of advertising is expensed as incurred. The
Company incurred $318,000; $431,000; and $424,000 in advertising costs during
1995, 1994 and 1993, respectively.
Stock Based Compensation: The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair market
value of the shares at the date of grant. The company accounts for stock option
grants in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and accordingly, recognizes no
compensation expense for these stock option grants.
Impact of Recently Issued Accounting Standards: In March 1995, the
Financial Accounting Standards Board issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("Statement 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on current circumstances,
does not believe the effect of the adoption will be material.
Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles 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.
Poolings of Interests: The financial statements for periods prior to
1995 have been restated to include the accounts of American Telcom Corp. of
Georgia, Inc. ("American Telcom") and Access West, Inc. ("Access West"). Each
corporation was acquired by the Company in pooling of interests transactions in
May 1995, in which 279,081 shares of Inter-Tel common stock were issued.
American Telcom and Access West did not constitute significant subsidiaries as
defined by the Securities and Exchange Commission. In the consolidated
statements of income, net sales and net income were increased/(decreased) as a
result of the restatement as follows:
(In thousands, except per share amounts) Year ended December 31,
1994 1993
Net sales $10,452 $9,853
Net income (136) (28)
Net income per share $(.03) $(.02)
Total shareholders' equity was decreased by $53,000 as of January 1,
1993 as a result of the restatement. The Company also recorded a special charge
of $1,315,000 in 1995 principally associated with integrating the acquired
companies.
Net Income Per Common Share: Net income per common share is based on
the weighted average number of common shares outstanding during each year and
common stock equivalents.
Reclassifications: Certain reclassifications have been made to the 1994
and 1993 financial statements to conform to the 1995 presentation.
NOTE B -- NET INVESTMENT IN SALES-LEASES
Net investment in sales-leases represents the value of sales-leases
presently held under the Company's Totalease program. The Company currently
sells the rental income from some of the sales-leases. The Company maintains
reserves against potential recourse following the resales based upon loss
experience and past due accounts. Activity during the years was as follows:
(In thousands) Year Ended December 31,
1995 1994 1993
Sales of rental income $25,106 $12,423 $9,586
Sold income remaining
unbilled at end of year 37,256 19,894 11,908
Allowance for uncollectible
minimum lease payments
and recourse liability at
end of year 1,513 1,198 911
The Company does not expect any significant losses from the recourse
provisions related to the sale of rental income. The Company is compensated for
administration and servicing of rental income sold.
NOTE C -- PROPERTY, PLANT & EQUIPMENT
December 31
(In thousands) 1995 1994
Computer systems and equipment $19,189 $11,919
Transportation equipment 1,879 1,932
Furniture and fixtures 2,717 2,393
Leasehold improvements 722 661
Land 130 130
------- ------
24,637 17,035
Less: Accumulated depreciation
and amortization 12,864 11,027
------- ------
$11,773 $6,008
======= ======
NOTE D -- OTHER ASSETS
December 31
(In thousands) 1995 1994
Long-term 8% note receivable
due in 2003 $1,324 $1,351
Net investment in sales-leases 6,108 4,158
Excess of purchase price over net
assets acquired, net 1,217 1,480
Other assets 167 640
------ ------
$8,816 $7,629
====== ======
NOTE E-- OTHER CURRENT LIABILITIES
December 31
(In thousands) 1995 1994
Compensation and employee benefits $5,396 $4,119
Other accrued expenses 3,638 4,726
Deferred revenues 2,101 2,157
------ -------
$11,135 $11,002
======= =======
NOTE F -- CREDIT LINE
The Company maintains a $5,000,000 unsecured bank credit line at prime
rate to cover international letters of credit and for other purposes. The credit
agreement matures in May 1996 and contains certain restrictions and financial
covenants. At December 31, 1995, $58,433 of the credit line was committed under
letter of credit arrangements.
NOTE G -- LEASES
Rental expense amounted to $2,881,592; $2,532,504 and $2,208,639 in
1995, 1994 and 1993 respectively.
Noncancellable operating leases are primarily for buildings. Certain of
the leases contain provisions for renewal options and scheduled rent increases.
At December 31, 1995, future minimum commitments under noncancellable leases,
including a five year lease for its headquarters facility and a 15 year lease
for its distribution and support facility, are: 1996 -- $2,486,605; 1997 --
$2,174,431; 1998 -- $1,925,415; 1999 -- $1,660,867; 2000 -- $1,152,295;
thereafter -- $2,917,836.
NOTE H -- INCOME TAXES
Effective January 1, 1993, the Company adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("Statement
109"). Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined (and classified as current or long-term) based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of December
31, are as follows:
(In thousands) 1995 1994
Deferred tax liabilities:
Lease--sales and reserves $8,927 $4,466
Accelerated depreciation 161 29
--- ----
Total deferred tax liabilities 9,088 4,495
----- -----
Deferred tax assets:
Inventory basis differences 1,614 944
Accounts receivable reserves 611 409
Maintenance reserve 316 355
Accrued vacation pay 424 426
Foreign loss carryforwards 546 355
Other -- net 1,011 1,491
----- -----
Deferred tax assets 4,522 3,980
Less valuation reserve 546 355
--- ---
Net deferred tax assets 3,976 3,625
----- -----
Net deferred tax liabilities $5,112 $870
----- ---
During 1995 and 1994, the Company incurred losses of $857,000 and
$834,000 with respect to foreign operations. At December 31, 1995, the Company
had foreign loss carryforwards of approximately $1,600,000 which will begin to
expire in 1999. The valuation allowance increased by $191,000 in 1995 and
$355,000 in 1994 due to increases in foreign loss carryforward benefits.
Federal and state income taxes consisted of the following:
(In thousands) 1995 1994 1993
Federal $4,789 $3,045 $2,164
State 460 603 217
--- --- ---
$5,249 $3,648 $2,381
----- ----- -----
The principal reasons for the difference between total income tax
expense and the amount computed by applying the statutory federal income tax
rate to income before taxes are as follows:
1995 1994 1993
Federal tax at statutory rates
applied to pre-tax income 34% 34% 34%
State tax net of federal benefit 2 3 4
Valuation reserve increase
for foreign losses 2 3 -
Other - net - (2) -
-- -- ---
38% 38% 38%
-- -- --
During 1993, the Company disposed of an investment in a hotel and office complex
which made available related deferred tax benefits of approximately $2.6
million.
NOTE I -- EQUITY TRANSACTIONS
In a public offering in August 1995, the Company sold 2,000,000 shares
of previously unissued common stock. During November and December 1993, the
Company also sold 1,800,000 shares of previously unissued common stock.
Under the Company's Long-Term Incentive Plan, selected officers and key
employees are granted options to purchase common stock of the Company at not
less than fair market value at date of grant. The options are exercisable at the
end of their ten year term, but may become exercisable in annual installments if
predetermined performance goals and share market value increases are met. During
1994, previously granted options to purchase 420,000 shares at prices of $7.50
to $9.25 per share were canceled and options to purchase 605,000 shares were
granted to an expanded group of optionees at the then fair market value of $6.00
per share.
Under other previous stock option plans, directors, officers and key
employees may purchase common stock of the Company at amounts not less than the
fair market value at the date of grant. These options generally have a term of
five to ten years and are exercisable over four to five years commencing one
year from the date of grant.
Option activity for the past three years under all plans is as follows
Number of Shares
1995 1994 1993
Outstanding at beginning of year 824,500 720,250 322,150
Granted 160,512 627,000 598,000
Exercised (108,887) (98,750) (193,400)
Expired or canceled (28,625) (424,000) (6,500)
-------- -------- -------
Outstanding at end of year 847,500 824,500 720,250
------- ------- -------
Exercise price range $1.12-$14.50 $1.12-$9.63 $1.12-$9.25
Exercisable at end of year 167,083 75,000 78,750
At December 31, 1995, the Company has reserved 524,488 shares of Common
Stock for issuance in connection with the stock option plans. In addition, there
is an outstanding warrant for the purchase of 50,000 shares of common stock at
an exercise price of $4.25 per share, which expires September 25, 1997.
NOTE J -- RETIREMENT PLANS
The Company has two retirement plans for the benefit of all of its
employees. Under its 401(k) Retirement Plan, participants may contribute an
amount not exceeding 15 percent of compensation received during participation in
the Plan. The Company makes voluntary annual contributions to the Plan based on
a percentage of contributions made by Plan participants of up to 10 percent of
compensation. Contributions to the Plan totaled $328,000; $248,000 and $196,000
in 1995, 1994 and 1993, respectively.
In 1992, the Company initiated an Employee Stock Ownership Plan (ESOP),
advancing $500,000 to the ESOP Trust for the purpose of purchasing common stock
of the Company. The Trust purchased 153,500 shares of the Company's common stock
in July 1992. The loan is to be repaid over 5 years with 7.5% interest. As the
principal amount of the loan is repaid to the Company through Company annual
contributions, the equivalent number of shares released are allocated to
employees' accounts to be held until retirement. Total shares so allocated were
32,290; 30,037; and 27,942 in 1995, 1994 and 1993, respectively. Contributions
to the ESOP totaled $125,000 each in 1995, 1994 and 1993 and are based upon the
historic cost of the shares purchased by the ESOP.
NOTE K -- FINANCIAL INSTRUMENTS
Concentration of Credit Risk: Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash investments, trade accounts receivable, and net investment
in sales-leases. The Company maintains cash and equivalents not invested in
money market funds with a major bank in its marketplace. The Company performs
periodic evaluations of the relative credit standing of the financial
institution. Concentrations of credit risk with respect to trade accounts
receivable and net investment in sales-leases are limited due to the large
number of entities comprising the Company's customer base.
Fair Value of Financial Instruments: The carrying amount of cash and
equivalents, accounts receivable, net investment in sales-leases, and accounts
payable reported in the consolidated balance sheets approximate their fair
value.
NOTE L -- SUPPLEMENTAL CASH FLOW
(In thousands)
1995 1994 1993
Cash paid for:
Interest $ 101 $120 $445
Income taxes 1,885 1,673 511
----- ------ ---
Changes in operating assets
and liabilities:
Increase in receivables $ (16,325) $ (4,239) $(3,143)
Increase in inventories (5,533) (1,895) (4,172)
(Increase) decrease in prepaid
expenses and other assets (493) 1,131 (909)
(Increase) decrease in long-term
other assets ( 1,676) (2,402) 914
Increase in accounts
payable and other current
liabilities 6,452 1,476 3,846
------- ----- -----
$ (17,575) $ (5,929) $(3,464)
-------- ------- -------
NOTE M -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the quarterly results of operations for the years ended
December 31, 1995 and 1994 follows:
(In thousands, except per share amounts)
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Net sales $34,559 $36,335 $37,760 $40,192
Gross margin 13,953 15,111 15,654 17,097
Net income 1,785 1,324 2,468 2,874
Net income per share $ .16 $ .12 $ .20 $ .22
Average number of
shares outstanding 11,068 11,191 12,295 13,258
1994 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Net sales $28,086 $30,379 $30,237 $33,915
Gross margin 10,693 12,265 11,757 14,420
Net income 1,133 1,517 1,317 1,982
Net income per share $ .10 $ .14 $ .12 $ .18
Average number of
shares outstanding 10,845 10,851 10,820 10,892
1995 and 1994 quarterly results for net income per share, when totaled, do not
equal the net income per share for the years ended December 31, 1995 and 1994,
respectively. The 1995 sum of quarterly results for net income per share total
$.70, although the total net income per share was actually $.71 per share.
Similarly, the 1994 sum of quarterly results for net income per share total
$.54, although the total net income per share was actually $.55 per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and the information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors and executive officers is
included at the end of Part I, Item 1 on Page 16 of this report
under the caption "Directors and Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference
to Pages 7 to 11 of the Company's Proxy Statement relating to its
1996 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference
to Page 6 of the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements
The following consolidated financial statements of Inter-Tel,
Incorporated, and subsidiaries, are incorporated by reference to Pages 29 to 42
of this Form 10-K:
Report of Ernst & Young LLP, Independent Auditors
Consolidated balance sheets--December 31, 1995 and 1994
Consolidated statements of income--years ended December 31, 1995,
1994 and 1993
Consolidated statements of shareholders' equity--years ended December
31, 1995, 1994 and 1993
Consolidated statements of cash flows--years ended December 31,
1995, 1994 and 1993
Notes to consolidated financial statements
2. Financial Statement Schedules
The following consolidated financial statement schedule of Inter-Tel,
Incorporated, and subsidiaries is filed as part of this Report and
should be read in conjunction with the Consolidated Financial
Statements of Inter-Tel, Incorporated and subsidiaries, and the notes
thereto.
Schedule for the three years ended December 31, 1995:
Page No.
--------
Schedule II--Valuation and Qualifying Accounts 50
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits
3.1(10) Articles of Incorporation, as amended.
3.2(16) By-Laws, as amended.
10.15(1) Registrant's form of standard Distributor Agreement.
10.16(1) Registrant's form of standard Service Agreement.
10.34(2) 1984 Incentive Stock Option Plan and forms of Stock
Option Agreement.
10.35(3) Agreement between Registrant and Samsung Semiconductor
and Telecommunications Company, Ltd. dated October 17,
1984.
10.37(3) Tax Deferred Savings Plan.
10.51(11) 1990 Directors' Stock Option Plan and form of Stock
Option Agreement.
10.52(15) Inter-Tel, Incorporated Long-Term Incentive Plan and
forms of Stock Option Agreements.
10.53(12) Agreement between Registrant and Maxon Systems, Inc.
dated February 27, 1990.
10.54(12) Agreement between Registrant and Varian Tempe
Electronics Center dated February 26, 1991.
10.55(12) Agreement between Registrant and Jetcrown Industrial
Ltd. dated February 18, 1993.
10.56(13) Employee Stock Ownership Plan.
10.57(14) Loan and Security Agreement dated December 16, 1994
between Bank One, Arizona, N.A. and Registrant.
10.58(16) Development, Supply and License Agreement between
Registrant and QUALCOMM dated January 17, 1996.
- ---------------------
(1) Previously filed with Registrant's Registration Statement on Form S-1 (File
No. 2-70437).
(2) Previously filed with Registrant's Registration Statement on Form S-8 (File
No. 2-94805).
(3) Previously filed with Registrant's Annual Report on Form 10-K for the year
ended November 30, 1984 (File No. 0-10211).
(10) Previously filed with Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988 (File No. 0-10211).
(11) Previously filed with Registrant's Registration Statement on Form S-8 (File
No. 33-40353).
(12) Previously filed with Registrant's Registration Statement on Form S-1 (File
No. 33-70054).
(13) Previously filed with Registrant's Registration Statement on Form S-8 (File
No. 33-73620).
(14) Previously filed with Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-10211).
(15) Previously filed with Registrant's Proxy Statement dated March 23, 1994.
(16) Filed herewith.
(b) Reports on Form 8-K.
None
(c) Exhibits.
3.2 Amended By-Laws
11.1 Statement re: Computation of Per Share Earnings. (Page 53)
13.0 Annual Report to Security Holders.
22.1 List of Subsidiaries. (Page 52)
23.0 Consent of Independent Auditors. (Page 49)
24.1 Power of Attorney. (Page 48)
10.58 Development, Supply and License Agreement between
Registrant and QUALCOMM dated January 17, 1996.
27 Financial Data Schedule (Page 80)
See Item 14(a) (3) also.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report. See Item 8.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Inter-Tel, Incorporated, has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTER-TEL, INCORPORATED
BY: /S/ Steven G. Mihaylo
-----------------------
Steven G. Mihaylo
Chairman and Chief Executive Officer
Dated: March 29, 1996
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
- ---------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
ADDITIONS
- ---------------------------------------------------------------------------------------
Charged Charged to
Balance at to Other Charged to Balance
Beginning Costs & Accounts Deductions at End of
DESCRIPTION of Period Expenses Describe Describe Period
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful
accounts (4) $1,172 $797 $71 (3) $229(1) $1,811
----- --- ------ ------ -----
Allowance for lease
accounts $1,198 $780 $(71)(3) $394(1) $1,513
----- --- ------ ------ -----
Inventory allowance (4) $1,785 $595 -- $405(2) $1,975
----- --- ------ -----
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful
accounts (4) $704 $704 $(105)(3) $131(1) $1,172
--- --- -------- ------ -----
Allowance for lease
accounts $911 $236 $105 (3) $54(1) $1,198
--- --- ------- ----- -----
Inventory allowance (4) $1,237 $551 -- $3(2) $1,785
----- --- ---- -----
Year ended December 31, 1993
Deducted from asset accounts:
Allowance for doubtful
accounts (4) $583 $489 $(125)(3) $243(1) $704
--- --- -------- ------ ---
Allowance for lease
accounts $677 $296 $125 (3) $187(1) $911
--- --- ------- ------ ---
Inventory allowance (4) $980 $264 -- $7(2) $1,237
--- --- ---- -----
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory written off.
(3) Reclassed between appropriate valuation and qualifying accounts.
(4) Adjusted for poolings of American Telcom Corp. of Georgia, Inc. and Access
West, Inc.
Exhibit 3.2
INTER-TEL, INCORPORATED
an Arizona Corporation
BYLAWS
(As adopted June 25, 1979; amended December 24, 1980; amended
November 30, 1981; amended March 30, 1983; amended June 30, 1983;
amended September 29, 1983; amended August 15, 1984; amended
January 31, 1985; and amended November 2, 1995.)
SECTION I
OFFICES AND CORPORATE SEAL
1.1 Principal Office. The known place of business of the Corporation which shall
also be known as its principal place of business shall be at the address so
designated in the Articles of Incorporation or if no address is so designated,
at the office of its statutory agent. The address of the Corporation's known
place of business may be changed from time to time by the Board in the manner
provided by the Arizona Revised Statutes and without amending the Articles of
Incorporation.
1.2 Other Offices. The Corporation may also maintain offices at such other place
or places, either within or without the State of Arizona, as the Board of
Directors may from time to time determine or the business of the Corporation may
require, where the business of the Corporation may be transacted with the same
effect as though done at the principal office.
1.3 Corporate Seal. A corporate seal shall not be requisite to the validity of
any instrument executed by or on behalf of the Corporation, but nevertheless if
in any instance a corporate seal be used, the same shall, at the pleasure of the
officer affixing the same, be either (a) a circle having on the circumference
thereof "Inter-Tel, Incorporated" and in the center "Incorporated 1969 Arizona,"
or (b) a circle containing the words "Corporate Seal" on the circumference
thereof.
SECTION 2
SHAREHOLDERS
2.1 Shareholder's Meetings. All meetings of shareholders shall be held at such
place as may be fixed from time to time by the Board of Directors, or in the
absence of direction by the Board of Directors, by the President or Secretary of
the Corporation, either within or without the State of Arizona, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
2.2 Annual Meetings. Commencing in 1996, annual meetings of shareholders shall
be held on the third Thursday in April, if not a legal holiday, and if a legal
holiday, then on the next secular day following, or at such other date and time
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. At the annual meeting, shareholders entitled to vote
shall elect a Board of Directors and transact such other business as properly
may be brought before the meeting. The candidates receiving the greatest number
of votes, up to the number of Directors to be elected, shall be the Directors.
2.3 Notice of Annual Meetings. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each shareholder entitled
to vote at such meeting not less than ten nor more than fifty days before the
date of the meeting. The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall not be more than seventy
nor less than ten days before the date of such meeting, nor more than seventy
days nor less than ten days prior to any such action, as fixed by the Board of
Directors. If no record date is fixed, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at 4:00 in the afternoon on the later of the day thirty days before the day
on which notice is given or the day seventy days prior to the date of the
meeting.
2.4 List of Shareholders. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any shareholder who is
present.
2.5 Special Meetings of Shareholders. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the President and shall be called by
the President or Secretary at the request in writing of shareholders owning at
least ten percent (10%) in amount of the entire capital stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
2.6 Notice of Special Meeting. Written notice of a special meeting of
shareholders stating in reasonable detail the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given, not less than ten nor more than fifty days before the date of the meting,
to each shareholder entitled to vote at such meeting. Business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice. The record date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall not be more than seventy nor less than
ten days before the date of such meeting, nor more than seventy days nor less
than ten days prior to any such action, as fixed by the Board of Directors. If
no record date is fixed, the record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at 4:00 in the
afternoon on the later of the day thirty days before the day on which notice is
given or the day seventy days prior to the date of the meeting.
2.7 Quorum and Adjournment. The holders of a majority of the stock issued and
outstanding and entitled to vote at the meeting, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
statute or by the Articles of Incorporation. If, however, such quorum shall not
be present or represented at any meeting of the shareholders, the shareholders
entitled to vote at the meeting, present in person or represented by proxy,
shall have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder of
record entitled to vote at the meeting.
2.8 Majority Required. When a quorum is present at any meeting, the vote of the
holders of a majority of the voting power present, whether in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the statutes or
of the Articles of Incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
2.9 Voting. Each shareholder shall at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such shareholder, but no proxy shall be voted or
acted upon after eleven months from its date, unless the proxy provides for a
longer period. No proxy shall be effective unless in writing and in compliance
with (i) applicable law and (ii) such reasonable requirements as the Board of
Directors may prescribe. Unless demanded by a shareholder present in person or
by proxy at any meeting of the shareholders and entitled to vote thereat, or
unless so directed by the chairman of the meeting, the vote thereat on any
question need not be by ballot. If such demand or direction is made, a vote by
ballot shall be taken, and each ballot shall be signed by the shareholder
voting, or by his or her proxy, and shall state the number of shares voted.
2.10 Action Without Meeting. Any action required or permitted to be taken at any
meeting of shareholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of all of the outstanding stock entitled to vote
with respect to the subject matter of the action.
2.11 Waiver of Notice. Attendance of a shareholder at a meeting shall constitute
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Any shareholder may waive notice of
any annual or special meeting of shareholders by executing a written waiver of
notice either before or after the time of the meeting.
SECTION 3
DIRECTORS
3.1 Number. The number of Directors shall be determined from time to time by
resolution adopted by a majority of the total authorized number of Directors.
Until otherwise determined by such resolution, the authorized number of
Directors shall be six. The Directors shall be elected at the annual meeting of
the shareholders, except as provided in 3.2 of this Section 3, and each Director
elected shall hold office until his or her successor is elected and qualified,
unless sooner displaced. Directors need not be shareholders. Subject to the
limitations imposed by applicable law, the holders of a majority of the shares
then entitled to vote at an election of the Directors may remove a Director or
Directors (or all Directors) at any time, with or without cause. Any Director
may resign at any time by giving written notice of his or her resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time when it shall become effective is not specified
therein, it shall take effect immediately upon its receipt by the President or
the Secretary; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.2 Vacancies. Vacancies and newly created Directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, though less than a quorum, or by a sole remaining
Director, and the Directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no Directors in office, then an election of
Directors may be held in the manner provided by statute.
3.3 Powers. The business of the Corporation shall be managed by its Board of
Directors which may exercise all such powers of the Corporation, and do all such
lawful acts and things as are not by statute or by the Articles of Incorporation
or by these bylaws directed or required to be exercised or done by the
shareholders.
3.4 Place of Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Arizona; and such meetings may be held by means of conference telephone or other
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to such
communication shall constitute presence in person at such meeting.
3.5 Annual Meetings. The first meeting of the newly elected Board of Directors
shall be held immediately following the annual meeting of shareholders and in
the same place of the annual meeting of shareholders, and no notice of such
meeting shall be necessary to the newly elected Directors in order legally to
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver by all of the
Directors.
3.6 Regular Meetings. Regular meetings of the Board of Directors may be held
without notice and at such time and at such place as shall from time to time be
determined by the Board.
3.7 Special Meetings. Special meetings of the Board of Directors may be called
by the President or the Secretary on 24 hours notice to each Director, either
personally or by mail or by telegram or by telephone; special meetings shall be
called by the President or Secretary in like manner and on like notice on the
written request of a majority of the Board of Directors.
3.8 Quorum. At all meetings of the Board, a majority of the membership of the
Board of Directors shall constitute a quorum and the concurrence of a majority
of those present shall be sufficient to conduct the business of the Board,
except as may be otherwise specifically provided by statute or by the Articles
of Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
3.9 Action Without Meeting. Unless otherwise restricted by the Articles of
Incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
3.10 Waiver of Notice. Attendance of a director at a meeting shall constitute
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Any director may waive notice of any
annual, regular or special meeting of Directors by executing a written waiver of
notice either before or after the time of the meeting.
3.11 Executive Committee. There shall be an Executive Committee consisting of at
least three members of the Board of Directors who shall be elected by the whole
Board at the first meeting of the Board of Directors following each annual
meeting of shareholders. Members of the Executive Committee shall serve at the
pleasure of the Board of Directors and each member of the Executive Committee
may be removed with or without cause at any time by the Board of Directors
acting at a meeting or by unanimous written consent. In the event any vacancy
occurs in the Executive Committee, the vacancy shall be filled by the Board of
Directors. The Executive Committee shall have and may exercise the powers of he
Board of Directors and the management of the business and affairs of the
Corporation, but no such committee shall have the authority of the Board of
Directors in reference to the following matters:
1. The submission to shareholders of any action that requires
shareholders' authorization or approval by law.
2. The filling of vacancies on the Board of Directors or in any
committee of the Board of Directors.
3. The amendment or repeal of the bylaws or the adoption of new bylaws.
4. The fixing of compensation of Directors for serving on the Board or
on any committee of the Board of Directors.
3.12 Additional Standing Committees. The Board of Directors may from time to
time designate such additional standing committees as it may deem advisable. The
Board of Directors shall delegate to such standing committees such functions,
duties and responsibilities as it may choose, and shall from time to time fix,
appoint and remove the members of such committees.
3.13 Special Committees. The Board of Directors may at any time designate such
special committees as it may deem advisable, may fix the duties of such
committees, and appoint and remove their members.
3.14 Minutes and Records of Committees. A record shall be kept of the
proceedings and determinations of all standing committees and the reports of all
special committees. The minutes of the meetings of the Executive Committee and
other special and standing committees (if such committees shall be organized)
shall be preserved in the same manner as are preserved the minutes of all
meetings of the Board of Directors.
3.15 Compensation. The Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each such meeting of the Board of Directors or a stated salary
as Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings. The amount or rate of such compensation of members of the
Board of Directors or of committees shall be established by the Board of
Directors and shall be set forth in the minutes of the Board.
3.16 Vacancies. Any vacancy in the Executive Committee or any other committee
shall be filled by the vote of a majority of the whole Board.
3.17 Dissolution of Committees; Removal of Committee Members. The Board, by
resolution adopted by a majority of the whole Board, may, with or without cause,
dissolve the Executive Committee or any other committee, and with or without
cause, remove any member thereof.
SECTION 4
OFFICERS
4.1 Designation of Titles. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Vice President, a Secretary
and a Treasurer. The Board of Directors may also choose a Chairman of the Board,
additional vice presidents, and one or more assistant secretaries and assistant
treasurers. Any number of offices, except the offices of President and
Secretary, may be held by the same person.
4.2 Appointment of Officers. The Board of Directors at its first meeting after
each annual meeting of shareholders shall choose a President, one or more vice
presidents, a Secretary and a Treasurer, and may choose a chairman of the Board,
each of whom shall serve at the pleasure of the Board of Directors. The Board of
Directors at any time may appoint such other officers and agents as it shall
deem necessary who shall hold their offices at the pleasure of the Board of
Directors and who shall exercise such powers and perform such duties as shall be
determined from time to time by the Board. The power to appoint and remove such
agents may be delegated by the Board. the officers of the Corporation shall hold
office until their successors are chosen, or until sooner displaced. Any officer
elected by the Board of Directors may be removed, with or without then serving.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors. Any officer may
resign at any time by giving written notice of his or her resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time when it shall become effective is not specified
therein, it shall take effect immediately upon its receipt by the Board, the
President or the Secretary; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
4.3 Salaries. The salaries of the officers shall be fixed from time to time by
the Board of Directors and no officer shall be prevented from receiving such
salary by reason of the fact that he or she is also a Director of the
Corporation. The salaries of the officers or the rate by which salaries are
fixed shall be set forth in the minutes of the meetings of the Board of
Directors, or if delegated to a committee in the minutes of such committee.
4.4 Vacancies. A vacancy in any office because of death, resignation, removal,
disqualification or otherwise may be filled by the Board of Directors at any
time.
4.5 Chairman of the Board. The chairman of the Board, if one shall have been
appointed and be serving, shall preside at all meetings of the Board of
Directors and shall perform such other duties as may be from time to time
assigned to him or her.
4.6 President. The President shall preside at all meetings of shareholders, and
if a chairman of the Board shall not have been appointed or, having been
appointed, shall not be serving or be absent, the President shall preside at all
meetings of the Board of Directors. He or she may sign all deeds and
conveyances, all contracts and agreements, and all other instruments requiring
execution on behalf of the Corporation, and shall act as operating and directing
head of the Corporation, subject to policies established by the Board of
Directors. Unless the Board of Directors specifies otherwise, the President
shall have the authority to vote (or grant a proxy with respect to) any
securities held or owned by the Corporation.
4.7 Vice Presidents. There shall be as many vice presidents as shall be
determined from time to time and they shall perform such duties as may be from
time to time assigned to them. Any one of the vice presidents, as authorized by
the Board, shall have all the powers and perform all the duties of the President
in case of the temporary absence of the President or in case of his or her
temporary inability to act. In case of the permanent absence or inability of the
President to act, the office shall be declared vacant by the Board of Directors
and a successor chosen by the Board.
4.8 Secretary. The Secretary shall see that the minutes of all meetings of
shareholders, of the Board and of any standing committees are kept. He or she
shall be the custodian of the corporate seal, and shall affix it to all proper
instruments when deemed advisable by him or her. He or she shall give or cause
to be given required notices of all meetings of the shareholders and of the
Board of Directors. He or she shall have charge of all the books and records of
the Corporation except the books of account and in general shall perform all the
duties incident to the office of Secretary of the Corporation and such other
duties as may be assigned to him or her.
4.9 Treasurer. The Treasurer shall have general custody of all of the funds and
securities of the Corporation except such as may be required by law to be
deposited with any state official; he or she shall see to the deposit of the
funds of the Corporation in such bank or banks as the Board of Directors may
designate. Regular books of account shall be kept under his or her direction and
supervision, and he or she shall render financial statements to the President,
Directors and shareholders at proper times. He or she shall have charge of the
preparation and filing of such reports and financial statements and returns as
may be required by law. He or she shall give to the Corporation such fidelity
bond as may be required, and the premium therefor shall be paid by the
Corporation as an operating expense.
4.10 Assistant Secretaries. There may be such number of assistant secretaries as
the Board of Directors may from time to time fix, and such persons shall perform
such functions as may be from time to time assigned to them. No assistant
secretary shall have power or authority to collect, account for, or pay over any
tax imposed by federal, state or city government.
4.11 Assistant Treasurers. There may be such number of assistant treasurers as
the Board of Directors may form time to time fix, and such persons shall perform
such functions as may be from time to time assigned to them. No assistant
treasurer shall have the power or authority to collect, account for, or pay over
any tax imposed by any federal, state or city government.
SECTION 5
REPEAL, ALTERATION OR AMENDMENT
These bylaws may be repealed, altered or amended or substitute bylaws may be
adopted only by a majority of the Board of Directors.
/s/ Thomas C. Parise
----------------------------
Thomas C. Parise, President
ATTEST:
/s/ Kurt R. Kneip
- ---------------------
Kurt Kneip, Secretary
Exhibit 10.58
DEVELOPMENT, SUPPLY AND LICENSE AGREEMENT
BETWEEN INTER-TEL AND QUALCOMM
This Development, Supply and License Agreement (the "Agreement") is entered into
as of January 17, 1996 (the "Effective Date"), by and between QUALCOMM
Incorporated, a Delaware corporation ("QUALCOMM'), with offices located at 6455
Lusk Boulevard, San Diego, California 92121-2779 and Inter-Tel Integrated
Systems, Inc., an Arizona corporation ("Inter-Tel"), with offices located at
7300 West Boston Street, Chandler, Arizona 85226-3224, with regard to the
following facts:
RECITALS
A. QUALCOMM is developing multiplexer equipment known as a Concentrated
Subscriber Station, or the QCT 8000 series (the "CSS"), which will incorporate
its proprietary Code Division Multiple Access (CDMA), which will incorporate its
proprietary Code Division Multiple Access (CDMA) technology for use in wireless
local loop communication systems.
B. Inter-Tel has represented that it has previously developed multiplexer
equipment, including switch software programs and hardware, known as the AXXESS
Key System (hereinafter referred to as the "Multiplexer"), and that it has the
expertise to design, develop, manufacture and test, as applicable, the
Deliverables (as defined below) to meet QUALCOMM's applicable CSS
specifications.
C. QUALCOMM desires to purchase the Devices (or license in the case of Software
and Multiplexer Designs) (as defined below), from Inter-Tel and Inter-Tel
desires to sell the Devices (or license in the case of Software and Multiplexer
Designs) to QUALCOMM, and to perform certain customized software modifications
and design and engineering services for QUALCOMM in accordance with the terms
and conditions of this Agreement.
D. QUALCOMM has relied, and is relying, upon Inter-Tel's stated expertise and
experience in providing design and engineering services to develop and deliver
the Deliverables.
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
1. DEFINITIONS.
Capitalized terms used in this Agreement shall have the meanings given
to them below:
"Basic Features" means the features that are included in the
Pre-existing Software with a zero point programmable logic device as described
in the AXXESS 3.0 Product Definition Notebook dated August 31, 1995, Feature Set
section.
"Configuration Device(s)" means the integrated circuit programmable
logic devices which determine the configuration size and feature access to the
Software.
"Critical Error" means any Error, whether or not known to QUALCOMM or
its customers, which has or may have a substantial adverse impact on the
operations of QUALCOMM or its customers or on the use of the Software, Devices
or Products.
"Deliverables" means the documentation, materials and services
pertaining to the Software, Configuration Devices, Multiplexer Designs,
Development Units, Qualification Units and Early Production Units which are more
particularly described in the SOW and Specification.
"Development Units" means the first five (5) Early Production Units
delivered to QUALCOMM for testing and to demonstrate the performance
characteristics of the Early Production Units.
"Design and Development "("D&D") means the design, development,
qualification and delivery of the Development Units and Qualification Units and
other Deliverables described in the SOW.
"Devices" means the Configuration Devices and Early Production Units.
"Early Production Units" means the early order production units of the
Product (containing the Software), its variations, and subsequent
configurations, or components thereof, as specified in QUALCOMM's purchase order
therefor, all of which comply with the requirements of this Agreement, the
Specifications and SOW. The term "Early Production Units" includes Qualification
Units.
"Error" means computer code in the Software or Configuration Devices
which produces unintended results or actions, or which produces results or
actions other than those described in the Specification or Software Acceptance
Document. Error includes, without limitation, any Critical Error.
"Escrow Agreement" means that certain Escrow Agreement entered into
between Inter-Tel and QUALCOMM concurrently with the execution of this
Agreement.
"Intellectual Property Rights" means any and all rights of Inter-Tel in
and to patents, patent applications, copyrights, trade secrets and know-how,
mask work rights and industrial design rights of any kind, recognized in any
country of the world, whether or not currently perfected, owned as of the
Effective Date or hereafter acquired during the term of this Agreement, whether
by creation, transfer, license with right of sublicense or by any other means
which relate to the Licensed Technology.
"Licensed Technology" means the Software, Configuration Devices,
Multiplexer Designs and other materials to be delivered to QUALCOMM as
Deliverables in accordance with the Specification and SOW.
"Multiplexer Designs" means that documentation relating to the design
of the Multiplexer that is written or in electronic form which Inter-Tel uses to
manufacture (or have manufactured) the Qualification Units and Early Production
Units. The Multiplexer Designs will include the following (if and to the extent
they exist): design documents, detailed circuit schematics, circuit board layout
files, electronic design files, mechanical design files, application and
operational software, manufacturing assembly documents, component lists, test
specifications, test set drawings, manufacturing assembly aids, test set
instructions, test set software, embedded firmware, interface specifications,
product specifications, OEM product specifications, installation and
commissioning documents, system provisioning documents, product repair documents
and customer documentation.
"Pre-existing Software" means the Multiplexer switch software that
Inter-Tel has developed as of the Effective Date as more particularly described
in the AXXESS 3.0 Product Definition Notebook dated August 31, 1995. For
purposes of this Agreement, Pre-existing Software shall include all Basic
Features and all Updates to the Basic Features as provided herein.
"Product(s)" means QUALCOMM's Concentrated Subscriber Station product,
its variations and subsequent configurations, as more particularly described in
the Specification.
"Qualification Units" means the first four (4) prototype Early
Production Units (other than Development Units) delivered to QUALCOMM to
demonstrate compliance of such Early Production Units with the Specification and
SOW.
"Software" means the software program to be designed, developed,
tested, furnished and licensed (in binary form) by Inter-Tel hereunder,
consisting of the Pre-existing Software as modified by Inter-Tel to meet the
requirements of the Specification and SOW.
"Software Acceptance Document" means the document developed by the
parties subsequent to the execution of this Agreement which shall contain the
Software acceptance test procedures.
"Specification" means: QUALCOMM's Specification for a Concentrated
Subscriber Station (QUALCOMM Doc. No. 80-12467), dated September 25, 1995, a
copy of which is attached hereto as Exhibit A.
"Statement of Work" or "SOW" means QUALCOMM's SOW, QCT-8000 Series
Multiplexer, dated September 21, 1995, a copy of which is attached hereto as
Exhibit B.
"Updates" means any enhancement, revision, improvement, addition, or
modification of or to the Multiplexer Designs and/or the Basic Features of the
Pre-existing Software, which enhancement, revision, improvement, addition, or
modification is developed by or for Inter-Tel or to which Inter-Tel obtains
sub-licensable rights (whether or not royalty bearing) at any time after the
Effective Date.
"Warranty Period" means for Early Production Units, Software and
Configuration Devices twenty-four (24) months after the date of acceptance by
QUALCOMM.
2. DEVELOPMENT PHASE.
2.1 D&D Schedule. Inter-Tel shall design, develop, qualify and deliver
the Development Units and Qualification Units in strict accordance with the
development schedule set forth in the SOW (the "Development Schedule").
Inter-Tel shall satisfactorily complete all tests required by the SOW and
Specification prior to delivering the Qualification Units to QUALCOMM. Final
inspection and acceptance of the Qualification Units shall be made by QUALCOMM
in accordance with such acceptance criteria as mutually agreed upon by the
parties in writing subsequent to the execution of this Agreement. QUALCOMM shall
either accept or reject the Qualification Units within the later of (a)
one-hundred twenty (120) days after completion of the Development Schedule or
(b) one-hundred twenty (120) days after receiving the last of the Qualification
Units. If QUALCOMM does not notify Inter-Tel that QUALCOMM rejects any
Qualification Units, Inter-Tel will assume acceptance of such Qualification
Units. At QUALCOMM's option, QUALCOMM may return non-conforming Qualification
Units to Inter-Tel, freight collect. If QUALCOMM elects to return such
non-conforming Qualification Units, Inter-Tel shall issue a return material
authorization number (RMA) for all non-conforming Qualification Units, and such
non-conforming Qualification Units shall be the property of Inter-Tel.
2.2 Design and Development Payment. In consideration for its
satisfactory performance of the design, development, qualification, and delivery
effort, QUALCOMM shall pay Inter-Tel the sum of two hundred eighty-five thousand
dollars ($285,000) (the "D&D Payment"). The D&D Payment shall be due and payable
as follows:
Installment Milestone
- ----------- ---------
33% of the D&D Payment Delivery of Development Units and
prototype Software (in PROM form)
33% of the D&D Payment QUALCOMM's acceptance of all
four Qualification Units
34% of the D&D Payment Satisfactory completion of the Production
Readiness Review and QUALCOMM's acceptance
of the Software in accordance with Section
2.4
2.3 Deliverables. Inter-Tel shall deliver to QUALCOMM the Deliverables
strictly in accordance with the Development Schedule. In addition, Inter-Tel
shall perform acceptance tests on each delivered unit of Devices in accordance
with the acceptance test procedures set forth in the Specification. Inter-Tel
shall not ship to QUALCOMM any Devices which have failed to satisfy the
applicable acceptance test.
2.4 Acceptance of Software. The Software will be tested by QUALCOMM and
Inter-Tel in accordance with the requirements established under the Software
Acceptance Document. The parties intend to negotiate and finalize the Software
Acceptance Document within one hundred eighty (180) days after the Effective
Date. The Software Acceptance Document will be subject to the terms of this
Agreement and will reference this Agreement. QUALCOMM may reject the Software by
delivering written notice to Inter-Tel within one year after the Effective Date
of this Agreement if in QUALCOMM's sole and reasonable discretion the Software
fails to satisfy the specifications and parameters set forth in the Software
Acceptance Document or Specification. Failure of QUALCOMM to notify Inter-Tel
within said period shall be deemed as acceptance. Any rejection by QUALCOMM of
the Software for acceptance purposes shall be in writing and provide a detailed
description of the failure of the Software to conform to the applicable
requirements set forth in the Software Acceptance Document or Specification.
QUALCOMM shall cooperate with Inter-Tel's reasonable requests in carrying out
remedial measures and Inter-Tel shall not be responsible for delays caused by
QUALCOMM. Immediately following its receipt of such rejection notice, Inter-Tel
shall commence work to correct the failures specified in such notice and shall
use its best efforts, at its own expense, to correct such failures within ten
(10) days of its receipt of such rejection notice so that the Software meets the
requirements of the Software Acceptance Document and Specification. When it
believes it has made the necessary corrections, Inter-Tel will again deliver the
Software to QUALCOMM and the acceptance/rejection/correction provisions above
shall be reapplied until the Software is accepted; provided, however, that upon
the third or any subsequent rejection, or if the corrections are not made within
thirty (30) days of the initial rejection, QUALCOMM may terminate this Agreement
by delivering written notice to Inter-Tel. Upon QUALCOMM's return of the
Software previously delivered hereunder, Inter-Tel shall immediately refund to
QUALCOMM all amounts paid by QUALCOMM hereunder.
3. GRANT OF RIGHTS.
3.1 License Grant. Inter-Tel hereby grants to QUALCOMM a perpetual,
non-exclusive (except as set forth in Section 3.2), worldwide right and license
under the Intellectual Property Rights to (i) use, copy or otherwise exploit the
Software, (ii) use or otherwise exploit the Configuration Devices, and (iii)
use, copy, modify, have modified, or otherwise exploit the Multiplexer Designs,
to design, develop, make, have made, use, market, maintain, support, distribute,
sell, lease or otherwise dispose of Products.
3.2. Exclusivity. Inter-Tel agrees that for a period of ten (10) years
after the Effective Date, Inter-Tel will not itself make, use or sell, and it
will not license or grant any rights to any third party to make, use or sell,
any product incorporating the Software, without the prior written consent of
QUALCOMM. The limitations of this Section 3.2 shall not apply to the
Pre-existing Software or future versions of any Inter-Tel software which do not
contain the Software in whole or in material part.
3.3. Updates. As soon as an Update is made available by Inter-Tel for
commercial application, Inter-Tel shall immediately so notify QUALCOMM in
writing. Inter-Tel shall grant QUALCOMM a royalty-free license (subject to
Section 3.4) to use the Update to design, develop, make, have made, use, market,
maintain, support, distribute, sell, lease or otherwise dispose of Products in
accordance with the license granted to QUALCOMM under Section 3.1. Inter-Tel
shall promptly deliver to QUALCOMM such materials as are necessary to enable
QUALCOMM to incorporate the Update in the Products. In the event that the Update
materials cannot be made readily available to QUALCOMM in a format that enables
QUALCOMM to incorporate the Update in the Products, Inter-Tel will promptly
notify QUALCOMM and the parties shall mutually agree upon a revised delivery
schedule.
3.4 Updates Licensed from Third Parties. If Inter-Tel acquires by
license from any third party the right to sublicense any Updates furnished by
such third party, then Inter-Tel shall immediately so notify QUALCOMM and offer
to grant to QUALCOMM all rights and licenses in the Updates as though such
Updates were included within the original Licensed Technology. If such Updates
are sublicensable by Inter-Tel only on condition that it pay a royalty to its
third party licenser (whether in the form of an up-front fee or otherwise), then
the notice shall fully and accurately disclose the terms of such royalty
obligation. If QUALCOMM accepts such offer (which it may only do by signed
writing), it will pay to Inter-Tel the same royalties and charges as those
designated in Inter-Tel's notice to the extent that they actually accrue against
Inter-Tel in respect of the sublicense.
4. PRODUCTION.
4.1 Orders. At any time after QUALCOMM's acceptance of the
Qualification Units delivered in accordance with Section 2 above, QUALCOMM may
issue to Inter-Tel purchase orders for Early Production Units. The terms and
conditions stated in such purchase order and in any confirmation and
acknowledgment thereof shall be of no force and effect other than to specify the
quantities and types of Early Production Units to be delivered and the requested
or anticipated delivery dates. Each such purchase order shall be subject to the
terms of this Agreement and will reference this Agreement.
4.2 Prices. Inter-Tel shall sell to QUALCOMM each Early Production Unit
for which QUALCOMM places a purchase order at the prices set forth in Exhibit C
attached hereto.
4.3 Most Favored Customer. Inter-Tel agrees that the prices established
under this Agreement for the Early Production Units shall not exceed those
offered or imposed with respect to similar products provided to other customers
of Inter-Tel. If, at any time during the term of this Agreement, Inter-Tel
offers or accepts lower prices for similar products involving other customers,
Inter-Tel shall so notify QUALCOMM and promptly rebate to QUALCOMM the
differences between the amount of the payments theretofore made by QUALCOMM for
the Early Production Units and the amount that would have been payable if such
lower prices had been in effect.
4.4 EPU Lead Time. Inter-Tel shall maintain the capability of producing
and delivering, and if requested by QUALCOMM, shall deliver to QUALCOMM, the
Early Production Units within ninety (90) days after receipt of QUALCOMM's
purchase order therefore (the "EPU Lead Time"). Subject to the applicable EPU
Lead Time, Inter-Tel shall deliver the Early Production Units on or before the
applicable "Due Date" indicated in each purchase order; provided, however, that
QUALCOMM, in its sole discretion, may refuse to accept Early Production Units
delivered more than two weeks prior to such Due Date, without QUALCOMM's prior
approval. QUALCOMM agrees to provide a monthly update of a rolling twelve (12)
month forecast of requirements as production requirements develop. QUALCOMM
shall have the right to amend such forecast from time to time during the term
hereof; provided that no such amendment shall alter or revise the quantities
forecasted for the initial four (4) week period of a previously delivered
forecast. Inter-Tel shall use its best efforts to deliver Early Production Units
sooner than the EPU Lead Time if so requested by QUALCOMM.
5. SUPPLY OF CONFIGURATION DEVICES.
5.1 Orders. At any time after QUALCOMM's acceptance of the
Qualification Units and Software in accordance with Section 2 above, QUALCOMM
may issue to Inter-Tel purchase orders for Configuration Devices. The terms and
conditions stated in such purchase order and in any confirmation and
acknowledgment thereof shall be of no force and effect other than to specify the
quantities to be delivered and the requested or anticipated delivery dates. Each
purchase order shall be subject to the terms of this Agreement and will
reference this Agreement.
5.2 Royalty. Inter-Tel shall deliver to QUALCOMM Configuration Devices
for which QUALCOMM places a purchase order. With respect to Configuration
Devices purchased by QUALCOMM from Inter-Tel, QUALCOMM shall pay to Inter-Tel a
royalty in accordance with the applicable royalty fee set forth in Exhibit D
attached hereto. Except for the royalties and D&D Payment expressly provided for
in Sections 3.4 and 5.2 and Section 2.2, respectively, QUALCOMM shall have no
liability for any royalties, fees or other compensation of any kind in respect
of Inter-Tel's grant to QUALCOMM, or the exercise by QUALCOMM, of the rights and
licenses arising under this Agreement. Notwithstanding anything to the contrary
contained herein, no royalties shall accrue or otherwise be due and owing from
QUALCOMM to Inter-Tel on any Configuration Devices that QUALCOMM purchases from
Inter-Tel for the purpose of internal testing. However, any Configuration
Devices that QUALCOMM purchases from Inter-Tel for the purpose of internal
testing which are subsequently resold by QUALCOMM shall be subject to royalties
hereunder in accordance with the applicable royalty fee set forth in Exhibit D
attached hereto.
5.3 CD Lead Time. Inter-Tel shall maintain the capability of producing
and delivering, and if requested by QUALCOMM, shall deliver to QUALCOMM, the
Configuration Devices within thirty (30) days after receipt of QUALCOMM's
purchase order therefore (the "CD Lead Time"). Inter-Tel shall use commercially
reasonable efforts to deliver Configuration Devices sooner than the CD Lead Time
if so requested by QUALCOMM;.
6. DELIVERY, ACCEPTANCE AND PAYMENT.
6.1 Deliveries; Title and Risk of Loss. Unless otherwise mutually
agreed, all deliveries of Devices, Qualification Units and Development Units
(collectively, the "Deliverable Items") shall be made FOB Inter-Tel's Chandler,
Arizona facility. Title and risk of loss or damage to the Deliverable Items
shall pass to QUALCOMM upon delivery to QUALCOMM's designated carrier, subject
to QUALCOMM's right to reject non-conforming units. Notwithstanding the
foregoing, risk of loss of any Deliverable Items shall remain with Inter-Tel
unless and until QUALCOMM finally accepts such units or deliveries or unless
such non-conformance is due to damage occurring after the Deliverable Items have
been delivered to QUALCOMM's designated carrier.
6.2 Inspection and Acceptance of Configuration Devices and Early
Production Units. Inter-Tel shall satisfactorily complete all tests required by
the Specification and SOW prior to delivering the Devices to QUALCOMM. Final
inspection and acceptance of the Devices delivered shall be made by QUALCOMM
unless otherwise specified in writing signed by both parties. QUALCOMM shall
either accept or reject the Devices within the later of (a) thirty (30) days
after the Due Date specified in the purchase order or (b) thirty (30) days after
receiving such Devices. If QUALCOMM does not notify Inter-Tel that QUALCOMM
rejects any of the Devices, Inter-Tel will assume acceptance of such Devices. At
QUALCOMM's option, QUALCOMM may return non-conforming Devices to Inter-Tel,
freight collect, or QUALCOMM with agreement from Inter-Tel may modify or adapt
non-conforming Devices or deliverables to render them acceptable. If QUALCOMM
elects to return such non-conforming Devices, Inter-Tel shall issue a return
material authorization (RMA) number for all non-conforming Devices within one
workday after QUALCOMM's request, and such non-conforming Devices shall be the
property of Inter-Tel. If QUALCOMM modifies or adapts non-conforming Early
Production Units, QUALCOMM may offset all costs incurred in performing any such
modifications and adaptations against any and all amounts otherwise due to
Inter-Tel or, at QUALCOMM's option, may bill Inter-Tel directly for such costs.
Neither QUALCOMM's modifications or adaptations in accordance with the
provisions of this Section 6.2 nor QUALCOMM's inspection and acceptance of
Devices shall in any way affect the warranty on such Devices.
6.3 Payment Terms. Inter-Tel may submit invoices to QUALCOMM for the
(i) applicable percentage of the D&D Payment upon satisfactory completion of the
D&D milestone in accordance with Section 2.2, (ii) applicable royalties upon the
shipment of the Configuration Devices, and (iii) purchase price for Early
Production Units upon shipment of such Early Production Units. Each such invoice
shall specify the quantity, fees and type of deliveries, the date of shipment
and such other information as may be reasonably requested by QUALCOMM from time
to time. QUALCOMM shall pay Inter-Tel within thirty (30) days after the invoice
date or within thirty (30) days after QUALCOMM's acceptance of the shipment,
whichever is later. QUALCOMM shall have no obligation to pay for any Devices or
Deliverables that are rejected or as to which acceptance is revoked.
6.4 Taxes. The fees specified herein do not include applicable sales,
use, excise, or similar taxes, duties, or other charges. To the extent such
taxes or other charges are required by law to be collected by Inter-Tel, such
taxes shall be separately itemized on the invoices to which they apply.
7. WARRANTIES.
7.1 Inter-Tel warrants and represents that:
7.1.1 It has the corporate power and authority to execute and
deliver this Agreement, grant the rights and licenses set forth herein and
perform its obligations hereunder.
7.1.2 During the Warranty Period the (i) Software and
Configuration Devices delivered under this Agreement shall conform in all
respects to the performance capabilities, specifications, functions and
requirements set forth in the Specification, and the Software Acceptance
Document, and shall conform to Inter-Tel's specifications therefor to the extent
such specifications are not inconsistent with the Specification or Software
Acceptance Document; (ii) the Early Production Units delivered under this
Agreement shall conform in all respects to the performance capabilities,
specifications, functions and requirements set forth in the Specification and
shall conform to Inter-Tel's specifications therefor to the extent such
specifications are not inconsistent with the Specification; (iii) the media on
which the Configuration Devices are provided to QUALCOMM and the Early
Production Units shall be free from defects in materials and workmanship; (iv)
all Early Production Products shall contain all new materials, and (v) the
Software and Configuration Devices shall be free from errors that materially
impair the operation of the Early Production Products or Products, as the case
may be; provided that it is understood that minor Software errors may develop.
In such case, Inter-Tel shall correct such Software errors in accordance with
the provisions of Section 7.2. However, in the case of any defect caused or
concealed by fraud or gross negligence, the Warranty Period solely with respect
to the specific defect shall be extended until the expiration of twenty-four
(24) months after QUALCOMM's actual discovery of such defect.
7.1.3 The Licensed Technology is a wholly original work,
solely originated and created by Inter-Tel, and if any persons other than
Inter-Tel personally participated in the preparation or development of the
Licensed Technology, such persons did so only for hire as employees of Inter-Tel
and within the scope of employment thereby, and never had and do not have any
rights or interests in the Licensed Technology. Inter-Tel is the sole lawful
owner of the Licensed Technology and all rights therein.
7.1.4 The Multiplexer Designs are accurate and complete models
or other characterization of the Qualification Devices and Early Production
Products inspected and accepted in accordance by QUALCOMM in accordance with the
terms and conditions of this Agreement and conform in all respects with the
specifications and requirements of the Specification.
7.1.5 Inter-Tel has not made and will not hereafter enter into
any agreement with third persons or take any action which shall restrict its
legal right to grant to QUALCOMM the rights and licenses contemplated under this
Agreement or to perform its obligations under this Agreement.
7.1.6 Title to all the Early Production Units (excluding the
Software) shipped to QUALCOMM or QUALCOMM's customers shall pass, upon payment
in full, to QUALCOMM free and clear of any liens, charges, encumbrances,
restrictions or security interests created in, by or against the Early
Production Units or against Inter-Tel.
7.1.7 THE ABOVE WARRANTIES ARE MADE EXPRESSLY IN LIEU OF ALL
OTHER WARRANTIES INCLUDING IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR
A PARTICULAR PURPOSE.
7.2 Correction of Software Errors. During the Warranty Period,
Inter-Tel shall provide the following support services at no charge to QUALCOMM.
Thereafter, Inter-Tel shall provide the following support services at a price to
be mutually agreed upon. Such price shall, in no event, exceed Inter-Tel's
standard price for the provision of support services.
7.2.1 Classification of Software Errors. Inter-Tel shall
correct any Error which becomes known to it, in accordance with the severity of
the Error involved and its actual or potential impact upon QUALCOMM's operations
or business. QUALCOMM shall inform Inter-Tel of these facts in a written trouble
report. Following receipt of any trouble report, Inter-Tel shall immediately
undertake all necessary and appropriate action to satisfactorily resolve the
reported problem. QUALCOMM reserves the right to reclassify in its reasonable
discretion any Error as a Critical Error, or vice versa, at any time. The fact
that an Error is not classified as a Critical Error, however, shall in no way
prejudice QUALCOMM's rights or remedies under this Agreement.
7.2.2. Response. Inter-Tel shall respond to every QUALCOMM
trouble report, as follows, commencing upon receipt of QUALCOMM's trouble
report:
(a) Error Reporting. Within Inter-Tel's first normal
working hour, Inter-Tel shall initiate telephone consultation with QUALCOMM.
(b) Non-Critical Errors. For Errors other than
Critical Errors, Inter-Tel shall use its best efforts to promptly correct them
through the development and provision of corrective code for the Software.
Inter-Tel shall replace any "work-around," "patches,." or other temporary
correction provided to QUALCOMM in response to an Error with a permanent
correction in accordance with a delivery schedule mutually agreed upon by the
parties.
(c) Critical Errors. For Critical Errors, Inter-Tel
shall respond in the same manner as that described in the preceding paragraph,
but shall deliver suitable corrective code for the Software in PROM format or
Configuration Devices as needed to restore lost functionality and performance
within five (5) calendar days of receipt of QUALCOMM's trouble report. Whenever
reasonably possible, QUALCOMM shall return the defective PROMs and/or
Configuration Devices to Inter-Tel. Inter-Tel shall promptly reimburse QUALCOMM
for one-half (1/2) of the costs incurred by QUALCOMM in removing any defective
PROMs or Configuration Devices from Products and reinstalling any replacement
PROMs or Configuration Devices. Upon Inter-Tel's reasonable request, QUALCOMM
shall provide written documentation to evidence such costs.
(d) Extraordinary Circumstances. If Inter-Tel
encounters unforeseen circumstances which delay or make it impossible for
Inter-Tel to perform the obligations in accordance with the schedule set forth
above, Inter-Tel shall, at its sole expense, provide appropriate work-arounds,
interim support, on-site personnel, or other remedial measures commensurate with
the severity and impact of the Error. QUALCOMM shall cooperate with Inter-Tel's
reasonable requests in carrying out such remedial measures and Inter-Tel shall
not be responsible for delays caused by QUALCOMM. Failure by Inter-Tel to
restore lost functionality and performance within the applicable period set
forth above, or any longer period prescribed by the authorized QUALCOMM
representative, is a failure to perform under this clause, and constitutes a
trigger event (as defined under the Escrow Agreement).
7.3 Failure of Early Production Units. If, at any time during the
Warranty Period, an Early Production Unit malfunctions or becomes defective or
is determined to be unreasonably dangerous, Inter-Tel shall, at Inter-Tel's sole
expense: (a) promptly diagnose the source of the failures of the Early
Production Unit, (b) correct any and all defects or non-conformities in the
design, manufacture and/or testing of the Early Production Unit which are the
source of such failures and (c) replace all failed Early Production Units with
fully conforming Early Production Units within five (5) calendar days. QUALCOMM
will promptly notify Inter-Tel when it has identified such failures and will
provide reasonable assistance to Inter-Tel in identifying the source of such
failures.
7.4 Shipping Defective Devices. All costs of shipping defective PROMs
and Devices back to Inter-Tel and the return from Inter-Tel to QUALCOMM, or its
designated location, shall be at the sole expense of Inter-Tel. Within 24 hours
of any request by QUALCOMM, Inter-Tel will provide a Return Material
Authorization (RMA) for all defective such items specified by QUALCOMM. The RMA
will permit QUALCOMM to return defective items to Inter-Tel without delay.
7.5 Survival. The obligations of Inter-Tel under this Section 7 shall
survive expiration or other termination of this Agreement as to the subject of
any claims or notices sent by QUALCOMM hereunder prior to such termination or
expiration. No receipt, acceptance or use of the Licensed Technology or Early
Production Units by QUALCOMM shall constitute a waiver of or otherwise prejudice
QUALCOMM's rights under this warranty.
8. INDEMNIFICATION FOR INFRINGEMENT.
8.1 Inter-Tel. In addition to the warranties set forth in Section 7
above, Inter-Tel warrants that all Licensed Technology, Early Production Units
and work performed are free of infringement of any patent, copyright, trade
secret or other intellectual property right of any third party, except in so far
as such claims are based on Inter-Tel's literal compliance with QUALCOMM's
written Specification for such Deliverables. Inter-Tel shall indemnify, defend
and hold QUALCOMM and its customers harmless from and against any losses,
damages, liabilities, expenses and costs (including reasonable attorneys' fees),
arising out of or resulting from any claim alleging that any Licensed
Technology, Early Production Units or other Deliverables infringe any patent,
copyright, trade secret, or other proprietary right of any third party ("IPR"),
so long as QUALCOMM notifies Inter-Tel of such claim and permits Inter-Tel to
defend or settle such claim in accordance with this Section 8.1. In the event
that any Licensed Technology, Early Production Units or Deliverables delivered
or performed by Inter-Tel hereunder is determined to infringe any IPR, Inter-Tel
shall, at Inter-Tel's sole expense, in addition to its other obligations under
this Section 8.1 and at QUALCOMM's option, either: (i) obtain from such third
party the right for QUALCOMM and QUALCOMM's customers to continue using the
infringing Licensed Technology, Early Production Units and/or Deliverables, or
(ii) modify or replace the infringing Licensed Technology, Early Production
Units and/or Deliverables so as to render them non-infringing, while maintaining
fit, form and function acceptable to QUALCOMM.
8.2 QUALCOMM. QUALCOMM shall indemnify, defend and hold Inter-Tel
harmless from and against any losses, damages, liabilities, expenses and costs
(including reasonable attorneys' fees), arising out of or resulting from any
claim alleging that the work performed by Inter-Tel on behalf of QUALCOMM
infringe third party IPR, so long as (i) Inter-Tel notifies QUALCOMM promptly in
writing of such claim and permits QUALCOMM sole control over the defense and
settlement of such claim, and (ii) such work is in literal compliance with
QUALCOMM's written Specification.
9. QUALCOMM PROPERTY.
All property and documentation (including without limitation the Specification)
used by Inter-Tel in connection with its performance under this Agreement which
is owned, furnished, or consigned by QUALCOMM ("Property") shall be and remain
the property of QUALCOMM. Unless already so marked by QUALCOMM, Inter-Tel shall
identify and conspicuously mark all Property as belong to QUALCOMM and, upon
request, shall furnish QUALCOMM a list of all Property being held by Inter-Tel.
all Property shall be used only for Inter-Tel's performance under this Agreement
and held at Inter-Tel's risk. Inter-Tel shall return such Property to QUALCOMM
upon QUALCOMM's demand at Inter-Tel's sole expense.
10. NON-EXCLUSIVE.
Except as set forth in Section 3.2, nothing in this Agreement shall be construed
to create an exclusive relationship between the parties hereto or to prevent any
of the parties from entering into any discussion, negotiations or relationship
with any other party.
11. TRAINING AND SUPPORT.
Inter-Tel shall provide training, documentation and technical support to
QUALCOMM and its customers pursuant to the terms and conditions set forth in the
SOW.
12. CONFIDENTIALITY; PUBLICITY.
Except as required for its performance under this Agreement, Inter-Tel shall not
disclose to any person (including but not limited to any company affiliated with
Inter-Tel and any consultant or independent contractor of Inter-Tel), reproduce,
or use any information furnished by QUALCOMM under this Agreement (whether or
not marked as confidential or proprietary), except as required for performance
under this Agreement, and, at QUALCOMM's request, Inter-Tel shall return all
such information to QUALCOMM. Further, Inter-Tel shall not issue any news
release, advertisement, publicity, or promotional material regarding this
Agreement or Inter-Tel's relationship with QUALCOMM without QUALCOMM's prior
written consent. The provisions of this Section 12 shall survive any expiration
or termination of this Agreement.
13. CHANGES.
QUALCOMM may at any time instruct Inter-Tel to make changes within the general
scope of this Agreement in any of the following: (i) the Specification; (ii)
Inter-Tel's method of shipment or packing; (iii) the quantities of Devices to be
delivered hereunder; (iv) the place of delivery; and/or (v) the delivery
schedule. If any such change causes an increase or decrease in the cost of, or
time required for, performance under this Agreement, Inter-Tel shall have thirty
(30) days to request adjustments in the fees and/or delivery schedule for
Devices or other materials directly affected by QUALCOMM's changes. To the
extent that QUALCOMM and Inter-Tel mutually agree to such adjustments, this
Agreement shall be amended accordingly in a writing signed by both parties. Any
request by Inter-Tel for adjustments under this Section 13 shall be deemed
waived if not asserted within such 30-day period, and if QUALCOMM and Inter-Tel
fail to agree to an adjustment, then QUALCOMM and Inter-Tel will decide whether
to (1) proceed in accordance with the Agreement as then in effect, or (2)
terminate this Agreement in accordance with Section 14 below.
14. TERM AND TERMINATION.
14.1 Term. This Agreement shall commence on the Effective Date and,
unless otherwise terminated or canceled as provided herein, shall continue in
full force and effect thereafter. No license granted with respect to any Product
manufactured prior to any termination of this Agreement shall be diminished or
abridged by any termination of this Agreement.
14.2 Termination for Convenience. QUALCOMM may terminate this
Agreement, with or without cause, at any time, effective upon delivery of
written notice thereof (the "Termination Notice") to Inter-Tel. Upon any such
termination, or termination in accordance with Sections 13 or 15 hereof,
QUALCOMM's sole and exclusive liability to Inter-Tel shall be to pay to Inter
Tel (i) those installments of the D&D Payment which have become due and payable
in accordance with Section 2.2 of this Agreement, to the extent not previously
paid, (ii) if a D&D Payment is not yet due and payable, a percentage amount (not
to exceed 100%) of the applicable D&D Payment based on the value of items
received by QUALCOMM shall be negotiated by the parties in good faith and
mutually agreed upon, and (iii) the fees specified in this Agreement for any
Devices which have been delivered and accepted by QUALCOMM, to the extent not
previously paid.
14.3 Termination for Default. QUALCOMM may terminate this Agreement
upon written notice to Inter-Tel, if Inter-Tel: (i) fails to make adequate
progress to develop the Software, Development Devices and/or Qualification
Devices in accordance with the schedule set forth in the SOW, (ii) fails to
deliver the Multiplexer Designs within a reasonable time, not to exceed thirty
(30) days, after the Effective Date, (iii) fails to deliver any Devices ordered
by QUALCOMM within ten (10) days after the scheduled delivery date, (iv) files
or has filed against it any proceeding in bankruptcy or insolvency, (v) makes a
general assignment for the benefit of creditors, or (vi) otherwise fails to
comply in any material respect with the terms and conditions of this Agreement
within thirty (30) days after the date of QUALCOMM's written notice of such
non-compliance. Inter-Tel may terminate this Agreement upon written notice to
QUALCOMM if QUALCOMM fails to comply with any material obligation under this
Agreement and such failure is not cured within thirty (30) days after
Inter-Tel's written notice of such non-compliance.
14.4 Rights Upon Termination. Any and all work related to this
Agreement shall cease immediately upon any expiration or termination of this
Agreement in accordance with Section 14.1, 14.2, or 14.3 above. Upon any such
expiration or termination of this Agreement, Inter-Tel shall immediately deliver
to QUALCOMM the Specification, all materials containing information furnished or
disclosed by QUALCOMM hereunder, and all Deliverables in whatever their current
state of production. In addition, in the event of any termination pursuant to
Section 14.3 by reason of Inter-Tel's default, all rights and licenses granted
to QUALCOMM pursuant to Section 3 shall continue in full force and effect;
except that QUALCOMM shall also have the right to independently produce and copy
Configuration Devices in conjunction with the use of the Software. Any
termination pursuant to Section 14.3 by reason of Inter-Tel's default shall
constitute a trigger event under the Escrow Agreement.
15. FORCE MAJEURE.
Any delay and/or failure in performance shall not be deemed a breach hereof when
such failure or delay is caused by or due to causes beyond the reasonable
control of the party charged with such performance hereunder, including but not
limited to: fire, flood, accidents, explosions, acts of God and acts of local,
state and/or federal governments or acts of war or acts of others. Should a
delay occur, the party claiming force majeure shall notify the other party, in
writing, specifying the nature and anticipated duration of the delay. The date
on which a party's obligations hereunder are due to be fulfilled shall be
extended for a period equal to the time lost as a result of any such delay.
Notwithstanding the foregoing, in the event any delay extends for a period of
more than sixty (60) days, or such longer period as the parties may mutually
agree upon, the party against whom force majeure has been asserted as an excuse
for non-performance shall have the right to terminate this Agreement by notice
to the other party.
16. ESCROW.
The parties intend to finalize and execute the Escrow Agreement (substantially
in the form of Exhibit __ attached hereto) within sixty (60) days following the
effective Date, pursuant to which Inter-Tel shall deliver into an escrow account
(at an institution located in San Diego, California or such other institution as
mutually agreed upon) all applicable object code and source code documentation
for the Software and Configuration Devices and all other technical information
required for the manufacture and delivery of the Configuration Devices and for
the use and maintenance of the Software. QUALCOMM shall be entitled to access
such materials in accordance with the Escrow Agreement.
17. GENERAL PROVISIONS.
17.1 Assignment. Inter-Tel shall not assign any of its rights or
delegate any of its obligations under this Agreement without the prior written
consent of QUALCOMM, and any assignment in violation of this provision shall be
null and void, unless such assignment is as a result of the sale of all or
substantially all of the assets of Inter-Tel. Notwithstanding the foregoing,
Inter-Tel may assign claims for monies due or to become due under this Agreement
without QUALCOMM's consent provided that Inter-Tel promptly furnishes QUALCOMM
with two signed copies of all documentation evidencing such assignment and
further provided that payment to any assignee shall be subject to setoff or
recoupment of any present or future claim(s) that QUALCOMM may have against
Inter-Tel. Regardless of any such assignment, QUALCOMM shall continue to deal
directly with Inter-Tel with respect to all matters other than payment of monies
due under the Agreement.
17.2 Governing Law. This Agreement shall be governed by the laws of the
State of California. All disputes arising in connection therewith shall be heard
only by a court of competent jurisdiction in San Diego County, California, and
the prevailing party in any legal proceeding shall be entitled to recover its
reasonable attorneys' fees incurred in connection therewith.
17.3 Disclaimer of Consequentials. Neither party shall be liable to the
other party or to any other company or entity for any incidental or
consequential loss or damage arising out of this Agreement or any obligation
resulting herefrom or the use of any intellectual property received hereunder,
whether in an action for or arising out of breach of contract, tort, or any
other cause of action.
17.4 Entire Agreement. This Agreement, together with all documents
expressly referenced herein, which are incorporated herein by this reference,
shall constitute the entire agreement between QUALCOMM and Inter-Tel with
respect to the subject matter set forth herein and shall supersede all prior
agreements, understandings and representations between Inter-Tel and QUALCOMM
with respect thereto. Any additional or different terms stated by Inter-Tel in
any proposal, quotation, confirmation, acknowledgment, invoice, or otherwise
shall be of no force and effect, and no course of dealing, usage of trade, or
course of performance shall be relevant to explain or supplement any term
expressed in this Agreement.
17.5 Modification: Non-Waiver, Severability; Cumulative Remedies. No
addition or modification of this Agreement shall be effective unless made in
writing and signed by the respective representatives of Inter-Tel and QUALCOMM.
Any delay or failure to enforce at any time any provision of this Agreement
shall not constitute a waiver of the right thereafter to enforce each and every
provision thereof. If any of the provisions of this Agreement is determined to
be invalid, illegal, or otherwise unenforceable, such provision shall be
enforced to the fullest permissible extent and the remaining provisions shall
remain in full force and effect. The rights and remedies provided to each party
herein are cumulative and in addition to any other rights and remedies available
to such party in law or in equity.
17.6 Notices and Correspondence. Inter-Tel shall place QUALCOMM's
applicable P. O. number and Project number on all notices, correspondence,
invoices, packing slips and packages pertaining thereto. All written
correspondence from supplier to QUALCOMM other than invoices shall be sent to:
6455 Lusk Boulevard, San Diego, CA 92121-2779, Attention: Director, CDMA
Subscriber Programs and Product Development. All invoices shall be sent to the
attention of the Accounts Payable Department at the same address. All written
correspondence from QUALCOMM to Inter-Tel shall be sent to 7300 West Boston
Street, Chandler, Arizona 85226-3224, Attention: Thomas Parise or Mike Sargent.
17.7 No Agency. The relationship between QUALCOMM and Inter-Tel is that
of independent contractors. This Agreement does not constitute, and shall not be
deemed to constitute, a joint venture or partnership between the parties hereto,
and neither party shall be deemed to be an agent of the other, or have authority
to bind, obligate or contract for the other.
17.8 Survivability. The terms and conditions of this Agreement that by
their sense and context are intended to survive after performance hereunder
shall survive the termination or expiration of this Agreement.
IN WITNESS WHEREOF, the parties have caused their authorized representatives to
execute this Agreement as of the Effective Date.
INTER-TEL Integrated Systems, Inc. QUALCOMM Incorporated
BY: /s/ Thomas C. Parise By: /s/ Paul Jacobs
-------------------- -----------------
Name:Thomas C. Parise Name: Paul Jacobs
------------------- --------------
Title: President Title: Vice President and General Manager
----------------- -----------------------------------
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Years Ended December 31,
1995 1994 1993
---- ---- ----
(In thousands, except per share amounts)
PRIMARY
Average shares outstanding 11,480 10,623 8,782
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 473 229 200
--- --- ---
TOTAL 11,953 10,852 8,982
====== ====== =====
Income from continuing operations $8,451 $5,949 $3,896
------ ------ ------
Net income $8,451 $5,949 $3,896
===== ====== ======
Income per share:
Continuing operations $.71 $ .55 $ .43
---- ----- ----
Net income $.71 $ .55 $ .43
=== ==== ====
FULLY DILUTED
Average shares outstanding 11,480 10,623 8,782
Neteffect of dilutive stock options--
based on the treasury stock method
using the year-end market price, if
higher than the average market price 496 229 236
--- --- ---
TOTAL 11,976 10,852 9,018
====== ====== =====
Income from continuing operations $8,451 $5,949 $3,896
------ ------ ------
Net income $8,451 $5,949 $3,896
===== ====== ======
Income per share:
Continuing operations $.71 $ .55 $ .43
---- ---- ----
Net income $.71 $ .55 $ .43
=== ===== ====
- --------------------------------------------------------------------------------
The Computation of Per Share Earnings 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.
EXHIBIT 22.1
SUBSIDIARIES OF INTER-TEL, INCORPORATED
Listed below are all the subsidiaries of Inter-Tel, Incorporated, as
well as the jurisdiction under the laws of which each was organized, and the
percentage of the outstanding voting stock of each owned by Inter-Tel,
Incorporated.
Percentage State or
of Voting Jurisdiction
Name Stock Owned of Organization
- ---- ----------- ---------------
Inter-Tel Integrated Systems, Inc. 100% Arizona
Inter-Tel Communications, Inc. 100% Arizona
Inter-Tel Leasing, Inc. 100% Arizona
Inter-Tel Midwest, Inc. 100% Delaware
Inter-Tel Incorporated-New Jersey 100% Delaware
Inter-Tel NetSolutions, Inc. 100% Texas
Inter-Tel DataCom, Inc. 100% California
Southwest Telephone Systems, Inc. 100% New Mexico
American Telcom Corp. of Georgia, Inc. 100% Georgia
Access West, Inc. 100% California
Inter-Tel Equipment (UK), Ltd. 100% United Kingdom
Inter-Tel Japan, Inc. 100% Japan
EXHIBIT 23.0--CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference to page 29 of this Form
10-K of our report dated March 20, 1996 of Inter-Tel, Incorporated.
Our audits also included the financial statement schedule of Inter-Tel,
Incorporated listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based upon our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in Registration
Statement (Form S-3 No. 33-58161), Registration Statement (Form S-3 No.
33-61437), Registration Statement (Form S-3 No. 333-01735), Registration
Statement (Form S-8 No. 2-94805), in the Registration Statement (Form S-8 No.
33-40353), and in the Registration Statement (Form S-8 No. 33-73620) of our
report dated March 20, 1996, with respect to the consolidated financial
statements incorporated herein by reference and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Form 10-K of Inter-Tel, Incorporated.
Phoenix, Arizona /S/ ERNST & YOUNG LLP
March 27, 1996
EXHIBIT 24.1--POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven G. Mihaylo and Kurt R. Kneip,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
/S/ Steven G. Mihaylo Chairman and Chief March 29, 1996
- ------------------------
Steven G. Mihaylo Executive Officer
/S/ Kurt R. Kneip Vice President and March 29, 1996
- ------------------------
Kurt R. Kneip Chief Financial Officer
/S/ Gary D. Edens Director March 29, 1996
- ------------------------
Gary D. Edens
/S/ Maurice H. Esperseth Director March 29,1996
- ------------------------
Maurice H. Esperseth
/S/ C. Roland Haden Director March 29, 1996
- ------------------------
C. Roland Haden
/S/ Norman Stout Director March 29, 1996
- ------------------------
Norman Stout
/S/ Kathleen R. Wade Director March 29, 1996
- ------------------------
Kathleen R. Wade
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INTER-TEL, INCORPORATED AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 350066
<NAME> INTER-TEL, INCORPORATED
<MULTIPLIER> 1000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 39,577
<SECURITIES> 0
<RECEIVABLES> 31,446
<ALLOWANCES> 1,811
<INVENTORY> 20,505
<CURRENT-ASSETS> 97,813
<PP&E> 24,637
<DEPRECIATION> 12,864
<TOTAL-ASSETS> 118,402
<CURRENT-LIABILITIES> 22,302
<BONDS> 0
0
0
<COMMON> 58,816
<OTHER-SE> 26,229
<TOTAL-LIABILITY-AND-EQUITY> 118,402
<SALES> 148,846
<TOTAL-REVENUES> 148,846
<CGS> 87,031
<TOTAL-COSTS> 87,031
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 13,700
<INCOME-TAX> 5,249
<INCOME-CONTINUING> 8,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,451
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
