SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
Commission file number: 333-33772
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
INTERACTIVE INTELLIGENCE, INC. 401(K) SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
INTERACTIVE INTELLIGENCE, INC.
7601 Interactive Way
Indianapolis, Indiana 46278
REQUIRED INFORMATION
Item 4. The Plan is subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and the Plan's financial statements and schedule have been prepared in accordance with the financial reporting requirements of ERISA. Such financial statements and schedule are included in this Report in lieu of the information required by Items 1-3 of Form 11-K.
Financial Statements and Exhibits
(a) Financial Statements:
Report of Independent Registered Public Accounting Firm
Financial Statements:
Statements of Net Assets Available for Benefits as of December 31, 2005 and 2004
Statements of Changes in Net Assets Available for Benefits for the Years Ended December 31, 2005 and 2004
Notes to Financial Statements
(b) Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets (Held At End of Year)
(Supplemental schedules not listed are omitted due to the absence of conditions under which they are required.)
(c) Signature Page
(d) Exhibits
23.1 - Consent of KPMG LLP
Report of Independent Registered Public Accounting Firm
Plan Administrator
Interactive Intelligence, Inc. 401(k) Savings Plan:
We have audited the accompanying statements of net assets available for benefits of the Interactive Intelligence, Inc. 401(k) Savings Plan as of December 31, 2005 and 2004, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Plan’s net assets available for benefits as of December 31, 2005 and 2004 and the changes in net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedule, Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2005, is presented for purposes of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
Indianapolis, Indiana
June 28, 2006
INTERACTIVE INTELLIGENCE, INC.
401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2005 and 2004
| | | 2005 | | 2004 | |
| Investments: | | | | | | | |
| Money market funds | | $ | 759,082 | | $ | 526,741 | |
| Mutual funds, at fair value | | | 8,775,853 | | | 7,518,641 | |
| Common stock, at fair value | | | 229,132 | | | 248,801 | |
| Participant loans | | | 143,442 | | | 129,126 | |
| | | | 9,907,509 | | | 8,423,309 | |
| Accrued income | | | 570 | | | 515 | |
| Net assets available for benefits | | $ | 9,908,079 | | $ | 8,423,824 | |
| | | | | | | | |
See accompanying notes to financial statements.
INTERACTIVE INTELLIGENCE, INC.
401(k) SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2005 and 2004
| | | 2005 | | 2004 | |
| Additions: | | | | | | | |
| Contributions | | $ | 1,486,368 | | $ | 1,435,895 | |
| Investment income | | | 215,560 | | | 104,931 | |
| Net realized and unrealized appreciation in fair value of investments | | | 601,913 | | | 589,625 | |
| Total additions | | | 2,303,841 | | | 2,130,451 | |
| Deductions: | | | | | | | |
| Benefits paid to participants | | | 818,816 | | | 341,989 | |
| Administrative expenses | | | 770 | | | 430 | |
| Total deductions | | | 819,586 | | | 342,419 | |
| Net increase | | | 1,484,255 | | | 1,788,032 | |
| Net assets available for benefits at beginning of year | | | 8,423,824 | | | 6,635,792 | |
| Net assets available for benefits at end of year | | $ | 9,908,079 | | $ | 8,423,824 | |
See accompanying notes to financial statements.
INTERACTIVE INTELLIGENCE, INC.
401(K) SAVINGS PLAN
Notes to Financial Statements
December 31, 2005 and 2004
(1) Description of the Plan
The following description of the Interactive Intelligence, Inc. 401(k) Savings Plan (Plan) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
(a) General
Interactive Intelligence, Inc. (Company) established the Plan for qualifying employees effective January 1, 1996. The Plan is administered by the Company (Plan Administrator). The purpose of the Plan is to provide retirement income and other benefits to eligible employees of the Company. An employee must have reached age 21 to be eligible for participation in the Plan. If an employee has met the age requirement, the employee is eligible to participate in the Plan as of his or her first day of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
(b) Contributions
The Plan is a contributory defined contribution plan. Each year participants may contribute up to 50% of pretax annual compensation, as defined in the Plan, limited to a maximum as established by the Internal Revenue Service. Participants may also contribute amounts representing qualified rollovers from other qualified plans. Qualified matching and qualified non-elective employer contributions may be made as determined by the Company. The Company may also make profit sharing contributions at its discretion. The Company has made no contributions to the Plan through December 31, 2005.
(c) Vesting
Participants are immediately vested in their contributions plus the actual earnings thereon. Participants vest in Company contributions, if any, over four years.
(d) Participant Accounts
Each participant’s account is credited with the participant’s contributions and Plan earnings. The benefit to which a participant is entitled equals the participant’s vested account balance.
(e) Investment Options
Participants may direct their employee contributions to any of the investment options selected by the Plan Administrator. All investment elections are participant directed.
(f) Payment of Benefits
Benefits generally are distributed upon the participant’s termination of employment with the Company, normal retirement, disability retirement, or death. Benefits are payable in a lump-sum distribution unless otherwise elected by the participant.
(g) Participant Loans
Participants may borrow from their account a minimum of $1,000, up to a maximum of $50,000 or 50% of their vested balance. Loans generally range from one to five years. Loans are secured by the balance of the participant’s account and bear interest at rates commensurate with local prevailing rates. Principal and interest payments are made through payroll deductions.
(h) Plan Termination
The Company has not expressed any intent to terminate the Plan but has the option to do so at any time subject to the provisions of ERISA.
(i) Administrative Expenses
Expenses related to the Plan may be paid by either the Plan or the Plan Administrator; however, the Plan Administrator has typically paid for substantially all Plan expenses.
(2) Summary of Accounting Policies
(a) Investments
All investments are stated at fair value, based on quoted market prices on the last business day of the plan year. Participant loans are valued at their outstanding balances, which approximate fair value. Purchases and sales are recorded on a trade-date basis. Interest income is recorded on the accrual basis.
(b) Contributions
Participant contributions are recorded as additions to net assets available for benefits, when withheld from the employees’ earnings.
(c) Payments to Participants
Payments to participants include withdrawals, transfers and benefits and are recorded when paid.
(d) Income Tax Status
The Plan is a proto-type plan administered by Merrill Lynch. The Internal Revenue Service has determined and informed Merrill Lynch by a letter dated June 4, 2002, that its prototype plan is designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although the Plan has been amended since receiving the opinion letter, the Plan Administrator believes the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan's financial statements.
(e) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
(f) Risks and Uncertainties
The Plan may invest in various types of investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits.
(3) Investments
The fair value of individual investments that represent 5% or more of the Plan net assets is as follows at December 31:
| | | 2005 | | 2004 | |
| Mutual funds: | | | | | |
| Alliance Bernstein Large Capital Growth Fund Class A | | | -- | | | 957,141 | |
| American Cap World Growth & Income R3 | | | 645,568 | | | -- | |
| American Growth Fund of America R3 | | | 1,311,326 | | | -- | |
| Davis New York Venture Fund Class A | | | 1,284,686 | | | 627,555 | |
| Franklin Small to Medium Cap Growth Class A | | | 599,287 | | | 638,128 | |
| ING International Value Fund Class A | | | -- | | | 498,074 | |
| ML Global Allocation Fund Class A | | | 558,646 | | | -- | |
| ML S&P 500 Index Fund Class I | | | 982,042 | | | 979,166 | |
| PIMCO Total Return Fund Class A | | | 706,814 | | | 571,613 | |
| Van Kampen Aggressive Growth Fund Class A | | | 1,167,203 | | | 1,075,155 | |
| | | | | | | | |
| Money market fund: | | | | | | | |
| Merrill Lynch Retirement Reserves Money Fund | | | 759,082 | | | 526,741 | |
The Plan’s investments were held in trust by Merrill Lynch for the years ended December 31, 2005 and 2004. During 2005 and 2004, the Plan’s investments in the various funds (including investments bought, sold, and held during the year) appreciated (depreciated) in fair value as presented in the following table:
| | | 2005 | | 2004 | |
| Mutual funds | | $ | 570,499 | | $ | 619,647 | |
| Common stock of Interactive Intelligence, Inc. | | | 31,414 | | | (30,022 | ) |
| | | $ | 601,913 | | $ | 589,625 | |
(4) Related-Party Transactions
Certain Plan investments are shares of mutual funds managed by Merrill Lynch. Merrill Lynch is the trustee as defined by the Plan and, therefore, transactions with these funds qualify as party-in-interest transactions. There have been no fees paid by the Plan for the investment management services of Merrill Lynch. In addition, the Plan investments include investments in the Company’s stock; therefore, these transactions also qualify as party-in-interest transactions.
INTERACTIVE INTELLIGENCE, INC.
401(k) SAVINGS PLAN
Schedule H, Line 4i - Schedule of Assets (Held At End of Year)
December 31, 2005
Identity of issue, borrower, lessor or similar party | | Description of investment, including maturity date, rate of interest, collateral, par or maturity value | | Current value | |
| Mutual fund: | | | | | | | |
| Allianz RCM Global Tech Class A | | | 2,018 | | | shares | | $ | 78,643 | |
| American Cap World Growth & Income R3 | | | 17,716 | | | shares | | | 645,568 | |
| American Growth Fund of America R3 | | | 42,994 | | | shares | | | 1,311,326 | |
| Davis New York Venture Fund Class A | | | 38,121 | | | shares | | | 1,284,686 | |
| Eaton Vance Income Fund of Boston | | | 8,201 | | | shares | | | 51,832 | |
| Franklin Small to Medium Cap Growth Class A | | | 15,888 | | | shares | | | 599,287 | |
| Goldman Sachs Mid Cap Value A | | | 6,499 | | | shares | | | 227,463 | |
| ING Global Value Choice Fund A | | | 17,344 | | | shares | | | 333,172 | |
| Lord Abbett Affiliated Fund Class | | | 5,684 | | | shares | | | 79,742 | |
| MFS Utilities Fund Class A | | | 15,483 | | | shares | | | 195,859 | |
| ML Bond Fund Intermediate Portfolio A * | | | 13 | | | shares | | | 150 | |
| ML Global Allocation Fund Class A * | | | 33,076 | | | shares | | | 558,646 | |
| ML Healthcare Fund Class A * | | | 22,091 | | | shares | | | 148,895 | |
| ML Pacific Fund Class A * | | | 2,653 | | | shares | | | 65,045 | |
| ML S&P 500 Index Fund Class I * | | | 64,228 | | | shares | | | 982,042 | |
| Munder Micro Cap Equity | | | 6,774 | | | shares | | | 292,829 | |
| PIMCO Total Return Fund Class A GM | | | 67,316 | | | shares | | | 706,814 | |
| Seligman Communication & Information Fund Class A | | | 1,709 | | | shares | | | 46,651 | |
| Van Kampen Aggressive Growth Fund Class A | | | 74,155 | | | shares | | | 1,167,203 | |
| Total mutual funds | | | | | | | | | 8,775,853 | |
| | | | | | | | | | | |
| Common stock: | | | | | | | | | | |
| Interactive Intelligence, Inc. * | | | 44,928 | | | shares | | | 229,132 | |
| | | | | | | | | | | |
| Money market fund: | | | | | | | | | | |
| ML Retirement Reserves Money Fund * | | | 723,589 | | | shares | | | 759,082 | |
| | | | | | | | | | | |
| Participant loans | | Interest rate range 5.00% to 10.50% | | 143,442 | |
| | | | | | | | | $ | 9,907,509 | |
| | | | | | | | | | | |
* Indicates party-in-interest to the Plan.
See accompanying report of independent registered public accounting firm.
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| | INTERACTIVE INTELLIGENCE, INC. 401(K) SAVINGS PLAN |
| | | | |
| | By: | Interactive Intelligence, Inc. Administrative Committee |
| Date: June 29, 2006 | | | |
| | | /s/ Donald E. Brown, M.D. |
| | | Donald E. Brown, M.D., Member |
| | | |
| | | /s/ Stephen R. Head |
| | | Stephen R. Head, Member |
| | | |
| | | /s/ Debra L. Jones |
| | | Debra L. Jones, Member |
