September 1, 2006
VIA EDGAR AND FACSIMILE
Larry Spirgel, Assistant Director
United States Securities and Exchange Commission
100 F. Street, NE
Washington, D.C. 20549
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| | RE: | | Inter-Tel, Incorporated Form 10-K for the fiscal year ended December 31, 2005 Filed March 16, 2006, as amended |
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| | | | | Form 10-Q for the fiscal quarter ended March 31, 2006 Filed May 10, 2006
File No. 0-10211 |
Dear Mr. Spirgel:
On behalf of Inter-Tel, Incorporated (the “Company” or “Inter-Tel”), we are electronically transmitting for filing this letter which supplementally responds to the comments of the Staff of the Securities and Exchange Commission (the “Staff”) relating to the Company’s Form 10-K for the fiscal year ended December 31, 2005 contained in the Staff’s letter dated July 18, 2006 (“Staff’s Letter”) and in subsequent voice mails and conference calls. For your convenience, we have numbered and restated in bold each comment to correspond to the paragraph number of each comment contained in the Staff’s Letter.
Attached below is additional information requested by members of your staff. We added or revised information for Items 2 and 3 pursuant to conference calls regarding your comment letter dated July 18, 2006 and our corresponding response dated August 4, 2006.
Form 10-K for the fiscal year ended December 31, 2005
Note A — Restatement of Previously Issued Financial Statements, page 64
| 2. | | We note your restatement of the years ended December 31, 2004 and 2003. Please file a Form 8-K to report your restatement as required by Item 4.02. |
Company Response.
On February 14, 2006, we filed a Form 8-K announcing our results for the quarter and also announcing the restatement of certain comparative financial results. Both disclosures were included under Item 2.02 in the Form 8-K. The Form 8-K included an Exhibit 99.1 that gave details of the restatement.
The disclosures in the Form 8-K indicate that management did not believe the effects of the restatement were material to any prior quarter or annual reporting period. We considered the cumulative adjustment to be too large to record only in the fourth quarter of 2005, so management elected to restate prior periods to correct this difference. This same disclosure was included in the Form 10-K for the year ended December 31, 2005. In keeping with the size and nature of the restatement, we reached the conclusion that our financials could still be relied upon by investors. As a result, we did not believe that disclosure of the restatement specifically under Item 4.02 was necessary at the time we issued our Form 8-K dated February 14, 2006.
The Staff has explained their interpretation of Item 4.02. As a result, we will file a Form 8-K in accordance with Item 4.02.
Note B — Significant Accounting Policies, page 65
Goodwill and Other Intangible Assets, page 66
| 3. | | We note your statement that “the Company primarily considered an allocated portion of the market capitalization for the entire Company using average common stock prices in determining that no impairment has occurred. “Considering that you havetwo reporting units with clearly identifiable goodwill, it is unclear to us why you believe it is appropriate to utilize an enterprise wide approach for your impairment testing of goodwill. Refer to paragraphs 30 and 31 of SFAS 142. Please revise to comply with the impairment testing procedures for each of your reporting units as addressed by paragraphs 19-21. |
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| | | Company Response. |
In performing our testing of goodwill for impairment, we use two different tests. The first is the allocation of market capitalization currently disclosed in Note B to the financial statements. In addition we utilize a test of the cash flows for each reporting unit. For December 31, 2005, both tests showed an excess of value to support the balances in goodwill. We will indicate in our future filings that the test for impairment is based on the cash flows for each reporting unit.
The wording currently included in our Form 10-K for the year ended December 31, 2005 is as follows:
“Fair value has been determined for each segment in order to determine the recoverability of the recorded goodwill. At December 31, 2005, the Company primarily considered an allocated portion of the market capitalization for the entire Company using average common stock prices in determining that no impairment has occurred. This allocated market capitalization value far exceeded the net carrying value of the reporting units. Therefore, the second step for potential impairment was unnecessary.”
The wording we propose to include in our future filings with the SEC is as follows:
Fair value has been determined for each segment in order to determine the recoverability of the recorded goodwill. At December 31, 2005, the Company primarily consideredthe cash flows for each reporting unitan allocated portion of the market capitalization for the entire Company using average common stock prices in determining that no impairment has occurred.The test resulted in values that exceeded the net carrying value of each of the reporting units.This allocated market capitalization value far exceeded the net carrying value of the reporting units. Therefore, the second step for potential impairment was unnecessary.
Please do not hesitate to contact me at (480) 449-8943 should you have any questions. We will contact you in the coming days to confirm and discuss with you our understanding of these matters.
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| | | Respectfully, |
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| | | Kurt R. Kneip, |
| | | Chief Financial Officer |
