UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number
March 31, 1995 0-10211
INTER-TEL, INCORPORATED
Incorporated in the State of Arizona I.R.S. No. 86-0220994
7300 West Boston Street
Chandler, Arizona 85226
(602) 961-9000
Common Stock
(10,408,926 shares outstanding as of March 31, 1995)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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INDEX
INTER-TEL, INCORPORATED AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 3
1995 and December 31, 1994
Condensed consolidated statements of income--Three 4
months ended March 31, 1995 and March 31, 1994
Condensed consolidated statements of cash flows 5
--Three months ended March 31, 1995 and
March 31, 1994
Notes to condensed consolidated financial 6
statements--March 31, 1995
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION 9
SIGNATURES 10
EXHIBIT 11.1 11
EXHIBIT 27 12
PART I. FINANCIAL INFORMATION
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands) March 31, December 31,
1995 1994
---------- ----------
ASSETS
CURRENT ASSETS
Cash and equivalents ...................... $ 12,558 $ 15,279
Accounts receivable - net ................. 15,631 15,983
Inventories ............................... 14,903 14,258
Net investment in sales-leases ............ 2,765 1,613
Prepaid expenses and other assets ......... 6,441 3,802
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TOTAL CURRENT ASSETS ...................... 52,298 50,935
PROPERTY & EQUIPMENT ........................... 7,843 5,715
OTHER ASSETS ................................... 7,086 7,462
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$ 67,227 $ 64,112
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .......................... $ 5,055 $ 4,499
Other current liabilities ................. 9,692 8,807
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TOTAL CURRENT LIABILITIES ................. 14,747 13,306
DEFERRED TAXES ................................. 2,617 2,617
OTHER LIABILITIES .............................. 2,667 2,924
SHAREHOLDERS' EQUITY
Common stock .............................. 27,432 27,334
Retained earnings ......................... 20,076 18,317
Equity adjustment for foreign
currency translation ................... (74) (122)
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47,434 45,529
Less receivable from Employee
Stock Ownership Trust .................. 238 264
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TOTAL SHAREHOLDERS' EQUITY ................ 47,196 45,265
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$ 67,227 $ 64,112
========== ==========
Note: The financial information for the first quarter of 1994
has been restated to reflect the pooling of interests
with Southwest Telephone Systems, Inc.
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except Three Months Ended
per share amounts) March 31, March 31,
1995 1994
--------- ---------
NET SALES ........................................ $ 30,962 $ 25,465
Cost of sales .................................... 18,080 15,569
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GROSS PROFIT ..................................... 12,882 9,896
Research & development ...................... 1,458 1,020
Selling, general, and administration ........ 8,885 7,128
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OPERATING INCOME ................................. 2,539 1,748
Interest and other income ................... 310 142
Interest expense ............................ (11) (11)
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INCOME BEFORE TAXES .............................. 2,838 1,879
Income taxes ................................ 1,079 712
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NET INCOME ....................................... $ 1,759 $ 1,167
========= =========
NET INCOME PER SHARE ............................. $ .16 $ .11
========= =========
Average number of shares
outstanding ............................. 10,789 10,566
========= =========
Note: The financial information for the first quarter of 1994
has been restated to reflect the pooling of interests
with Southwest Telephone Systems, Inc.
INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
(In thousands) March 31, March 31,
1995 1994
--------- ---------
OPERATING ACTIVITIES
NET INCOME .................................... $ 1,759 $ 1,167
Adjustments to reflect operating activities:
Depreciation and amortization ............... 478 315
Changes in operating assets and liabilities . (2,653) (2,050)
Other ....................................... 173 122
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NET CASH USED IN
OPERATING ACTIVITIES ....................... (243) (446)
INVESTING ACTIVITIES
Proceeds from disposal of property
and equipment ............................... 5 0
Additions to property and equipment ........... (2,580) (531)
---------- ----------
NET CASH USED IN INVESTING
ACTIVITIES .................................. (2,575) (531)
FINANCING ACTIVITIES
Proceeds from exercise of stock options ....... 97 50
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES .................................. 97 50
DECREASE IN CASH AND EQUIVALENTS .............. (2,721) (927)
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD ............................ 15,279 14,588
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CASH AND EQUIVALENTS AT
END OF PERIOD .................................. $ 12,558 $ 13,661
========== ==========
Note: The financial information for the first quarter of 1994
has been restated to reflect the pooling of interests
with Southwest Telephone Systems, Inc.
INTER-TEL, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1995
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the results for the interim periods presented have been included. Operating
results for the three months ending March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1995. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1994.
NOTE B--INCOME PER SHARE
Primary earnings per share assume that outstanding common shares were increased
by shares issuable upon the exercise of all outstanding stock options to which
market price exceeds exercise price less shares which could have been purchased
with related proceeds.
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales in the first quarter of 1995 increased by $5.5 million, or
22%, over the same quarter of 1994. Of the increase, Dealer network sales
increased $3.1 million, or 46% over 1994. Direct Sales revenues increased by
$1.7 million, or 11%, over the preceding year's quarter. The increases in both
distribution channels were attributable principally to sales of AXXESS software
and systems sales.
The gross margin percentage in the first quarter of 1995 was 41.6%
compared with 38.9% for the first quarter of 1994. The 1995 gross margin
percentage was favorably impacted by a higher proportion of software sales and
continued increase in shipments of AXXESS systems. Also, Dealer network sales
constituted a larger proportion of total shipments.
Research and Development expenses increased in total and as a
percentage of sales, reflecting a planned commitment to technological
development and shorter product release periods.
Selling, General and Administrative expenses during the first quarter
of 1995 were 28.7% of net sales compared with 28.0% of net sales in the first
quarter of 1994. These expenses increased as a result of greater sales
commissions on increased sales, additional marketing resources for the expanded
dealer network and for long distance services and expenses related to building
infrastructure for management information systems.
Other income increased by the temporary investment of excess cash at
higher interest rates.
Income from Operations increased 45% over the 1994 quarter from 6.9% of
net sales to 8.2% of net sales. Net income increased 51% from $1,167,000 to
$1,759,000. On a per share basis, net income increased from $.11 a share to $.16
a share, or 45%.
Inflation/Currency Fluctuation
Inflation and currency fluctuations have not previously had a material
impact on Inter-Tel's operations. International sales and procurement agreements
have traditionally been denominated in U.S. currency. Moreover, a significant
amount of contract manufacturing has been or is expected to be moved to domestic
sources. The expansion of international operations in the United Kingdom and
Europe and anticipated sales in Japan and Asia and elsewhere could result in
higher international sales as a percentage of total revenues, but international
operations currently do not present a significant currency risk.
Liquidity and Capital Resources
The Company currently has a $5 million Credit Agreement with Bank One,
Arizona, N.A., which is being used primarily to support international letters of
credit to suppliers.
The Company funds its Totalease program in part through the sale to
financial institutions of rental income streams under the leases. Totalease
rentals resold totaling $22.8 million remain unbilled at March 31, 1995. The
Company maintains reserves against potential recourse following the resales
based upon loss experience and past due accounts.
The Company will continue to expand its dealer network, which may
require working capital for increased receivables and inventories.
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 usual 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.
INTER-TEL, INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM l. LEGAL PROCEEDINGS--Not Applicable
ITEM 2. CHANGES IN SECURITIES--Not Applicable
ITEM 3. DEFAULTS ON SENIOR SECURITIES--Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
HOLDERS --Not Applicable
ITEM 5. OTHER INFORMATION--Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Exhibits:
11.1 Computation of Earnings per Share
27 Financial Data Schedule
Reports on Form 8-K:
No reports filed during quarter
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTER-TEL, INCORPORATED
Date May 9, 1995 Steven G. Mihaylo
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Steven G. Mihaylo
Chairman of the Board and
Chief Executive Officer
Date May 9, 1995 Kurt R. Kneip
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Kurt R. Kneip
Vice President and
Chief Financial Officer