<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
/x/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended September 30, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______to ______
Commission file number: 0-18391
ASPECT TELECOMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
California 94-2974062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 Fox Drive, San Jose, California 95131-2312
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 325-2200
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 period 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 / /
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, was 24,314,678 at October 31, 1996.
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ASPECT TELECOMMUNICATIONS CORPORATION
INDEX
<TABLE>
<CAPTION>
Description Page Number
----------- -----------
<S> <C>
Cover Page 1
Index 2
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Income for the Three and
Nine Month Periods Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the Nine Month
Periods Ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II: Other Information
Item 2: Changes in Securities 14
Item 6: Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
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ASPECT TELECOMMUNICATIONS CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
--------- ---------
(unaudited) **
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,165 $ 22,102
Short-term investments 76,027 71,531
Accounts receivable, net 47,449 39,291
Inventories 15,541 11,051
Other current assets 9,330 8,699
--------- ---------
Total current assets 179,512 152,674
Property and equipment, net 48,017 28,418
Other assets 4,407 3,374
Intangible assets, net 28,609 31,405
--------- ---------
Total assets $ 260,545 $ 215,871
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,318 $ 11,142
Accrued compensation and related benefits 9,890 8,427
Other accrued liabilities 23,522 15,242
Customer deposits and deferred revenue 12,664 9,275
--------- ---------
Total current liabilities 57,394 44,086
Convertible subordinated debentures 55,000 55,000
Note payable 4,500 4,500
Shareholders' equity:
Preferred stock, $.01 par value:
2,000,000 shares authorized, none outstanding in 1996 and 1995 -- --
Common stock, $.01 par value:
100,000,000 shares authorized, 21,334,674 outstanding
in 1996; 20,876,461 outstanding in 1995 67,468 62,082
Net unrealized gain (loss) on available-for-sale securities (299) 102
Accumulated translation adjustments (953) (437)
Retained earnings 77,435 50,538
--------- ---------
Total shareholders' equity 143,651 112,285
--------- ---------
Total liabilities and shareholders' equity $ 260,545 $ 215,871
========= =========
</TABLE>
** Derived from audited financial statements.
See accompanying notes.
3
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Product $ 59,087 $ 36,971 $163,669 $102,643
Customer support 20,153 12,328 54,582 35,611
-------- -------- -------- --------
Total net revenues 79,240 49,299 218,251 138,254
Cost of revenues:
Cost of product revenues 20,142 13,224 54,665 35,971
Cost of customer support revenues 14,873 8,461 39,612 25,025
-------- -------- -------- --------
Total cost of revenues 35,015 21,685 94,277 60,996
-------- -------- -------- --------
Gross margin 44,225 27,614 123,974 77,258
Operating expenses:
Research and development 8,791 5,896 24,167 16,657
Selling, general and administrative 21,261 12,631 58,883 35,026
-------- -------- -------- --------
Total operating expenses 30,052 18,527 83,050 51,683
-------- -------- -------- --------
Income from operations 14,173 9,087 40,924 25,575
Interest income, net 480 1,069 1,026 2,012
-------- -------- -------- --------
Income before income taxes 14,653 10,156 41,950 27,587
Provision for income taxes 5,421 3,758 15,521 10,207
-------- -------- -------- --------
Net income $ 9,232 $ 6,398 $ 26,429 $ 17,380
======== ======== ======== ========
Primary earnings per share:
Net income per share $ 0.40 $ 0.29 $ 1.15 $ 0.80
======== ======== ======== ========
Shares used in per share computations 23,154 21,936 23,076 21,614
======== ======== ======== ========
Fully diluted earnings per share:
Net income per share $ 0.37 $ 0.28 $ 1.06 $ 0.76
======== ======== ======== ========
Shares used in per share computations 26,283 24,938 26,206 24,818
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 26,429 $ 17,380
Reconciliation of net income to cash provided by
operating activities:
Depreciation and amortization 10,644 6,016
Changes in:
Accounts receivable (6,792) (7,476)
Inventories (4,502) 148
Other current assets and other assets (1,627) 1,472
Accounts payable (767) 53
Accrued compensation and related benefits 1,412 856
Other accrued liabilities 8,138 2,212
Customer deposits and deferred revenue 3,465 (1,455)
-------- --------
Cash provided by operating activities 36,400 19,206
Cash flows from financing activities:
Common stock transactions 5,376 3,295
-------- --------
Cash provided by financing activities 5,376 3,295
Cash flows from investing activities:
Short-term investment purchases (75,457) (67,962)
Short-term investment sales and maturities 70,313 47,178
Property and equipment purchases (27,248) (9,268)
-------- --------
Cash used in investing activities (32,392) (30,052)
Effect of exchange rate changes on cash and cash equivalents (321) (325)
-------- --------
Increase (decrease) in cash and cash equivalents 9,063 (7,876)
Cash and cash equivalents:
Beginning of period 22,102 27,971
-------- --------
End of period $ 31,165 $ 20,095
======== ========
</TABLE>
See accompanying notes.
5
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The consolidated financial statements include the accounts of Aspect
Telecommunications Corporation and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
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 Article 10 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 have
been included. Operating results for the three and nine month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's 1995 Annual Report to Shareholders.
Business Combination
On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy) by
issuing approximately 105,000 shares of common stock for all of the outstanding
stock of Envoy. Envoy Systems Limited, the primary operating subsidiary of
Envoy, provides call center and telebusiness solutions to help improve customer
service through consulting services, software and systems integration. The
acquisition was accounted for as a pooling of interests. All financial data for
1996 has been restated to reflect the acquisition of Envoy. As the historical
operations of Envoy were not significant to any year presented, the Company's
financial statements for prior years have not been restated and the financial
effect of the prior years results of operations of Envoy has been accounted for
as a $468,000 increase to retained earnings in 1996.
Summarized results of operations of the separate companies for the nine months
ended September 30, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Net revenues:
Aspect $ 215,613
Envoy 2,638
---------
$ 218,251
=========
Net income (amounts are after tax):
Aspect $ 26,646
Envoy 157
Acquisition costs (374)
---------
$ 26,429
=========
</TABLE>
Per Share Information
Per share information for the periods presented is computed using the weighted
average number of common and common-equivalent shares outstanding. For primary
earnings per share calculations, common-equivalent shares consist of the
incremental shares issuable upon the assumed exercise of dilutive stock options
using the treasury stock method.
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For fully diluted earnings per share calculations, common-equivalent shares also
include the dilutive effect of incremental shares issuable upon the conversion
of the 5% convertible subordinated debentures, and net income is adjusted for
the interest expense, net of income taxes, related to the debentures.
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of:
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials $ 8,819 $ 7,556
Work-in-progress 614 660
Finished goods 6,108 2,835
------- -------
Total $15,541 $11,051
======= =======
</TABLE>
Subsequent Events
On October 15, 1996, the Company redeemed all $55 million of the convertible
subordinated debentures in exchange for approximately 2.8 million shares of the
Company's common stock.
During 1992, the Board of Directors approved a program to repurchase up to
1,500,000 shares of the Company's common stock from the open market. Through
July 31, 1994, 646,000 shares had been repurchased at an aggregate price of
$4,934,000 and no shares have been repurchased subsequent to such date. On
October 25, 1996, the Company terminated its share repurchase program.
On October 21, 1996, the Company acquired Prospect Software, Inc. (Prospect) by
issuing 140,000 shares of common stock for all of the outstanding stock of
Prospect. Prospect develops high-functionality computer-telephony integration
software. The acquisition was accounted for as a pooling of interests. The
following unaudited pro forma information has been prepared assuming the
acquisition had taken place at the beginning of the period presented and all
material transactions between the Company and Prospect during such period have
been eliminated:
Nine months ended September 30, 1996 (in thousands, except per share data)
<TABLE>
<S> <C>
Net revenues:
Consolidated Aspect $ 218,251
Prospect 2,378
Eliminations ($ 475)
---------
Combined $ 220,154
=========
</TABLE>
7
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Net income (amounts are after tax):
Consolidated Aspect $ 26,429
Prospect 883
Acquisition costs (86)
Eliminations (123)
--------
Combined $ 27,103
========
Fully-diluted earnings per share:
Consolidated Aspect $ 1.06
Prospect 0.03
Eliminations (.01)
--------
Combined $ 1.08
========
</TABLE>
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). This standard, which establishes a fair value based
method of accounting for stock-based compensations plans, also permits an
election to continue following the requirements of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" with additional disclosures of pro
forma net income and earnings per share under the new method. SFAS 123 is
effective for the Company's fiscal year ending December 31, 1996. The Company
plans to continue to account for its employee stock plans in accordance with the
provisions of APB Opinion No. 25 and provide the additional disclosures required
by SFAS 123. Accordingly, SFAS 123 is not expected to have a material impact on
the Company's financial position or results of operations.
8
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ASPECT TELECOMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis in the
Company's 1995 Annual Report to Shareholders.
On October 31, 1995, the Company acquired TCS Management Group, Inc. (TCS), a
company engaged in the business of designing, marketing, and supporting software
that automates the tasks associated with managing the workforce in a call
center, specifically, call forecasting, staff scheduling, and staff performance
tracking. The acquisition was accounted for as a purchase. The operating results
of TCS have been included in the consolidated statements of income since the
date of acquisition.
On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy).
Envoy Systems Limited, the primary operating subsidiary of Envoy, provides call
center and telebusiness solutions to help improve customer service through
consulting services, software and systems integration. The acquisition was
accounted for as a pooling of interests. All financial results for 1996 have
been restated to reflect the acquisition. As the historical operations of Envoy
were not significant to any year presented, the Company's financial statements
for prior years have not been restated and the financial effect of the prior
years results of operations of Envoy has been accounted for as a $468,000
increase to retained earnings in 1996.
Subsequent to September 30, 1996, the Company acquired Prospect Software, Inc.,
a company engaged in developing high-functionality computer-telephony
integration software. The acquisition was accounted for as a pooling of
interests.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that, except for the historical information contained
herein, the following discussion constitutes forward-looking statements that are
dependent on certain risks and uncertainties which may cause actual results to
differ materially from those expressed in these or any other forward-looking
statements made by or on behalf of the Company. Such risks and uncertainties are
described below, in the Company's 1995 Form 10-K and in the Company's 1995
Annual Report to Shareholders in the section titled "Management's Discussion and
Analysis - Risk Factors."
The Company's common stock price may be subject to significant volatility. Past
financial performance should not be considered a reliable indicator of
performance for any future period, and investors should not use historical
trends to anticipate future results or trends. For any given quarter, a
shortfall in the Company's announced revenue or earnings from the levels
expected by securities analysts could have an immediate and adverse effect on
the trading price of the Company's common stock. Additionally, the Company may
not learn of such shortfalls until late in a fiscal quarter, which could result
in an even more immediate and adverse effect on the trading price of the
Company's common stock. Further, the Company participates in a very dynamic high
technology industry, which could result in significant fluctuations in the
Company's common stock price at any time.
The Company believes that changes in any of the following areas could have a
material adverse affect on the Company's future financial position or results of
operations: changes in the overall demand for telecommunications products;
technological developments in the call transaction processing market; increased
competition; actual or threatened litigation against the Company based on
securities, intellectual property or other claims; risks associated with
international operations; compliance with regulatory requirements; availability
of necessary components and manufacturing licenses; the Company's ability to
implement and improve its operational and financial systems; the Company's
ability to attract and retain
9
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ASPECT TELECOMMUNICATIONS CORPORATION
employees necessary to support its growth; and acquisition risks, including the
Company's ability to integrate the personnel and operations of the acquired
companies and retain key employees. For a more detailed description of these
risks, see the section titled "Management's Discussion and Analysis - Risk
Factors" in the Company's 1995 Annual Report to Shareholders.
RESULTS OF OPERATIONS
Net Revenues
Total net revenues for the third quarter of 1996 were $79 million, representing
an increase of 61% over total net revenues of $49 million for the same period in
1995. Total net revenues for the first nine months of 1996 were $218 million,
representing an increase of 58% over total net revenues of $138 million for the
same period in 1995. Net revenues for the third quarter and first nine months of
1996 include approximately $1.0 million and $2.6 million, respectively, of
revenue from Envoy, which was acquired in September 1996 and accounted for as a
pooling of interests. Substantially all of the Envoy revenue is customer support
revenue.
Sales of the Company's products generally involve a cycle of six months or
longer from the point of initial customer contact until receipt of the first
system order, and there will typically be a period ranging from one to six
months from the time an order is initially received to the time the system is
installed. The Company generally recognizes revenue from the sale of systems
upon installation at the customer site; revenues from add-ons, upgrades,
software licenses, and sales to distributors are generally recognized upon
shipment to the customer or distributor.
Within the context of the above-described sales cycle, both product and customer
support revenues for the Company remain dependent upon the overall demand for
telecommunications products, which has in the past, and may in the future,
fluctuate significantly based on numerous factors, including capital spending
practices of customers, market competition, and economic conditions in general.
Given the relatively large sales prices of the Company's systems in relation to
quarterly revenue levels, a limited number of systems can account for a
substantial portion of product revenues in any particular quarter. Moreover, a
significant percentage of system revenue continues to be derived from new
customers. Revenues and the related gross product margins can be expected to
fluctuate due to the mix of products sold, channel of distribution, the portion
of revenues from the Federal government, the portion of systems revenues related
to accounts purchasing multiple systems and the mix and level of third party
product included as part of systems integration projects. Because of these and
other factors, the Company could experience significant fluctuations in product
and customer support revenues and operating results in future periods. While the
Company believes that its products will continue to compare favorably with
competitive products, competition may create downward pressure on prices,
resulting in lower product margins and operating results.
Product revenues for the third quarter of 1996 were $59 million, representing an
increase of 60% over product revenues of $37 million for the same period in
1995. Product revenues for the first nine months of 1996 were $164 million,
representing an increase of 59% over product revenues of $103 million for the
same period in 1995. The increases in product revenues for both periods were
primarily attributable to increased demand for the Company's products, as both
the volume of new system sales and the volume of add-ons and upgrades increased
from the same periods in 1995, and the inclusion of TCS's product revenues in
1996. Average selling prices on new systems remained relatively stable across
the periods.
Customer support revenues for the third quarter of 1996 were $20 million,
representing an increase of 63% over customer support revenues of $12 million
for the same period in 1995. Customer support revenues for
10
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ASPECT TELECOMMUNICATIONS CORPORATION
the first nine months of 1996 were $55 million, representing an increase of 53%
over customer support revenues of $36 million for the same period in 1995. Net
revenues for the third quarter and first nine months of 1996 include
approximately $0.9 million and $2.4 million, respectively, of revenue from
Envoy, which was acquired in September 1996 and accounted for as a pooling of
interests. The increases in customer support revenues for both periods resulted
primarily from the growth of the installed base and the inclusion of TCS and
Envoy customer support revenues in 1996. Customer support revenues include
charges to install products at customer sites, charges for providing
contractually agreed-upon ongoing system service and maintenance, which
typically commences twelve months from the date a system is first installed, and
other support services provided to the Company's customers. Installation revenue
will generally follow product revenue fluctuations, although no installation
revenue is ordinarily received for product sales to the Company's distributors.
Contract support revenues are largely dependent on the renewal of customer
support contracts and will be significantly affected by the growth rate of
Aspect's installed base. Since most costs associated with providing customer
support are fixed, quarterly fluctuations in customer support revenues can have
a significant impact on the related customer support gross margin.
On July 2, 1996, the Company was awarded a contract by the United States Postal
Service (USPS) for automatic call distribution systems and certain call center
support services. The contract is valued at up to $20 million by the USPS and is
expected to be fulfilled over several years. In July 1996, one of the Company's
competitors filed a protest with the USPS against the award of the contract to
the Company. On October 25, 1996, the USPS Senior Counsel for Protests and
Policy issued a decision that did not disturb the award to the Company. The
Company believes the USPS decision resolves the protest and the Company's
ability to complete the contract, although there can be no assurance that
another party will not seek further review or action regarding the contract. In
addition, although the Company has begun initial deliveries under the contract,
there can be no assurance that the USPS will issue orders for the remaining
systems.
Gross Margin on Product Revenues
Product gross margin increased to 65.9% for the third quarter of 1996 from 64.2%
for the same period in 1995. For the first nine months of 1996, product gross
margin increased to 66.6% from 65.0% for the same period in 1995. The increase
in product gross margins in both periods reflects the inclusion of TCS's product
revenues, which typically carry higher margins than the Company's other product
revenues, in 1996 and a lower proportion of revenues from sales to the Internal
Revenue Service, which typically have lower than average margins. Product gross
margin decreased to 65.9% for the third quarter of 1996 from 67.0% for the first
half of 1996 due to higher revenues from sales to the Internal Revenue Service
in the third quarter of 1996. On a forward-looking basis, the Company expects
that any of the following factors could have a material impact on product gross
margins in future quarterly periods: the mix of products sold; the channel of
distribution; the portion of revenues from the Federal government; the portion
of systems revenues related to accounts purchasing multiple systems; the mix and
level of third party product included as part of systems integration projects;
and other factors.
Gross Margin on Customer Support Revenues
Customer support gross margin decreased to 26.2% for the third quarter of 1996
from 31.4% for the same period in 1995. For the first nine months of 1996,
customer support gross margin decreased to 27.4% from 29.7% for the same period
in 1995. The decrease in customer support margins in both periods reflects
customer support revenues not growing proportionately with the costs associated
with providing the related services and ongoing efforts to significantly expand
the customer support infrastructure, particularly in the United States. On a
forward-looking basis, the Company anticipates that its customer support margins
will vary from quarter to quarter due to fluctuations in customer support
revenues, since most costs associated
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ASPECT TELECOMMUNICATIONS CORPORATION
with providing customer support are fixed, and the expansion of its customer
support infrastructure. In the fourth quarter of 1996, the Company plans to
establish an additional domestic customer operations support center that will
further increase support costs.
Research and Development Expenses
Research and development ("R&D") expenses were $9 million for the third quarter
of 1996, representing an increase of 49% over R&D expenses of $6 million for the
same period in 1995. R&D expenses were $24 million for the first nine months of
the year, representing an increase of 45% over R&D expenses of $17 million for
the same period in 1995. The increases in R&D expenses for both periods were
primarily attributable to increases in labor and infrastructure costs, as well
as the inclusion of TCS's R&D expenses in 1996. As a percentage of net revenues,
R&D spending was 11% for both the third quarter and first nine months of 1996
compared to 12% for the same periods in 1995. The Company continues to believe
that significant investment in research and development is required to remain
competitive and anticipates, on a forward-looking basis, that such expenses will
increase in terms of absolute dollars for 1996 as a whole, when compared to
1995, although such expenses as a percentage of net revenues may fluctuate on a
quarterly basis.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $21 million for the
third quarter of 1996, representing an increase of 68% over SG&A expenses of $13
million for the same period in 1995. SG&A expenses were $59 million for the
first nine months of 1996, representing an increase of 68% over SG&A expenses of
$35 million for the same period in 1995. The increases in SG&A expenses for both
periods were primarily related to increased labor costs, the expansion of the
Company's operations, the inclusion of TCS's SG&A expenses in 1996, and the
amortization of intangible assets related to the TCS acquisition. As a
percentage of net revenues, SG&A was 27% for both the third quarter and first
nine months of 1996 compared to 26% and 25% for the same periods in 1995,
respectively. SG&A expenses for the third quarter of 1996 include approximately
$600,000 for transaction related expenses associated with the Envoy acquisition.
The Company is currently in the process of implementing a new internal
integrated business application software program and, during the second quarter
of 1996, began using such software as its principal business application
software for its domestic operations. There can be no assurance that
complications will not arise from the software system transition, resulting in
substantial, unanticipated expenses. The Company anticipates, on a
forward-looking basis, that SG&A expenses will increase in terms of absolute
dollars for 1996 as a whole, when compared to 1995, although such expenses as a
percentage of net revenues may fluctuate on a quarterly basis.
Net Interest Income
Net interest income (interest income, net of interest expense) was $0.5 million
for the third quarter of 1996, representing a decrease of 55% over net interest
income of $1.1 million for the same period in 1995. Net interest income was $1
million for the first nine months of 1996, representing a decrease of 49% over
net interest income of $2 million for the same period in 1995. The decreases in
net interest income for both periods were primarily due to lower interest
earning balances and interest expense on the note payable incurred in connection
with the TCS acquisition. On a forward-looking basis, the Company anticipates
that net interest income will increase in the near term as a result of the
redemption of the $55 million of convertible subordinated debentures on October
15, 1996 (see "Liquidity and Capital Resources").
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ASPECT TELECOMMUNICATIONS CORPORATION
Income Taxes
The Company's effective income tax rate was 37% for the third quarter and first
nine months of 1996 and the comparable periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's principal source of liquidity consisted
of cash, cash equivalents, and short-term investments totaling $107 million,
which represented 41% of total assets. The primary sources of cash during the
first nine months of 1996 consisted of cash provided by operating activities of
$36 million and proceeds from the issuance of common stock under various stock
plans of $5 million. The primary uses of cash during the first nine months of
1996 consisted of $5 million for net purchases of short-term investments and $27
million for purchases of property and equipment, including $10.5 million for the
acquisition of a 98,000 square-foot building and approximately ten acres of
land.
As of September 30, 1996, the Company's outstanding borrowings consisted of $55
million of convertible subordinated debentures and a $4.5 million note payable
incurred in connection with the acquisition of TCS (see Notes 7 and 2,
respectively, to the Company's 1995 Consolidated Financial Statements). On
October 15, 1996, the Company redeemed all $55 million of the convertible
subordinated debentures in exchange for approximately 2.8 million shares of the
Company's common stock.
During 1992, the Board of Directors approved a program to repurchase up to
1,500,000 shares of the Company's common stock from the open market. Through
July 31, 1994, 646,000 shares had been repurchased at an aggregate price of
$4,934,000 and no shares have been repurchased subsequent to such date. On
October 25, 1996, the Company terminated its share repurchase program.
The Company believes, on a forward-looking basis, that its cash, cash
equivalents, and short-term investments and anticipated cash flow from
operations will be sufficient to meet the Company's presently anticipated cash
requirements during at least the next twelve months.
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ASPECT TELECOMMUNICATIONS CORPORATION
Part II: Other Information
ITEM 2. CHANGES IN SECURITIES
On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy) by
issuing 105,418 shares of the Company's common stock to the shareholders of
Envoy in exchange for all of the outstanding capital stock of Envoy held by the
shareholders of Envoy.
On October 21, 1996, the Company acquired Prospect Software, Inc. (Prospect) by
issuing 140,000 shares of the Company's common stock to the shareholders of
Prospect following the merger of a wholly-owned subsidiary of the Company with
and into Prospect.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act of 1933, as amended (the Act), in reliance on Section
4(2) of the Act as transactions by an issuer not involving a public offering.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were attached to the share certificates issued in such transactions. All
recipients had adequate access to information about the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 11.1 Statement re: Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
14
<PAGE> 15
ASPECT TELECOMMUNICATIONS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Aspect Telecommunications Corporation
(Registrant)
Date: November 13, 1996
By
/s/ Eric J. Keller
---------------------------------------------------
Eric J. Keller
Vice President, Finance and Chief Financial Officer
(Duly Authorized and Principal Financial and
Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11.1 Statement re: Computation of Earnings per Share
27 Financial Data Schedule
<PAGE> 1
ASPECT TELECOMMUNICATIONS CORPORATION
Exhibit 11.1:
Statement Re: Computation of Earnings per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares
outstanding during the period 21,302 20,751 21,197 20,601
Common share equivalents:
Dilutive effect of stock options 1,852 1,185 1,879 1,013
------- ------- ------- -------
Total 23,154 21,936 23,076 21,614
======= ======= ======= =======
Net income $ 9,232 $ 6,398 $26,429 $17,380
======= ======= ======= =======
Primary earnings per share $ 0.40 $ 0.29 $ 1.15 $ 0.80
======= ======= ======= =======
</TABLE>
<PAGE> 2
ASPECT TELECOMMUNICATIONS CORPORATION
Exhibit 11.1 (continued):
Statement Re: Computation of Earnings Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fully Diluted:
Weighted average common shares
outstanding during the period 21,302 20,751 21,197 20,601
Common share equivalents:
Dilutive effect of stock options 2,151 1,357 2,179 1,387
Weighted average shares issuable
upon assumed conversion of debt 2,830 2,830 2,830 2,830
------- ------- ------- -------
Total 26,283 24,938 26,206 24,818
======= ======= ======= =======
Earnings:
Net income $ 9,232 $ 6,398 $26,429 $17,380
Interest expense during the period on
convertible subordinated debentures,
net of tax 461 465 1,383 1,380
------- ------- ------- -------
Net income adjusted for
fully diluted calculation $ 9,693 $ 6,863 $27,812 $18,760
======= ======= ======= =======
Fully diluted earnings per share $ 0.37 $ 0.28 $ 1.06 $ 0.76
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 31,165
<SECURITIES> 76,027
<RECEIVABLES> 48,274
<ALLOWANCES> 825
<INVENTORY> 15,541
<CURRENT-ASSETS> 179,512
<PP&E> 88,947
<DEPRECIATION> 40,930
<TOTAL-ASSETS> 260,545
<CURRENT-LIABILITIES> 57,394
<BONDS> 59,500
0
0
<COMMON> 67,468
<OTHER-SE> 76,183
<TOTAL-LIABILITY-AND-EQUITY> 260,545
<SALES> 163,669
<TOTAL-REVENUES> 218,251
<CGS> 54,665
<TOTAL-COSTS> 94,277
<OTHER-EXPENSES> 83,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,576
<INCOME-PRETAX> 41,950
<INCOME-TAX> 15,521
<INCOME-CONTINUING> 26,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,429
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.06
</TABLE>
