8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): October 20, 2003

INTER-TEL, INCORPORATED

(Exact Name of Registrant as specified in charter)

Commission File Number 0-10211

Arizona (State or other jurisdiction of incorporation)	86-0220994 I.R.S. Employer Identification Number
1615 S. 52ND STREET Tempe, Arizona (Address of principal executive offices)	85281 (Zip Code)

Registrant’s telephone number, including area code: (480) 449-8900

TABLE OF CONTENTS

	Item 7. Financial Statements and Exhibits
	Item 12. Results of Operations and Financial Condition.
SIGNATURES
EXHIBIT INDEX
EX-99.1

Item 7. Financial Statements and Exhibits

(c) Exhibits

Exhibit
Number	Description
99.1	Press release dated October 20, 2003 announcing pro-forma results for the third fiscal quarter and nine months ended September 30, 2003, and comparing such results with the results for the third quarter and nine months ended September 30, 2002.

Item 12. Results of Operations and Financial Condition.

     On October 20, 2003, Inter-Tel, Incorporated (the “Company”) issued a press release announcing pro-forma results for the third fiscal quarter and nine months ended September 30, 2003 and comparing such results with the results for the third quarter and nine months ended September 30, 2002. Pursuant to General Instruction B.6 of Form 8-K, this exhibit is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, but is instead furnished as required by that instruction.

The press release is furnished as Exhibit 99.1 hereto.

Use of Non-GAAP Financial Information

In May 2001, Inter-Tel entered into an agreement to submit to binding arbitration a lawsuit we filed in 1996. The arbitration was completed in January 2002 and, as a result of the arbitration, Inter-Tel received a one-time gross cash award of $20 million in February 2002. Direct costs for attorney’s fees, expert witness costs, arbitration costs and additional payments and expenses, totaled approximately $4.5 million in 2002, excluding income taxes, for a net award of approximately $15.5 million. The estimated net proceeds from this arbitration settlement were approximately $9.5 million after taxes, or $0.37 per diluted share for the year ended December 31, 2002.

This one-time litigation settlement was a non-recurring, non-operating item included in our GAAP results. Our management believes that the presentation of our results on a non-GAAP basis to exclude proceeds we received from the litigation settlement provides investors a more meaningful basis of evaluating our performance for the third fiscal quarter and first nine months of 2003, and for comparing our results with prior and subsequent periods.

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 hereunto duly authorized.

	INTER-TEL, INCORPORATED
Dated: October 20, 2003	By:	/s/ Kurt R. Kneip
	Kurt R. Kneip Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number
99.1	Press release dated October 20, 2003 announcing pro-forma results for the third fiscal quarter and nine months ended September 30, 2003, and comparing such results with the results for the third quarter and nine months ended September 30, 2002.

EX-99.1 3 p68359exv99w1.htm EX-99.1

Exhibit 99.1

TO BUSINESS EDITOR:

Inter-Tel Announces Third Quarter 2003 Results

Third Quarter Sales of $94.5 Million and EPS of $0.27

     TEMPE, Ariz., Oct. 20 /PRNewswire-FirstCall/ — Inter-Tel, Incorporated (Nasdaq: INTL) today announced operating results for the third quarter and nine months ended September 30, 2003. Net sales for the third quarter of 2003 were $94.5 million, compared to net sales of $96.7 million for the third quarter of 2002. Net sales for the nine months ended September 30, 2003 were $273.8 million, compared to net sales of $282.7 million for the same period in 2002.

     For the quarter ended September 30, 2003, the Company reported net income of $7.2 million ($0.27 per diluted share), compared to net income of $7.5 million ($0.29 per diluted share) in the third quarter of 2002. Net income for the nine months ended September 30, 2003 was $19.2 million ($0.73 per diluted share), compared to net income of $29.97 million ($1.17 per diluted share) for the same period in 2002, including an arbitration settlement(1). Excluding the arbitration settlement in 2002, net income for the nine months ended September 30, 2002 was $20.5 million ($0.80 per diluted share).

     “We are pleased with Inter-Tel’s operating performance and cash generation during the third quarter of 2003, especially during this period of continued difficult economic conditions for capital spending,” noted Steven G. Mihaylo, Inter-Tel’s Chairman and CEO. “Inter-Tel’s third quarter gross margin increased to 52.1% compared to 50.7% in the third quarter of 2002. This increase reflected the continued strength of recurring revenues from our existing customer base, cost reductions achieved through process improvements and increases in sales of our software as a component of our system shipments and installations.”

     Mr. Mihaylo added, “Inter-Tel’s cash and short-term investment balances at September 30, 2003 totaled $142.5 million. This quarter again reflected continued cash generated from operations, with effective management of our inventory and accounts receivable levels. For the quarter ended September 30, 2003, days sales outstanding were approximately 42 days and inventory turns were approximately 14.5 times, reflecting our continuous improvement efforts.”

     You may access our quarterly earnings results conference call, which is scheduled for October 20, 2003 at 5:30 p.m. (EDT) via the Internet at http://www.inter-tel.com . Select “News & Events” from the top navigation bar. A link to the webcast will be displayed within the “News & Events” section. A replay of the conference call will be available on the Internet until October 20, 2004.

     About Inter-Tel, Incorporated

     Inter-Tel (Nasdaq: INTL) is an Arizona-based corporation. Focused on the small- to medium-sized enterprise, Inter-Tel offers value-driven communications products; applications utilizing networks and server-based communications software; and a wide range of managed services that focus on voice & data network design and traffic provisioning, custom application development, and financial solutions packages that respond to business communications needs. An industry-leading provider, Inter-Tel employs over 1,700 people, and services business customers through a network of more than 50 direct sales offices and over 350 authorized dealers in the United States, United Kingdom and Asia. More information is available at www.inter-tel.com .

(1) Inter-Tel received a gross cash award of $20 million in February 2002 in settlement of a binding arbitration claim. Income taxes, attorney’s fees, expert witness costs, arbitration costs and additional costs and expenses, were estimated at $10.5 million during 2002. Accordingly, after-tax net income from this arbitration totaled approximately $9.5 million ($0.37 per diluted share) in the first nine months of 2002.

INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Three Months
(in thousands, except per share amounts)		Ended September 30,
		2003			2002
NET SALES		$	94,545		$	96,665
	Cost of sales		45,301			47,615
GROSS PROFIT			49,244			49,050
	Research & development		5,718			4,871
	Selling, general and administrative		31,761			32,194
	Amortization		445			269
			37,924			37,334
OPERATING INCOME			11,320			11,716
	Interest and other income		351			411
	Foreign currency transaction gains		5			73
	Interest expense		(34	)		(34	)
INCOME BEFORE INCOME TAXES			11,642			12,166
INCOME TAXES			4,424			4,623
NET INCOME		$	7,218		$	7,543
NET INCOME PER SHARE — BASIC		$	0.29		$	0.31
NET INCOME PER SHARE — DILUTED		$	0.27		$	0.29
Average number of common shares outstanding — Basic			25,107			24,544
Average number of common shares outstanding — Diluted			26,865			26,033
Selected accounts as percentage of net sales:
Gross profit (margin)			52.1	%		50.7	%
Research and development			6.0	%		5.0	%
Selling, general and administrative			33.6	%		33.3	%
Operating Income			12.0	%		12.1	%
Net Income			7.6	%		7.8	%

INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Nine Months						YTD 9/30/02			YTD
(in thousands, except		Ended September 30,						Excluding			09/30/2002
per share amounts)		2003			2002			Arbitration			Arbitration
NET SALES		$	273,816		$	282,682		$	282,682		$	0
	Cost of sales		130,248			140,104			140,104			—
GROSS PROFIT			143,568			142,578			142,578			—
	Research & development		16,378			13,726			13,726			—
	Selling, general and administrative		96,008			95,717			95,717			—
	Amortization		1,359			795			795			—
			113,745			110,238			110,238			—
OPERATING INCOME			29,823			32,340			32,340			—
	Litigation settlement (net of costs except for taxes)		—			15,516			—			15,516
	Interest and other, net		1,226			1,364			1,364			—
	Write-down of investment in Inter-Tel.NET/Vianet		—			(1,200	)		(1,200	)		—
	Foreign currency transaction gains (losses)		(9	)		273			273			—
	Interest expense		(137	)		(114	)		(114	)		—
INCOME BEFORE INCOME TAXES			30,903			48,179			32,663			15,516
INCOME TAXES			11,744			18,206			12,182			6,024
NET INCOME		$	19,159		$	29,973		$	20,481		$	9,492
NET INCOME PER SHARE — BASIC		$	0.77		$	1.23		$	0.84		$	0.39
NET INCOME PER SHARE — DILUTED		$	0.73		$	1.17		$	0.80		$	0.37
Average number of common shares outstanding — Basic			24,991			24,331			24,331			24,331
Average number of common shares outstanding — Diluted			26,291			25,715			25,715			25,715

OTHER SELECTED FINANCIAL DATA

(in millions, except	September 30,		June 30,		March 31,		December 31,
DSO and Inventory	2003		2003		2003		2002
turn amounts)
Cash and short-term investments	$	142.5	$	137.0	$	131.6	$	125.8
Accounts receivable - - net		43.6		42.5		37.7		42.6
Inventory		12.5		12.8		11.4		11.3
DSO (based on 90 days sales)		41.5		40.2		40.3		38.8
DSO (based on trailing 12 mo. sales)		42.2		40.8		36.1		40.2
Inventory turns		14.5		14.4		14.1		10.6

		September 30,		September 30,
		2003		2002
Depreciation and amortization (in SG&A and R&D):
	For the nine months ended September 30	$	6.8	$	6.4
	For the quarter ended September 30		2.8		2.6
Capital Expenditures:
	For the nine months ended September 30		6.3		5.2
	For the quarter ended September 30		4.2		2.4

SOURCE Inter-Tel, Incorporated
    -0-                    10/20/2003
    /CONTACT: Steven G. Mihaylo, Chairman, President and CEO,
+1-775-954-1211, or Norman Stout, Executive Vice President and CAO,
+1-480-449-8900, or Craig W. Rauchle, Executive Vice President and COO,
+1-775-954-1200, or Kurt R. Kneip, Sr. Vice President and CFO,
+1-480-449-8900, all of Inter-Tel, Incorporated/
    /First Call Analyst: /
    /FCMN Contact: /
    /Web site: http://www.inter-tel.com /
    (INTL)

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