exv99w1

(a) The amounts provided are estimates and subject to audit. The Company has not yet filed its Form 10-K report for the Year Ended December 31, 2005, and there can be no assurance that these amounts may not change.

Additional information regarding our operating results follows:

Sales. GAAP net sales decreased 0.1% to $110.7 million in the fourth quarter of 2005 compared to $110.8 million as restated for the fourth quarter of 2004. Non-GAAP net sales, which exclude the operations of Lake, decreased 5.0%, or $5.6 million, in the quarter ended December 31, 2005 compared to restated net sales in the fourth quarter of 2004. GAAP net sales increased 6.3%, or $26.1 million, to $442.9 million in the year ended December 31, 2005 compared to restated net sales of $416.8 million in 2004. Non-GAAP net sales, excluding the operations of Lake, increased 0.8%, or $3.1 million in the year ended December 31, 2005 compared to restated net sales in 2004.

Gross Profit and Gross Margin. GAAP gross profit decreased 6.0%, or $3.6 million, to $56.0 million in the fourth quarter of 2005 compared to restated gross profit of $59.6 million in the fourth quarter of 2004. The gross margin percentage decreased to 50.6% in the fourth quarter of 2005, compared to 53.8% for the fourth quarter of 2004, as restated. The decrease in gross profit dollars was primarily attributable to the mix of products and services sold, and sales promotions and discounts on product and service revenues. The decrease in gross margin percentage was due primarily to sales promotions and discounts on product and service revenues. The gross margin percentage was also affected by the mix of products and services sold, with a higher percentage of net sales recognized in our local, long distance and network services divisions, government and national accounts division, and DataNet operations, which generate lower gross margins than other divisions within our principal operating segment. In the year ended December 31, 2005, GAAP gross profit dollars increased 2.2%, or $4.9 million, to $226.3 million, compared to restated gross profit of $221.5 million in the year ended December 31, 2004. The gross margin percentage decreased to 51.1% in the year ended December 31, 2005, compared to 53.1% for the corresponding period in 2004, as restated, primarily due to promotions and price discounting, as well as the mix of the products and services sold as described in greater detail above.

-3-

Research and Development (R&D). GAAP R&D expenses decreased 2.5%, or $197,000, in the fourth quarter of 2005 compared to the fourth quarter of 2004. Non-GAAP R&D costs, which exclude the operations of Lake, decreased 11.2%, or $0.9 million, in the quarter ended December 31, 2005 compared to R&D costs in the fourth quarter of 2004. R&D expenses decreased in the fourth quarter of 2005 compared to the corresponding period in 2004 following the product test and launch expenses associated with the release of new products in the first half of 2005, including the Inter-Tel 5000, Enterprise Messaging, and Unified Communicator v3.0 products. In the year ended December 31, 2005, GAAP R&D expenses increased 15.4%, or $4.4 million, compared to the year ended December 31, 2004. Non-GAAP R&D expenses, which exclude the operations of Lake, increased 3.8%, or $1.1 million, in the year ended December 31, 2005 compared to the year ended December 31, 2004.

In-Process Research and Development (IPRD) Write-Off. In the first quarter of 2005, the Company reported a write-off of IPRD costs of $2.6 million associated with the acquisition of Lake. This write-off reduced GAAP net income by $0.10 per diluted share for the year ended December 31, 2005. Refer to “Reconciliation of GAAP and Non-GAAP Disclosures” below for additional information.

Selling, General and Administrative (SG&A). GAAP SG&A increased slightly by 0.9%, or $329,000, in the fourth quarter of 2005 compared to the fourth quarter of 2004. The slight dollar increase was primarily attributable to higher costs and higher net sales associated with our Lake acquisition in March 2005. SG&A increased to 32.9% of net sales in the fourth quarter of 2005 compared to 32.5% of restated net sales in the fourth quarter of 2004. Non-GAAP SG&A costs, which exclude the operations of Lake, decreased 2.4%, or $0.9 million, in the quarter ended December 31, 2005 compared to SG&A costs in the fourth quarter of 2004. In the year ended December 31, 2005, GAAP SG&A expenses increased 8.9%, or $12.4 million, compared to the year ended December 31, 2004. SG&A increased to 34.4% of net sales in the year ended December 31, 2005, compared to 33.6% of net sales in 2004, as restated. Non-GAAP SG&A expenses, which exclude the operations of Lake, increased 5.6%, or $7.9 million, in the year ended December 31, 2005 compared to SG&A in the year ended December 31, 2004.

Amortization. Amortization increased 110.6% to $1.1 million in the fourth quarter of 2005, compared to $540,000 in the fourth quarter of 2004. The increase was primarily due to increased purchased intangible assets from acquisitions and assets acquired during 2004 and the Lake acquisition in 2005. Amortization increased 124.6% to $4.2 million in the year ended December 31, 2005, compared to $1.9 million in 2004.

Legal judgment, legal settlement and related legal costs. GAAP pre-tax costs associated with this line item in the consolidated statements of income totaled $10.4 million ($0.26 per diluted share after taxes) during the quarter ended September 30, 2005. As disclosed in August 2005, a jury rendered a verdict against Inter-Tel in the net amount of approximately $7.4 million in a trial in Florida. Although the Company is appealing the verdict, the Company has accrued the net verdict amount, plus legal costs incurred in the third quarter. Should the Company be successful or unsuccessful in the appeals process, these costs may be adjusted in the future. The Company also reached a separate settlement in another legal matter during the third quarter in connection with a longstanding dispute with a third-party vendor and customer. The net settlement plus legal fees incurred during the third quarter are included in the pre-tax total costs of $10.4 million identified above.

Reconciliation of GAAP and Non-GAAP Disclosures. 2005 first quarter operating income included a write-off of IPRD costs of $2.6 million, which reduced net income by $2.6

-4-

million, or $0.10 per diluted share. This write-off reflected the in-process research and development costs associated with the Company’s Lake acquisition in March 2005. The IPRD write-off is not deductible for income tax purposes. Provided in the tables below are the preliminary operating results of our acquired Lake operations, including the IPRD write-off, as well as the impact of costs associated with a legal judgment against the Company in the third quarter, a legal settlement in the third quarter, and legal costs associated with these two events as identified in more detail above. The non-GAAP condensed consolidated statements of operations are provided below to enhance overall understanding of our current financial performance and how we view our operating results. The presentation of this non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and is not necessarily comparable to non-GAAP results published by other companies. The following tables reconcile the financial statements on a GAAP basis for the quarter and year ended December 31, 2005 to the non-GAAP pro forma financial statements, which exclude the effects of (1) the in-process research and development (IPRD) write-off and the impact of operating results from the acquired Lake operations and (2) costs associated with a legal judgment against the Company in the third quarter, a legal settlement in the third quarter, and legal costs associated with each of these two events, as discussed above:

-5-

Quarter ended December 31, 2005


						Non-GAAP/
(in thousands, except per				Lake		Pro forma excluding
share amounts)	GAAP		Acquisition			Lake

Sales	$	110,675		$	5,423	$	105,252
Gross profit		56,038			2,761		53,277
Selling, general and administrative		36,362			1,182		35,180
Amortization		1,137			522		615
Operating income		10,737			355		10,382
Income before income taxes		12,088			394		11,694
Income tax provision		3,328			52		3,276
Net income		8,760			342		8,418
Net income per share — basic	$	0.33		$	0.01	$	0.32
Net income per share — diluted	$	0.33		$	0.01	$	0.31

Year ended December 31, 2005


						Legal judgment,			Non-GAAP/
						legal settlement			Pro forma excluding
(in thousands, except			Lake			and related			Lake and legal
per share amounts)	GAAP		Acquisition			litigation costs			issues

Sales	$	442,894	$	22,996		$	—		$	419,898
Gross profit		226,310		11,228			—			215,082
Selling, general and administrative		152,314		4,507			—			147,807
In process R&D write-off		2,600		2,600			—		—
Amortization		4,194		1,740			—			2,454
Legal judgment and settlement		10,378		—			10,378		—
Operating income (loss)		23,566		(981	)		(10,378	)		34,925
Income (loss) before income taxes		27,769		(911	)		(10,378	)		39,058
Income taxes		9,375		223			(3,580	)		12,732
Net income (loss)		18,394		(1,134	)		(6,798	)		26,326
Net income (loss) per share — basic	$	0.70	$	(0.04	)	$	(0.26	)	$	1.00
Net income (loss) per share — diluted	$	0.68	$	(0.04	)	$	(0.26	)	$	0.97

-6-

Conference call. You may access our quarterly earnings results conference call, which is scheduled for February 14, 2006 at 5:30 p.m. (ET) 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 February 14, 2007 at 11:59 p.m. (ET).

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company’s estimates of restatement adjustments on net sales, operating income, corporate executive incentive plans, tax provision and net income for all periods presented, the materiality of such adjustments, and the Company’s intent to restate its revenues and related income tax provision for all periods to be presented in the forthcoming Annual Report on Form 10-K, scheduled to be filed in March 2006. Such statements are based on current assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially from our current expectations. These risks and uncertainties include, but are not necessarily limited to, the risks that Inter-Tel’s management has not properly estimated and accounted for proposed restatement amounts for all applicable periods. For a further list and description of such risks and uncertainties, please see the Company’s previously filed SEC reports, including the Company’s Annual Report on Form 10-K filed March 16, 2005, Form 10-Q filed on November 9, 2005 and Current Reports on Form 8-K. Inter-Tel disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

-7-

About Inter-Tel, Incorporated
Inter-Tel (Nasdaq: INTL — news) offers value-driven communications products; applications utilizing networks and server-based communications software; and a wide range of managed services that include voice and data network design and traffic provisioning, custom application development, and financial solutions packages. An industry-leading provider focused on the communication needs of business enterprises, Inter-Tel employs approximately 2,000 communications professionals, and services business customers through a network of 59 company-owned direct sales offices and over 350 authorized providers in North America, the United Kingdom, Ireland, Australia and South Africa. More information is available at www.inter-tel.com.

-8-

INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months									Pro Forma			Pro Forma 2005		Q4 2005
(in thousands, except per share amounts)	Ended December 31,									2005			legal judgment		Excluding
	2005			2004			2004			Lake Acq			& settlement		Lake & legal
	GAAP			GAAP						Non-GAAP			Non-GAAP		Non-GAAP
NET SALES				As Reported			As Restated
Telecommunications systems, software and related	$	96,285		$	98,240		$	98,240		$	5,423				$	90,862
Resale of local and long distance		14,390			12,208			12,600			—			—		14,390

Total net sales		110,675			110,448			110,840			5,423			—		105,252
Cost of sales
Telecommunications systems, software and related		46,194			43,060			43,060			2,662					43,532
Resale of local and long distance		8,443			8,144			8,144			—			—		8,443

Total cost of sales		54,637			51,204			51,204			2,662			—		51,975

GROSS PROFIT		56,038			59,244			59,636			2,761			—		53,277

Research & development		7,802			7,999			7,999			702					7,100
Selling, general and administrative		36,362			36,033			36,033			1,182					35,180
Amortization of purchased intangible assets		1,137			540			540			522					615
Write-off of in-process research and development costs		—			—			—			—					—
Legal judgment and settlement / E-Rate		—			9,261			9,261						—		—

		45,301			53,833			53,833			2,406			—		42,895

OPERATING INCOME		10,737			5,411			5,803			355			—		10,382
Interest and other income		1,260			846			846			22			—		1,238
Foreign currency transaction gains (losses)		111			(118	)		(118	)		17			—		94
Interest expense		(20	)		(10	)		(10	)					—		(20	)

INCOME BEFORE INCOME TAXES		12,088			6,129			6,521			394			—		11,694
INCOME TAX PROVISION		3,328			3,218			3,308			52			—		3,276

NET INCOME	$	8,760		$	2,911		$	3,213		$	342		$	—	$	8,418

NET INCOME PER SHARE—BASIC	$	0.33		$	0.11		$	0.12			0.01			—	$	0.32

NET INCOME PER SHARE—DILUTED	$	0.33		$	0.11		$	0.12			0.01			—	$	0.31

DIVIDENDS PER SHARE	$	0.08		$	0.07		$	0.07		$	—		$	—	$	0.08

Average number of common
shares outstanding — Basic		26,222			25,994			25,994			26,222			26,222		26,222

Average number of common shares outstanding — Diluted		26,914			27,509			27,509			26,914			26,222		26,914

Effective tax rate		27.5	%		52.5	%		50.7	%		13.2	%		n/a		28.0	%

-9-

INTER-TEL, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Year									Pro Forma			Pro Forma 2005			Pro Forma
(in thousands, except per share amounts)	Ended December 31,									2005			legal judgment			Excluding
	2005			2004			2004			Lake Acq			& settlement			Lake & Charge
	GAAP			GAAP						Non-GAAP			Non-GAAP			Non-GAAP
NET SALES				As Reported			As Restated
Telecommunications systems, software and related	$	387,605		$	367,969		$	367,969		$	22,996					$	364,609
Resale of local and long distance		55,289			48,924			48,799			—						55,289

Total net sales		442,894			416,893			416,768			22,996			—			419,898
Cost of sales
Telecommunications systems, software and related		182,789			165,345			165,345			11,768						171,021
Resale of local and long distance		33,795			29,973			29,973			—						33,795

Total cost of sales		216,584			195,318			195,318			11,768			—			204,816

GROSS PROFIT		226,310			221,575			221,450			11,228			—			215,082

Research & development		33,258			28,815			28,815			3,362						29,896
Selling, general and administrative		152,314			139,917			139,917			4,507						147,807
Amortization of purchased intangible assets		4,194			1,867			1,867			1,740						2,454
Write-off of in-process research and development costs		2,600			—			—			2,600						—
Legal judgment and settlement / E-Rate		10,378			9,261			9,261			—			10,378			—

		202,744			179,860			179,860			12,209			10,378			180,157

OPERATING INCOME		23,566			41,715			41,590			(981	)		(10,378	)		34,925
Interest and other income		4,073			2,654			2,654			38			—			4,035
Foreign currency transaction gains (losses)		215			(399	)		(399	)		32			—			183
Interest expense		(85	)		(118	)		(118	)		—			—			(85	)

INCOME BEFORE INCOME TAXES		27,769			43,852			43,727			(911	)		(10,378	)		39,058
INCOME TAXES		9,375			16,798			16,514			223			(3,580	)		12,732

NET INCOME	$	18,394		$	27,054		$	27,213		$	(1,134	)	$	(6,798	)	$	26,326

NET INCOME PER SHARE—BASIC	$	0.70		$	1.05		$	1.06			(0.04	)		(0.26	)	$	1.00

NET INCOME PER SHARE—DILUTED	$	0.68		$	0.99		$	1.00			(0.04	)		(0.26	)	$	0.97

DIVIDENDS PER SHARE	$	1.24		$	0.19		$	0.19		$	—		$	—		$	1.24

Average number of common shares outstanding — Basic		26,261			25,767			25,767			26,261			26,261			26,261

Average number of common shares outstanding — Diluted		27,207			27,266			27,266			26,261			26,261			27,207

Effective tax rate		33.8	%		38.3	%		37.8	%		(24.5	%)		34.5	%		32.6	%

-10-

OTHER SELECTED FINANCIAL DATA


(in millions, except DSO and	December 31,		December 31,
Inventory turn amounts)	2005		2004

Cash and short-term investments	$	167.5	$	205.0
Long-term investments		—		9.9
Accounts receivable — net		44.1		44.2
Inventory		19.6		16.1
Net investment in sales-leases (current)		19.7		17.2
Net investment in sales-leases (long-term)		34.8		33.9
DSO (based on 90 days sales)		35.8		36.0
DSO (based on trailing 12 mo. sales)		35.8		38.1
Inventory turns		11.5		11.7


	Quarter ended		Quarter ended		Year ended		Year ended
	December 31,		December 31,		December 31,		December 31,
	2005		2004		2005		2004
Depreciation and amortization	$	3.4	$	2.7	$	13.7	$	10.0
Capital Expenditures		2.5		3.3		8.7		10.7
Cash used for acquisitions		0.2		4.7		28.2		6.2
Cash dividends paid		2.1		1.8		34.9		6.4
Treasury stock repurchases (a)		—		—		13.8		—


(a)		716,500 shares at an average price of $19.23 per share.

-11-


					Year		Year			Nine
(in thousands, except per	Quarter Ended		Quarter Ended		Ended		Ended			Months Ended
share amounts)	12-31-05		12-31-04		12-31-05		12-31-04			9-30-05


Net sales as reported	$	110,675	$	110,448	$	442,894	$	416,893		$	332,655
Net sales as restated		n/a		110,840		n/a		416,768			332,219
Changes in reported net sales		n/a		392		n/a		(125	)		(436	)

Pre-tax net income as reported	$	12,088	$	6,129	$	27,769	$	43,852		$	16,117
Pre-tax net income as restated		n/a		6,521		n/a		43,727			15,681
Changes in reported pre-tax net income		n/a		392		n/a		(125	)		(436	)

Income tax provision as reported	$	3,328	$	3,218	$	9,375	$	16,798		$	6,542
Income tax provision as restated		n/a		3,308		n/a		16,514			6,047
Changes in income tax provision		n/a		90		n/a		(284	)		(495	)

Net income as reported	$	8,760	$	2,911	$	18,394	$	27,054		$	9,575
Net income as restated		n/a		3,213		n/a		27,213			9,634
Change in reported net income		n/a		302		n/a		159			59
Net income per diluted share as reported	$	0.33	$	0.11	$	0.68	$	0.99		$	0.35
Net income per diluted share as restated		n/a	$	0.12		n/a	$	1.00		$	0.35
Change in reported net income per diluted share		n/a	$	0.01		n/a	$	0.01		$	—