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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 3, 1997, was $912,344,136 based upon the last sale price
reported for such date on the Nasdaq Stock Market. For purposes of this
disclosure, shares of Common Stock held by persons known to the Registrant
(based on information provided by such persons and/or the most recent schedule
13G's filed by such persons) to beneficially own more than 5% of the
Registrant's Common Stock and shares held by officers and directors of the
Registrant have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily a conclusive determination for
other purposes.
The number of shares of the Registrant's Common Stock outstanding as of March 3,
1997 was 48,943,475.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Shareholders and Proxy Statement for the
Annual Meeting of Shareholders of Aspect Telecommunications Corporation ("the
Proxy Statement") scheduled to be held on April 29, 1997, are incorporated by
reference in Parts I, II, III, and IV of the Report on Form 10-K.
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ASPECT TELECOMMUNICATIONS CORPORATION
PART I
ITEM 1. BUSINESS
Aspect Telecommunications Corporation (the Company) is a global provider of
comprehensive business solutions for companies with mission-critical call
centers that exist to generate revenue, service customers, and handle inquiries.
The Company's products include automatic call distributors, interactive response
systems, management information and reporting tools, computer-telephony
integration (CTI) technology, and call center planning and forecasting packages.
The Company also provides services vital to call center environments, including
business applications consulting, systems integration, and training.
In 1996, the Company completed two acquisitions: Envoy Holdings Limited (Envoy)
on September 30, 1996 and Prospect Software, Inc. (Prospect) on October 21,
1996. Envoy provides call center and telebusiness solutions designed to improve
customer service through consulting services, software, and systems integration.
Prospect is a provider of application development tools for building
connectivity to a variety of call center systems and network-based computer
applications. Both acquisitions were accounted for as pooling of interests and
all financial results for 1996 reflect the acquisitions. As the historical
operations of Envoy and Prospect were not significant to any year presented, the
Company's financial statements for prior years have not been restated and the
financial effects of the prior years' results of operations for both acquired
companies have been accounted for as increases to retained earnings in 1996.
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. The acquisition was accounted for as a purchase and the operating
results of TCS have been included in the consolidated statements of income since
the date of acquisition.
On December 20, 1996, the Company announced that its Board of Directors approved
a two-for-one stock split effective January 28, 1997 for shareholders of record
as of January 6, 1997. All share and per share amounts and share prices in this
Annual Report on Form 10-K reflect the stock split.
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 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 without limitation, statements
regarding the Company's expectations, beliefs, intentions, or future strategies,
which 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 and in the section titled "Risk Factors" in
the 1996 Annual Report to Shareholders, which is incorporated by reference in
this Annual Report on Form 10-K.
As noted above, the Company has acquired three companies since October 1995:
TCS, Envoy, and Prospect. During the same period, the Company made minority
equity investments in companies with products, services, or technologies that
potentially complement Aspect's business. In the future, the Company may make
further strategic acquisitions and investments or enter into joint ventures or
strategic alliances with other companies. Such transactions entail numerous
risks, including the following: inability to successfully integrate such
companies' personnel and businesses; inability to realize anticipated synergies,
economies of scale, or other value associated with such transactions; diversion
of management's attention and disruption of the Company's ongoing business;
inability to retain key technical and managerial personnel; inability to
establish and maintain uniform standards, controls, procedures, and policies;
and impairment of relationships with employees and customers as a result of the
integration of new personnel. In addition, future acquisitions or investments by
the Company may result in the issuance of additional equity or debt securities,
significant one-time write-offs, and the creation of goodwill or other
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intangible assets. Failure to avoid these or other risks associated with such
business combinations, investments, joint ventures, or strategic alliances could
have a material adverse effect on the Company's business, operating results, and
financial condition.
The Company has experienced a period of rapid growth that has placed a
significant strain on the Company's managerial and operational resources. To
manage its growth, the Company must continue to implement and improve its
operational and financial systems and to expand, train, and manage its employee
base. For example, the Company recently implemented, and in the future may
implement additional versions of, a new internal integrated business application
software system. There can be no assurance that complications will not arise
from this software system transition, resulting in substantial unanticipated
expenses. An additional challenge created by the Company's rapid growth is in
hiring, assimilating, training, and retaining a large number of employees in a
labor market characterized by a high demand for and limited supply of qualified
people. In addition, the Company must carefully maintain inventories at levels
consistent with product demand and the requirements of new product
introductions. Inaccuracies in demand forecasts could quickly result in either
insufficient or excessive inventories and obsolescence expense.
INDUSTRY BACKGROUND
Many companies recognize that excellent customer service can be employed as a
competitive advantage to differentiate their firms from competitors and gain
market share. As a result, customer service has received greater prominence and
resources in a wide variety of manufacturing and service industries. In addition
to seeking improved overall responsiveness to customer needs, certain companies
have recognized the benefits of market segmentation by introducing premium
service marketing programs, which provide a prioritized level of service for
their most valued customers.
In many cases, companies attempt to differentiate themselves from their
competitors by providing superior customer service by telephone. The opportunity
for conducting business over the telephone has risen in recent years, reflecting
telecommunications deregulation which has reduced the cost of using the
telephone as a business tool. Many companies have established telephone sales
and support centers staffed with employees who handle the thousands of calls
that may be received each day.
This demand for handling customer transactions by telephone has created a market
for intelligent call control and management systems that process large volumes
of transactions. Aspect has coined the term "call transaction processing" to
describe the market for these application-specific telecommunications systems
and to distinguish it from the more established markets of general connectivity
(such as private branch exchange, or PBX, and key systems) and office automation
telecommunications products (such as facsimile machines and voice messaging
systems). The Company believes that the call transaction processing market is
characterized by mission-critical applications and value-oriented relationships
between vendors and customers.
Increased emphasis on customer service by a wide variety of manufacturing and
service companies has led to a growing number of call transaction processing
applications in such diverse industries as computer software and systems,
financial services, insurance, travel and entertainment, retail catalog sales,
office products, consumer products, public utilities, publishing and health
care.
The Company's primary product, the Aspect CallCenter(R) system, is an automatic
call distributor, or ACD, designed specifically for call transaction processing
applications. The Aspect CallCenter system is designed to provide benefits in
four key areas: intelligent call management, staff productivity, management
information, and system availability.
INTELLIGENT CALL MANAGEMENT
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Aspect's approach offers intelligent call management designed to allow system
managers to attain desired service levels by utilizing advanced system features
rather than by adding telephone lines and staff. This is accomplished through
the application of call processing, voice processing, and data processing
capabilities of the Aspect CallCenter system. The Company has implemented an
advanced software approach to process incoming calls according to a
predetermined set of procedures. The Aspect CallCenter can support a peak call
rate of 100,000 call completions per hour and a sustained rate of 50,000 call
completions per hour.
The Company believes that the Aspect CallCenter offers highly flexible call
processing and voice processing capabilities. The ability to dynamically change
the routing of calls based on current conditions (for example, longest call
waiting) or the combining of agent groups into supergroups are designed to
ensure that calls are handled efficiently. In addition, the Company believes
that its implementation of voice processing capabilities such as recording and
queuing call-back requests from callers are superior to those of competitors.
The Aspect CallCenter delivers these integrated capabilities while continuing to
provide detailed records and management information.
An important element in the Company's delivery of call transaction processing is
the optional Application Bridge(R). This capability allows the Aspect CallCenter
system to communicate in real time directly with any of a variety of customer
data processing systems using CTI technology so that these customers can use
their existing databases to control the handling of telephone calls in inbound
call centers. Synchronized screen management is designed to improve the
coordination of an agent's call handling, reduce holding time, and thus provide
cost savings. Approximately two-thirds of Aspect CallCenter systems shipped
include the Application Bridge option for CTI applications.
In addition, Prospect develops and markets CTI software designed to enable rapid
development of CTI applications, including screen synchronization ("screen
pop"), coordinated voice and data transfer, and intelligent routing. In typical
call centers, such applications are designed to provide enhanced agent
productivity and improved customer service.
STAFF PRODUCTIVITY
In addition to intelligent call management, the Aspect CallCenter system offers
features designed to assist employees and increase productivity at the
customer's telephone sales or support center. These features are implemented in
part through the Aspect TeleSet(R), a special-purpose telephone set used by
staff members to answer or place calls, and through the Aspect TeleCaster(R), a
wall-mounted visual display providing at-a-glance system or group status
information. In addition, the Aspect WinSet(TM) for Windows brings the power of
the Aspect TeleSet into the PC and allows call centers to utilize agents in
remote locations.
In addition, TCS develops and markets software designed to enhance agent
productivity and resource allocation through forecasting, scheduling, and
tracking modules.
MANAGEMENT INFORMATION
The Aspect CallCenter system offers several management information features,
including summary and detailed views of calling volumes, call handling
efficiencies, trends and other information about each business application. Such
information is also available through a graphical custom reporting capability
that allows customers to manipulate call center data in a spreadsheet
environment. In addition, the CustomView(R) family of desktop applications
provides real-time views for call center operations management and strategic
reports for call center and enterprise business decisions.
SYSTEM AVAILABILITY
The Aspect CallCenter system contains a number of features designed to achieve
high system availability or uptime, such as common control redundancy, which
reduces the risk of downtime due to component failure. Available with
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all redundant Aspect CallCenter systems is Continuous Performance Manager, which
is designed to ensure that no connected calls are dropped when either the backup
controller assumes system operation or when the system operation is returned to
the primary controller. Each Aspect CallCenter system is equipped with a modem
and software that enable the Company's support center to connect directly with a
customer site, designed to result in the early detection of potential problems
and reduction of repair time. In addition, trunk bypass capabilities support
direct connection of incoming trunks to the Aspect TeleSet.
PRODUCTS
The Company's primary product, the Aspect CallCenter system, is an automatic
call distributor, or ACD, designed specifically for call transaction processing
applications. The specific needs of each of the Company's customers are met by
selecting a basic system from one of nine standard models and then adding the
appropriate interface cards and related equipment. If the customer's application
requires a data connection to its data processing system, the Application Bridge
option may be added. Other options may be added, such as the hardware and
software to receive calling number Automatic Number Identification, or ANI, from
the public telephone network or software packages to forecast staffing needs or
to customize reports.
Other products include a variety of interface cards, the Aspect TeleSet, the
Aspect TeleCaster, Remote StaffCenter(TM), Application Bridge, EnterpriseAccess,
Agility(TM), Network InterQueue(TM), Aspect WinSet for Windows, and a family of
PC client applications - CustomView Producer, CustomView Director, CustomView
Editor, CustomView ReportWriter and CustomView ReportRunner.
Interface cards are employed to enhance the general connectivity for both analog
and digital connections to Aspect TeleSets. Integrated Services Digital Network,
or ISDN, and the international equivalents, handle the signaling, control, and
transmission of telephone calls and data over a single telephone line, and offer
other features, including ANI, that can enhance the efficiency and effectiveness
with which data is collected and used.
The Aspect TeleSet, a high-performance telephone instrument, allows an
individual staff person to handle hundreds of telephone calls per day.
Supervisory workstations and system management consoles are available. The
Aspect TeleCaster wall-mounted visual display broadcasts current performance
information to telephone support staff.
The Remote StaffCenter extends the physical connection to Aspect TeleSets and
supports remote clusters of agents and supervisors, providing customers with
greater organizational flexibility.
The Application Bridge combines communications hardware and software to allow
the Aspect CallCenter system to communicate in real time directly with a
company's data processing systems. Optional packages are available to allow
Application Bridge to interface with industry-standard minicomputer and
mainframe computing environments.
EnterpriseAccess uses an SQL-based client/server model for real-time and
historical data access. The server technologies are RealTime Bridge and DataBase
Bridge. RealTime Bridge provides enterprise-wide access to information about
events in progress in the Aspect CallCenter. DataBase Bridge provides
enterprise-wide access to historical information stored in the relational
database of the Aspect CallCenter.
Agility automates call center transactions and processes by complementing call
center agents with software agent technology. Agility is designed to broaden the
role call centers play inside the corporation and expand the ways in which
companies may interact with their customers by giving customers broader options
for accessing a variety of company resources and easier access to information
that resides on corporate networks. By integrating within the Aspect CallCenter,
Agility leverages the call center and data infrastructure that is already in
place with software agents called ActionAgents(TM). ActionAgents are software
resources that automatically execute a variety of tasks and interface
intelligently with a wide range of devices, including telephones, fax machines,
electronic mail, Aspect TeleSets, computer applications, databases, and other
telecommunications systems.
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Network InterQueue is designed to allow multiple Aspect CallCenters in different
geographic locations to be networked and operated as a single site. This system
is designed for companies who have distributed their call centers to take
advantage of the benefits different locations offer. With Network InterQueue,
customers can simultaneously queue a single incoming call on a number of Aspect
CallCenters, agent groups, and supergroups, as well as at the originating call
center. Because callers can be routed to the first available agent across
multiple sites and agent groups, geographically dispersed resources can be
applied to meet sales and customer service goals.
Aspect WinSet for Windows is a telephony-empowered personal computer application
designed to increase agent productivity and to deliver Anywhere Agent
capabilities. Aspect WinSet merges telephony and PC functions onto a single
platform, eliminating the need for agents to move between their telephone and PC
to take calls, handle business transactions, view information, communicate with
their supervisors, and work with other business applications. Aspect WinSet is
also designed to enable companies to tap into previously inaccessible labor
pools, including part-time workers, disabled workers, and telecommuters by
locating agents and supervisors at remote sites. This Anywhere Agent capability
provides a powerful solution for linking small branch offices and dispersed
sites within campus environments to the Aspect CallCenter.
The CustomView PC family of client applications, based on Microsoft Windows,
lets users access call data collected on the Aspect CallCenter to create
customized, full-color graphical and tabular reports of real-time and historical
information.
TCS products include the TeleCenter system, which is designed to enhance agent
resource allocation and productivity. The TeleCenter system includes modules for
forecasting, scheduling, and tracking agent resources. It also includes agent
productivity, real-time adherence, and networking modules which connect to call
centers.
In 1996, the Company established the Aspect Consulting and Systems Integration
(C&SI) business unit and acquired a leading London-based C&SI operation, Envoy
Holdings Limited. Aspect's C&SI revenues are dependent on the Company's ability
to obtain contracts for suitable projects and successfully complete these
projects. During 1996, the Company also established a new software business unit
in the rapidly expanding field of call center CTI technology and acquired
Prospect Software, Inc., a leading supplier of CTI middleware. For further
information on the Envoy Holdings Limited and Prospect Software, Inc.
acquisitions and the related acquisition risks, see Part I, Item 1. "Business."
Prospect products include CTI Server software and CTI Application Development
Tools. CTI Server software delivers the CTI/ACD connectivity and message routing
necessary to support a variety of LAN- or WAN-based CTI applications. It
supports multiple ACD types within a multiplatform client/server environment.
The CTI Application Development Tools include tools used to develop CTI client
applications.
SALES AND MARKETING
The Company sells its systems on a direct basis in major metropolitan markets in
the United States and through its subsidiaries in the United Kingdom, the
Netherlands, Germany and Belgium. In addition, the Company has an agreement
under which PTT Telecom sells, installs, and supports Aspect CallCenter systems
throughout the Netherlands. Siemens AG Private Communication Systems ("Siemens")
has a non-exclusive agreement with the Company for distribution in Germany and
certain other locations. Norstan, Inc., distributes the Company's products in 11
midwestern and western states in the United States and throughout Canada.
The Company is currently investing, and plans to continue to invest, significant
resources to expand its domestic and international direct sales force and
develop distribution relationships with certain third-party distributors. Any
failure by the Company to maintain or expand its direct sales force or other
distribution channels would materially adversely affect the Company's business,
operating results, and financial condition.
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The Company currently operates in several international markets and anticipates
entering additional markets in the future. The financial resources required to
enter a new international market may vary substantially among markets based
upon, among other factors, the market's regulatory environment, the Company's
expansion strategy in the market, and the level of acceptance of the Company's
products in that market. Many countries require multiple governmental approvals
prior to allowing a new entrant into the market. The cost and timing of these
approvals, which may require the Company to modify its products, are often
subject to considerable uncertainty and could result in longer lead times than
initially anticipated. The Company's international operations are subject to
additional risks, including exchange rate fluctuations; delays in
telecommunications deregulation; difficulties in staffing and managing foreign
subsidiary operations; political and economic instability; potentially negative
tax consequences; and foreign and domestic trade legislation, which could result
in the creation of trade barriers such as tariffs, duties, quotas, and other
restrictions. Failure to successfully enter certain international markets on a
timely basis could impair the Company's competitive position in such markets and
prevent the Company from obtaining the scale advantages of global competitors.
The Company's customers generally purchase the Aspect CallCenter system outright
or place the system on a third-party full-payout lease. Aspect's standard terms
of payment, regardless of whether the customer is using a third-party lease,
include a deposit at the time of placing the order, a progress payment at
delivery, and a final payment after installation.
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.
The Company's revenues, gross margins, and operating results may fluctuate
significantly from quarter to quarter for many reasons including, without
limitation, the following: (1) 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 significant portion of product revenues in any
particular quarter; (2) a significant percentage of product revenues continues
to be derived from new customers; (3) the portion of product revenues related to
accounts purchasing multiple systems may fluctuate; (4) the mix of products and
services sold and channels of distribution may fluctuate; (5) operating results
of newly acquired subsidiaries may fluctuate; and (6) the Company's newly
established business units (e.g., C&SI and CTI) may require substantial
investments, while revenues from such business units may be difficult to
predict.
The Company's products typically represent substantial capital commitments by
Aspect's customers involving a long sales cycle and, as a result, customer
purchase decisions have been, and in the future may be, significantly affected
by a variety of factors including, without limitation, the following: general
economic conditions; world political events; trends in capital spending,
particularly for telecommunications products; market competition and the
availability or announcement of alternative technologies; and the degree to
which call transaction processing is mission critical for customers. Reduced
demand for the Company's products could have a material adverse effect on the
Company's business, operating results, and financial condition.
The average selling price for the Aspect CallCenter system is approximately
$400,000, and prices range from approximately $100,000 to approximately $2.5
million for fully configured systems, depending on system size and optional
features.
PRODUCT SUPPORT
The Company installs, maintains and supports systems sold directly in the United
States with the Company's own full-time employees or qualified third parties in
selected cities. Although the Company anticipates that some customers may elect
to maintain their own systems in the future, substantially all direct U.S.
customers currently have support contracts with the Company. The Company
subcontracts some field support for certain of the
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Company's customers to Norstan and other third parties in several U.S. cities.
The Company expects to expand support coverage to additional cities, primarily
through the addition of direct field support employees. In international
markets, customers receive support directly from Aspect, from distributors or
from certain third parties. The Company has established Customer Operations
Support Centers based in San Jose, California; Atlanta, Georgia; London,
England; and Amsterdam, The Netherlands.
The purchase price of a system typically includes an initial 12-month support
and warranty period (warranty only in international markets), which begins at
the installation date. Subsequent support (initial support in international
markets) is provided to the Company's direct customers under a contractual
support agreement, and pricing for such support is typically defined in a
support schedule signed at the time the purchase order is executed.
PRODUCT DEVELOPMENT
The Company has a continuing program of product development directed toward the
enhancement of existing products based upon current and anticipated customer
needs. The Company's research and product development efforts also emphasize
introduction of new products to broaden the Company's product line and to reach
a larger segment of the call transaction processing market. During 1996, 1995,
and 1994 the Company invested approximately $34,600,000, $25,300,000, and
$15,800,000, respectively, in research and development. The Company believes
that a significant commitment of financial resources and talent will be
necessary to maintain and increase its competitive position in the years ahead,
and expects to increase its total spending for research and development in 1997.
The Company employed approximately 220 persons in various product development
capacities as of December 31, 1996.
The Company believes that a significant competitive benefit in its current and
future products is provided through applications software. In addition, the
Company has adopted a policy of licensing general purpose software, such as
operating systems, relational databases, application-specific software, and
electronic workforce technology, and therefore is able to focus its own software
development on call transaction processing applications. The Company works
closely with its vendors to achieve functional integration between purchased
subsystems and internally developed software and hardware.
Due to the complexity and sophistication of the Company's software products, the
Company's products from time to time contain defects that can be difficult to
correct. There can be no assurance that software defects will not cause delays
in product introductions and shipments, result in increased costs, require
design modifications, or impair customer satisfaction with the Company's
products. Any such event could materially adversely affect the Company's
business, operating results, and financial condition.
The Company's products are subject to various regulations that require, among
other things, that the Company's products meet certain radio frequency emission
standards, be compatible with the public telephone networks, and conform to
certain safety and other standards. Sales of products that fail to comply with
these regulations may be prohibited by regulatory authorities until appropriate
modifications are made. There can be no assurance that the Company will be
successful in obtaining or maintaining the necessary regulatory approvals for
its products, and its failure to do so could have a material adverse effect on
the Company's business, operating results, and financial condition.
MANUFACTURING
The Company's manufacturing operations consist primarily of final assembly and
test of materials, components, subassemblies and systems, together with related
quality management processes. The Company presently uses third parties to
perform various levels of product assembly. The Company believes that its
approach to system design has allowed flexibility in the manufacturing process
and has allowed the Company to satisfy a wide variety of customer configuration
requirements, while achieving high quality and reasonable lead times. To date,
customer returns of the Company's products have not been material.
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The Company orders materials with differing lead times, generally 30 to 120 days
ahead of required date of delivery to the Company. Because this is a longer
timeframe than the average customer order to shipment cycle, the Company
acquires materials and builds standard assemblies based on forecasted production
requirements. Upon receipt of firm orders from customers, the Company assembles
fully-configured systems and subjects them to a number of tests before shipment.
The Company's manufacturing procedures are designed to assure rapid response to
customer orders, but create a risk of excess or inadequate inventory when orders
do not match forecasts.
Although the Company primarily uses standard parts and components in its
products, certain components, including certain central processing units, other
integrated circuits, and circuit cards, are presently available only from a
single source or from limited sources of supply. The inability of the Company to
develop alternative sources if and as required in the future, or to obtain
sufficient sole or limited source components as required, could have a material
adverse effect on the Company's business, operating results, and financial
condition. In addition, there can be no assurance that manufacturers of
component parts used by the Company will not modify their products in a manner
incompatible with the Company's use of such products.
The Company currently manufactures certain components incorporated into its
products pursuant to engineering and manufacturing licenses from third parties.
The Company depends upon the licensors' abilities to provide certain technical
support and cooperation in optimizing the Company's use of the licensed
technologies. Should any of the licensors become unable to provide such
technical support, the Company would have to develop internal capabilities or
otherwise locate alternative technical support. This in turn could adversely
affect the Company's ability to complete timely shipments during the transition.
If, due to a breach of a license agreement or otherwise, the Company becomes
unable to continue to utilize the applicable licensed technology, the Company's
business, operating results, and financial condition could be materially
adversely affected.
COMPETITION
The Company believes the market for its products is highly competitive and that
competition is likely to intensify. The Company's principal competitors
currently include companies that market automatic call distributor (ACD) systems
and companies that market private branch exchange systems that include ACD
features. The Company's current competitors include, but are not limited to,
Lucent Technologies Inc. (previously a unit of AT&T Corp.); Northern Telecom
Limited (Nortel); Siemens Business Communication Systems, Inc.; Rockwell
International Corporation; Alcatel Alsthom; L.M. Ericsson; and N.V. Philips. The
Company anticipates that the regional Bell operating companies and other
telephone operating companies could market ACD functionality through equipment
located in the telephone operating company's central office rather than on
customers' premises. Additional potential competitors include companies with
technologies capable of providing mission-critical call transaction processing
capabilities, including participants in the problem tracking and resolution
client/server software market, pre-network routing companies, and a wide variety
of CTI software companies. As the hardware requirements for a traditional call
center diminish due to the emergence of the Internet, local area networks, and
other factors, other companies may obtain a significant position in the call
transaction processing market.
Many of Aspect's current competitors have longer operating histories;
considerably greater financial, technical, sales, and marketing resources; and
larger installed customer bases than Aspect. Moreover, Lucent Technologies, the
largest provider of call center products and services, may emerge as a more
focused, aggressive competitor following its recent divestiture from AT&T.
Consequently, the Company expects to encounter substantial competition from
these and other companies, as well as from new market entrants and emerging
technologies. Intensified price-based competition or changes in the Company's
price structure could result in lower prices and lower margins for Aspect's
products, which could materially adversely affect the Company's business,
operating results, and financial condition.
Sales and installations of new Aspect CallCenter systems, the Company's
principal product, account for a substantial portion of net revenues. Any factor
adversely affecting the market for the Aspect CallCenter system or
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the failure of any Aspect product to meet customer requirements, including
system performance, system availability, or other requirements, could have a
material adverse effect on the Company's business, operating results, and
financial condition.
The market for Aspect's products is subject to rapid technological change and
new product introductions. Current competitors or new market entrants may
develop new, proprietary products with features that could adversely affect the
competitive position of the Company's products. There can be no assurance that
the Company will be successful in accurately anticipating market demand for
products being developed; in developing, manufacturing, and marketing new
products; or in enhancing its existing products.
INTELLECTUAL PROPERTY; LITIGATION
The Company's success depends in part upon its internally developed technology.
While the Company relies on patent, trademark, trade secret, and copyright law
to protect its technology, the Company believes that the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition, and product reliability are more essential to
establishing and maintaining a technology leadership position. The Company
generally enters into confidentiality or license agreements with its employees,
consultants, and vendors, and generally controls access to and distribution of
its software, documentation, and other proprietary information. Despite these
precautions, unauthorized third parties may attempt to copy or otherwise obtain
and use the Company's technology. In addition, third parties may develop similar
technology independently.
The Company maintains as proprietary the software that is delivered to its
customers. Under certain circumstances, a limited number of the Company's
customers have been granted licenses to use certain of the Company's proprietary
rights, primarily to ensure the continued maintenance and supply of certain of
the Company's products.
The Company holds licenses from multiple third parties regarding engineering and
manufacturing rights to certain technology that the Company incorporates in its
products. Certain of these technology license rights expire at various dates
through 2007. The Company has also entered into standard commercial license
agreements with several suppliers of operating systems, data bases and other
software used for development and implementation of the Company's products.
These licenses are ongoing and generally involve the payment of royalties based
on the volume of systems the Company ships over periods of time.
The segment of the telecommunications market that includes the
Company's products has been characterized by extensive litigation regarding
patents and other intellectual property rights. As is common in the
telecommunications industry, the Company has been in the past and may in the
future be notified of claims that its products or services are subject to
patents or other proprietary rights of other parties. Although the Company
attempts to ensure that its products and processes do not infringe such
third-party patents or proprietary rights, there can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting from
infringement claims) will not be asserted or prosecuted against the Company.
Periodically, the Company negotiates with third parties to establish patent
license or cross-license agreements, and the Company is currently in such
negotiations. While the Company cannot predict the outcome of the current
negotiations, and to date such negotiations have not resulted in any license or
cross-license agreements, based on discussions to date the Company does not
expect that any such agreement would have a material adverse effect on the
Company's financial condition. The Company intends to resolve intellectual
property disputes through licensing arrangements, when appropriate and on terms
it believes to be commercially reasonable. There can, however, be no assurance
that necessary licenses would be available to the Company on satisfactory terms
or at all. Moreover, license agreements with third parties may not include all
intellectual property rights that may be issued to or owned by the licensors,
and thus future disputes with these companies are possible. Furthermore,
litigation, regardless of outcome, could result in substantial cost to and
diversion of effort by the Company. Any future litigation, as well as any
future interference proceedings that may be declared by the United States
Patent and Trademark Office to determine the priority of inventions, could
result in substantial expense to the Company and significant diversion of
effort by the Company's technical and management personnel. Accordingly, an
adverse determination in a judicial or administrative proceeding, or failure to
obtain necessary licenses, could prevent the Company from manufacturing and
selling certain of its products, which would have a material adverse effect on
the Company's business, operating results, and financial condition.
On March 5, 1997, Lucent Technologies, Inc. ("Lucent") brought a patent
infringement action against the Company in the United States District Court for
the Eastern District of Pennsylvania, alleging infringement by the Company of
four of Lucent's patents (the "Lucent Patents"). In its complaint, Lucent is
seeking to enjoin the Company from
9
<PAGE> 11
ASPECT TELECOMMUNICATIONS CORPORATION
allegedly continuing to infringe the Lucent Patents and is seeking an
unspecified amount of compensatory damages, treble damages for alleged willful
infringement, and interest, expenses and attorneys' fees. The Company will file
a response in the near future and intends to vigorously contest the action. The
Company believes, based on its investigations to date, that it does not infringe
any valid claims of the Lucent Patents. While litigation is inherently
uncertain, the Company believes that the ultimate resolution of this action will
not have a material adverse effect on the Company's financial condition.
In the future, the Company could become involved in other types of litigation,
such as shareholder lawsuits for alleged violations of securities laws, claims
asserted by current or former employees, and product liability claims. Any
litigation in which the Company is involved, regardless of merit, source, or
outcome, could result in substantial cost to and diversion of effort by the
Company, which could have a material adverse effect on the Company's business,
operating results, and financial condition.
In addition, the Company is subject to legal proceedings and claims that arise
in the normal course of business. The Company does not expect that any such
proceedings or claims would have a material adverse effect on the Company's
business, operating results, and financial condition.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 1,330 full-time
employees. None of the Company's employees is represented by a collective
bargaining unit. The Company believes that its employee relations are good, and
has never experienced any work stoppages. Most of the Company's full-time
employees have to date been offered the opportunity to participate in the
Company's 1989 and/or 1996 stock option plans and 1990 Employee Stock Purchase
Plan.
The Company depends upon certain key management and technical personnel, the
loss of whom could have a material adverse effect on the Company's business,
operating results, and financial condition. The Company's future success will
depend in part upon its ability to attract and retain highly qualified
personnel, broaden and diversify its management team, and ensure successful
management transition.
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information with respect to the executive
officers of the Company, and their ages as of March 3, 1997:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James R. Carreker 50 Chairman and Chief Executive Officer
Dennis L. Haar 41 President and Chief Operating Officer
Robert A. Blatt 36 Vice President, Worldwide Products
Shelley C. Brown 44 Vice President, People Programs and Services
Kathleen M. Cruz 47 Vice President, Information Technology and Chief Information
Officer
Robert D. Drescher 39 Vice President, Worldwide Marketing
Eric J. Keller 44 Vice President, Finance and Chief Financial Officer
John D. Meyers 51 Principal Engineer, Product Technology and Chief Technical Officer
Larry S. Miller 38 Vice President, North America
</TABLE>
10
<PAGE> 12
ASPECT TELECOMMUNICATIONS CORPORATION
<TABLE>
<S> <C> <C>
R. Dixon Speas, Jr. 50 Vice President, International
David M. Yoffie 37 Vice President, Worldwide Operations
</TABLE>
Executive officers serve at the election of the Board of Directors of the
Company. There are no family relationships among any directors or executive
officers of the Company.
Mr. Carreker, a founder of the Company, has served as Chief Executive Officer
and as a director of the Company since its inception in August 1985. He has
served as Chairman of the Company's Board of Directors since October 1995 and
was President of the Company between August 1985 and October 1995. Since January
1997, Mr. Carreker has also served as a director of Herman Miller, Inc., a
company that manufactures and sells office systems products and services.
Mr. Haar has been employed by the Company since 1987 and has served as an
executive officer since 1989. Mr. Haar currently holds the position of President
and Chief Operating Officer and has previously served as the executive leading
the functions of North America, Product Development, Marketing and Sales
Development.
Mr. Blatt has been employed by the Company since 1986, and has served as an
executive officer of the Company since 1994. He currently holds the position of
Vice President, Worldwide Products. Prior to becoming an executive of the
Company, Mr. Blatt was a Product Development manager. Prior to joining the
Company, Mr. Blatt was an engineer for New York Telephone.
Ms. Brown has been employed by the Company since 1989, and has served as an
executive officer since 1990. Ms. Brown currently holds the position of Vice
President, People Programs and Services. Prior to joining the Company, Ms. Brown
was a Personnel Manager with Hewlett-Packard Company.
Ms. Cruz has been employed by the Company since June 1996, and has served as an
executive officer since that time. Ms. Cruz currently holds the position of Vice
President, Information Technology and Chief Information Officer. Prior to
joining the Company, Ms. Cruz served as Vice President, MIS and Chief
Information Officer at Verifone, Inc., a global provider of secure payment
solutions, from January 1994 to May 1996, and Director, Information Services at
Textainer, Inc., a container leasing company, from January 1992 to December
1993.
Mr. Drescher has been employed by the Company since 1994, and has served as an
executive officer since that time. Mr. Drescher currently holds the position of
Vice President, Worldwide Marketing. Prior to joining the Company, Mr. Drescher
worked as Director of Marketing for VeriFone, Inc., a global provider of secure
payment solutions, from January 1993 to December 1994, and Vice President of
Marketing for Microlog Corporation, a provider of voice-response systems, from
January 1990 to January 1993.
Mr. Keller has been employed by the Company since January 1996, and has served
as an executive officer since that time. Mr. Keller currently holds the position
of Vice President, Finance and Chief Financial Officer. Prior to joining the
Company, Mr. Keller served as Vice President and Chief Financial Officer of
Ventritex, Inc., a manufacturer of implantable devices, from June 1993 to
January 1996, and previously held a similar position with Dionex Corporation, a
manufacturer of scientific instruments, from December 1985 to June 1993.
Mr. Meyers, a founder of the Company, has been employed by the Company since
1985, and has served as an executive officer since that time. Mr. Meyers
currently holds the position of Principal Engineer, Product Technology and Chief
Technical Officer.
Mr. Miller has been employed by the Company since January 1995, and has served
as an executive officer since July 1995. Mr. Miller currently holds the position
of Vice President, North America and has previously served as Vice President,
Worldwide Operations and Director of Channel Support. Prior to joining the
Company, Mr. Miller
11
<PAGE> 13
ASPECT TELECOMMUNICATIONS CORPORATION
served in various positions at IBM from September 1977 to January 1995, most
recently as a business unit executive for IBM's Marketing and Services
Organization.
Mr. Speas has been employed by the Company since 1989, and has served as an
executive officer since that time. Mr. Speas currently holds the position of
Vice President, International and has previously served as the executive leading
the functions of Customer Operations, Manufacturing and Product Development.
Prior to joining the Company, Mr. Speas was Director of Field Operations at ROLM
Corporation.
Mr. Yoffie has been employed by the Company since March 1996, and has served as
an executive officer since that time. Mr. Yoffie currently holds the position of
Vice President, Worldwide Operations. Prior to joining the Company, Mr. Yoffie
served as Sr. Vice President, Operations at AG Associates, Inc., a semiconductor
equipment manufacturer, from July 1993 to May 1996, and Vice President,
Operations at Global Village Communications, Inc., a provider of communications
products for personal computers, from August 1991 to December 1992.
ITEM 2. PROPERTIES
Aspect's headquarters facility is comprised of four office and manufacturing
buildings, totaling approximately 290,000 square feet, in San Jose, California.
The Company owns one of the buildings which is approximately 100,000 square feet
on 10 acres of land and occupies the remaining buildings totaling approximately
190,000 square feet under coterminous leases expiring in 2001, with options for
five-year extensions. Aspect also has several facilities to support its European
operations. The main UK operation is located near London in a facility totaling
approximately 24,000 square feet which is leased under a long-term agreement. In
addition, other European facilities are located in Amsterdam, The Netherlands
and Frankfurt, Germany. Aspect also occupies several U.S. regional centers for
sales and support totaling approximately 48,000 square feet under leases
expiring through 2001. TCS occupies approximately 55,000 square feet in a
facility located near Nashville, Tennessee that is leased through 2006. Other
North America and international sales and support functions operate from various
leased multi-tenant offices nationwide.
The Company believes its existing facilities are adequate to meet current
requirements and that suitable additional or alternative space will be available
as needed on commercially reasonable terms. See Note 10 of "Notes to
Consolidated Financial Statements," incorporated by reference from the 1996
Annual Report to Shareholders. As noted above, Aspect's headquarters facility is
located in San Jose, California. In the event of a natural disaster, such as an
earthquake or flood, the Company could experience a business interruption that
would have a material adverse effect on the Company's business, operating
results, and financial condition.
ITEM 3. LEGAL PROCEEDINGS
The segment of the telecommunications market that includes the
Company's products has been characterized by extensive litigation regarding
patents and other intellectual property rights. As is common in the
telecommunications industry, the Company has been in the past and may in the
future be notified of claims that its products or services are subject to
patents or other proprietary rights of other parties. Although the Company
attempts to ensure that its products and processes do not infringe such
third-party patents or proprietary rights, there can be no assurance that
infringement or invalidity claims (or claims for indemnification resulting from
infringement claims) will not be asserted or prosecuted against the Company.
Periodically, the Company negotiates with third parties to establish patent
license or cross-license agreements, and the Company is currently in such
negotiations. While the Company cannot predict the outcome of the current
negotiations, and to date such negotiations have not resulted in any license or
cross-license agreements, based on discussions to date the Company does not
expect that any such agreement would have a material adverse effect on the
Company's financial condition. The Company intends to resolve intellectual
property disputes through licensing arrangements, when appropriate and on terms
it believes to be commercially reasonable. There can, however, be no assurance
that necessary licenses would be available to the Company on satisfactory terms
or at all. Moreover, license agreements with third parties may not include all
intellectual property rights that may be issued to or owned by the licensors,
and thus future disputes with these companies are possible. Furthermore,
litigation, regardless of outcome, could result in substantial cost to and
diversion of effort by the Company. Any future litigation, as well as any
future interference proceedings that may be declared by the United States
Patent and Trademark Office to determine the priority of inventions, could
result in substantial expense to the Company and significant diversion of
effort by the Company's technical and management
12
<PAGE> 14
ASPECT TELECOMMUNICATIONS CORPORATION
personnel. Accordingly, an adverse determination in a judicial or administrative
proceeding, or failure to obtain necessary licenses, could prevent the Company
from manufacturing and selling certain of its products, which would have a
material adverse effect on the Company's business, operating results, and
financial condition.
On March 5, 1997, Lucent Technologies, Inc. ("Lucent") brought a patent
infringement action against the Company in the United States District Court for
the Eastern District of Pennsylvania, alleging infringement by the Company of
four of Lucent's patents (the "Lucent Patents"). In its complaint, Lucent is
seeking to enjoin the Company from allegedly continuing to infringe the Lucent
Patents and is seeking an unspecified amount of compensatory damages, treble
damages for alleged willful infringement, and interest, expenses and attorneys'
fees. The Company will file a response in the near future and intends to
vigorously contest the action. The Company believes, based on its investigations
to date, that it does not infringe any valid claims of the Lucent Patents. While
litigation is inherently uncertain, the Company believes that the ultimate
resolution of this action will not have a material adverse effect on the
Company's financial condition.
In the future, the Company could become involved in other types of litigation,
such as shareholder lawsuits for alleged violations of securities laws, claims
asserted by current or former employees, and product liability claims. Any
litigation in which the Company is involved, regardless of merit, source, or
outcome, could result in substantial cost to and diversion of effort by the
Company, which could have a material adverse effect on the Company's business,
operating results, and financial condition.
In addition, the Company is subject to legal proceedings and claims that arise
in the normal course of business. The Company does not expect that any such
proceedings or claims would have a material adverse effect on the Company's
business, operating results, and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Reference is made to the information regarding market, market price
range and dividend information appearing under the captions "Stock
Listing", "Stock Price" and "Dividend Policy" on page 46 of the
Registrant's 1996 Annual Report to Shareholders, which information is
hereby incorporated by reference.
(b) Reference is made to the information regarding holders of common stock
appearing under the caption "Stock Listing" on page 46 of the
Registrant's 1996 Annual Report to Shareholders, which information is
hereby incorporated by reference.
(c) On October 21, 1996, the Company acquired Prospect Software, Inc.
(Prospect) by issuing 280,000 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 sale of the above securities was 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 a transaction by an issuer not
involving a public offering. The recipients of the securities in 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 transaction. All recipients had
adequate access to information about the Company.
ITEM 6. SELECTED FINANCIAL DATA
13
<PAGE> 15
ASPECT TELECOMMUNICATIONS CORPORATION
Reference is made to the Consolidated Statement of Income Data and Consolidated
Balance Sheet Data for fiscal years 1992 through 1996, appearing under the
caption "Selected Consolidated Financial Data" on page 23 of the Registrant's
1996 Annual Report to Shareholders, which information is hereby incorporated by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to the information appearing under the caption "Management's
Discussion and Analysis" on pages 24 through 31 of the Registrant's 1996 Annual
Report to Shareholders, which information is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the following information appearing in the Registrant's
1996 Annual Report to Shareholders, which information is hereby incorporated by
reference:
<TABLE>
<CAPTION>
Description Page(s)
----------- -------
<S> <C>
Consolidated Financial Statements 32-44
Independent Auditors' Report 45
Consolidated Statement of Income Data
for the 1996 and 1995 Quarters (unaudited) 45
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
Certain information required by Part III is omitted from this report because the
Registrant filed a definitive proxy statement within 120 days after the end of
its fiscal year pursuant to Regulation 14A (the "Proxy Statement") for its
annual meeting of shareholders to be held April 29, 1997, and the information
included therein is incorporated herein by reference to the extent detailed
below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of the Registrant is incorporated by
reference to the information under the caption "Election of Directors -
Nominees" in the Registrant's Proxy Statement.
Information with respect to executive officers of the Registrant is set forth in
"Item 1. Business - Executive Officers of the Company" of this Annual Report on
Form 10-K.
Information required by Item 405 of Regulation S-K is incorporated by reference
to the information under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Registrant's Proxy Statement.
14
<PAGE> 16
ASPECT TELECOMMUNICATIONS CORPORATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information under the caption "Other Information - Executive Compensation"
contained in the Registrant's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information under the caption "Other Information - Security Ownership of
Principal Shareholders and Management" contained in the Registrant's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The financial statements listed in the accompanying index to financial
statements and financial statement schedule are incorporated by
reference as part of this Annual Report on Form 10-K.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying index to
financial statements and financial statement schedule is filed as part
of this Annual Report on Form 10-K.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
15
<PAGE> 17
ASPECT TELECOMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(ITEM 14 (A))
<TABLE>
<CAPTION>
Reference Page(s)
---------------------------
1996 Annual
Form Report to
10-K Shareholders
---- ------------
<S> <C> <C>
Consolidated Balance Sheets as of December 31, 1996 and 1995 - 32
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994 - 33
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 - 34
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 - 35
Notes to Consolidated Financial Statements - 36-44
Independent Auditors' Report - 45
Selected Consolidated Financial Data - 23
Consolidated Statement of Income Data for the 1996 and 1995 Quarters (unaudited) - 45
Consolidated Financial Statements Schedule for the years ended December 31,
1996, 1995 and 1994:
II - Valuation and Qualifying Accounts and Reserves 18 -
</TABLE>
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements or notes thereto.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ASPECT TELECOMMUNICATIONS CORPORATION
By: /s/ James R. Carreker
---------------------------------------
James R. Carreker,
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally James R. Carreker and Eric
J. Keller, and each one of them, his or her attorneys in fact, each with the
power of substitution, for him or her in any and all capacities, to sign any and
all amendments to this Report on Form 10-K and to file the same, with exhibits
thereunto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James R. Carreker Chairman, Chief Executive March 21, 1997
- ------------------------- Officer and Director (Principal
James R. Carreker Executive Officer)
/s/ Eric J. Keller Vice President, Finance and March 21, 1997
- ------------------------- Chief Financial Officer
Eric J. Keller (Principal Financial and
Accounting Officer)
/s/ Norman A. Fogelsong Director March 21, 1997
- -------------------------
Norman A. Fogelsong
/s/ James L. Patterson Director March 21, 1997
- -------------------------
James L. Patterson
/s/ John W. Peth Director March 21, 1997
- -------------------------
John W. Peth
/s/ Debra J. Engel Director March 21, 1997
- -------------------------
Debra J. Engel
</TABLE>
17
<PAGE> 19
ASPECT TELECOMMUNICATIONS CORPORATION
SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS (1)(2) OF PERIOD
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
1996
Allowance for doubtful accounts $ 825 $ 938 $ 561 $ 1,202
Warranty reserve $ 2,397 $ 5,797 $ 4,416 $ 3,778
1995
Allowance for doubtful accounts $ 401 $ 436 $ 12 $ 825
Warranty reserve $ 1,738 $ 3,851 $ 3,192 $ 2,397
1994
Allowance for doubtful accounts $ 718 $ 391 $ 708 $ 401
Warranty reserve $ 1,607 $ 2,871 $ 2,740 $ 1,738
</TABLE>
- ----------------
(1) Warranty costs incurred.
(2) Accounts written off.
18
<PAGE> 20
ASPECT TELECOMMUNICATIONS CORPORATION
INDEX TO EXHIBITS
(Item 14 (a))
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.3 Amended and Restated Articles of Incorporation of the Registrant, as amended to date. (1)
3.4 Bylaws of the Registrant, as amended to date. (1)
10.2a 1989 Stock Option Plan and forms of option agreements thereunder, as amended effective January 22, 1991. (3)
10.2b 1989 Stock Option Plan and forms of option agreements thereunder, as amended effective May 20, 1993. (3)
10.3 1989 Directors' Stock Option Plan and forms of option agreements thereunder. (1)
10.4a 1990 Employee Stock Purchase Plan and form of subscription agreement thereunder, as amended effective July
1, 1991. (3)
10.6 Form of Stock Bonus Agreement for the Registrant's Newborn Stock Bonus Program. (1)
10.7 Form of Indemnification Agreement. (1)
10.31 Original Equipment Manufacturers Purchase Agreement between the Registrant and Motorola, Inc. dated May 22,
1989, and form of amendment thereto. (1), (2)
10.39 Lease Agreement between the Registrant and Spieker Partners dated October 1, 1990, as amended. (3)
10.39a Amendment Number One to the Lease Agreement between the Registrant and Spieker Partners dated October 1,
1990. (3)
10.39b Amendment to the Lease Agreement between the Registrant and Spieker Partners dated August 1, 1993. (3)
10.39c Amendment to the Lease Agreement between the Registrant and Spieker Partners dated October 1, 1993. (3)
10.39d Amendment to the Lease Agreement between the Registrant and Spieker Properties, L.P. dated July 12, 1995. (3)
10.39e Amendment to the Lease Agreement between the Registrant and Spieker Properties, L.P. dated July 12, 1995. (3)
10.42 Distributor Agreement between the Registrant and Norstan, Inc. dated September 9, 1991. (2), (3)
10.42a Amendment to Distributor Agreement between the Registrant and Norstan, Inc. dated September 9, 1991. (2), (3)
10.42b Amendment to Distributor Agreement between the Registrant and Norstan, Inc. dated January 1, 1993. (2), (3)
10.45 Office Lease Agreement between the Registrant and Cheshire County Council, dated February 1, 1993. (3)
10.46 Distributor Agreement between the Registrant and PTT Telecom B.V., dated July 16, 1993. (2), (3)
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
10.47 Indenture for 5% Convertible Subordinated Debentures due 2003 between
the Registrant and The First National Bank of Boston, Trustee, dated as
of September 21, 1993, with Forms of Definitive Global Debentures. (3)
10.47a Satisfaction and Discharge of Indenture between the Registrant and
State Street Bank and Trust Company of CA, N.A., as Trustee, dated as
of January 27, 1997.
10.53 Distribution Agreement between the Registrant and Siemens AG, dated June 23, 1995. (2),(3)
10.54 Acquisition Agreement by and among the Registrant, Next plc, Callscan, Inc. and TCS Management Group, Inc.,
dated October 5, 1995. (4)
10.55 Agreement of Purchase and Sale between the Registrant and Arrow Electronics, Inc., dated April 22, 1996. (3)
11.1 Statement Regarding Computation of Shares Used in Earnings per Share Computations.
13.1 Excerpts from the 1996 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent and Report on Schedule.
24.1 Power of Attorney (see page 17).
27 Financial Data Schedule.
</TABLE>
- ------------------
(1) Incorporated by reference to identically numbered exhibits to the
Registrant's Registration Statement on Form S-1 and Amendment No. 1 and
Amendment No. 2 thereto (File No. 33-33994) which became effective on
April 30, 1990.
(2) Confidential treatment has previously been granted with respect to this
exhibit.
(3) Incorporated by reference to identically numbered exhibits to the
Registrant's previously filed Form 10-K's or Form 10-Q's.
(4) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated October 19, 1995.
<PAGE> 1
EXHIBIT 10.47a
SATISFACTION AND DISCHARGE OF INDENTURE
This Satisfaction and Discharge of Indenture is dated as of January 27,
1997 between Aspect Telecommunications Corporation, corporation duly organized
and existing under the laws of the State of California (the "Company"), having
its principal place of business at 1730 Fox Drive, San Jose, CA 95131-2312, and
State Street Bank and Trust Company of CA, N.A., as Trustee (the "Trustee"),
having its principal corporate trust office at 725 South Figueroa Street, Suite
3100, Los Angeles, California 90017.
WHEREAS, the Company and the Trustee are parties to an Indenture dated as
of September 21, 1993 (the "Indenture") with respect to the issuance by the
Company of $55,000,000 aggregate principal amount of 5% Convertible Subordinated
Debentures due 2003 (the "Debentures"); and
WHEREAS, all Debentures heretofore authenticated and delivered (other than
(i) Debentures which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.6 of the Indenture and (ii) Debentures
for whose payment money has heretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 5.4 of the Indenture) have been
delivered to the Trustee for cancellation; and
WHEREAS, the Company has paid or caused to be paid all other sums
payable by the Company pursuant to the Indenture; and
WHEREAS, the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel in compliance with Section 16.5 of the Indenture; and
WHEREAS, Section 13.1 of the Indenture provides that the Trustee shall, on
demand of and at the cost and expense of the Company, execute proper instruments
acknowledging satisfaction of and discharge of the Indenture;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the receipt and adequacy of which are hereby acknowledged, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all holders of
Debentures as follows:
ARTICLE I
SATISFACTION AND DISCHARGE
1.1 The Indenture shall cease to be of further effect; provided, however,
that notwithstanding the satisfaction and discharge of the Indenture, the
obligations of the Company under Sections 2.6, 2.8, 8.6, 8.10 and Article XIII
of the Indenture and the obligations of the Trustee under Sections 2.5(g), 2.6,
2.8, 16.11 and Articles VIII and XIII of the Indenture shall survive.
1.2 The Company hereby orders the Trustee to destroy all canceled
Debentures held by the Trustee in a manner customarily used to destroy such
debentures. Promptly upon completion of such
<PAGE> 2
destruction, the Trustee shall furnish to the Company a certificate stating that
such Debentures have been destroyed.
ARTICLE II
MISCELLANEOUS PROVISIONS
2.1 Terms not otherwise defined in this agreement shall have the meanings
assigned to them in the Indenture.
2.2 This agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
2.3 This agreement may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all of which shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Satisfaction and
Discharge of Indenture to be duly executed as of the date written above.
ASPECT TELECOMMUNICATIONS CORPORATION
A California Corporation
/s/ Eric J .Keller
- ---------------------------------------------------
Eric J. Keller,
Vice President, Finance and Chief Financial Officer
STATE STREET BANK AND TRUST COMPANY OF CA, N.A.
By: /s/ John T. Deleray
------------------------------------
Name: John T. Deleray
----------------------------------
Title: Assistant Vice President
---------------------------------
<PAGE> 1
ASPECT TELECOMMUNICATIONS CORPORATION
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF SHARES
USED IN EARNINGS PER SHARE COMPUTATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Primary:
Weighted average common shares
outstanding during the period 43,917 41,314 40,708
Common share equivalents:
Dilutive effect of stock options 3,781 2,378 2,005
---------------- ---------------- ----------------
Total 47,698 43,692 42,713
================ ================ ================
Net income $37,633 $23,991 $17,573
================ ================ ================
Primary earnings per share $0.79 $0.55 $0.41
================ ================ ================
Fully Diluted:
Weighted average common shares
outstanding during the period 43,917 41,314 40,708
Common share equivalents:
Dilutive effect of stock options 4,357 3,231 2,015
Weighted average shares issuable
upon assumed conversion of debt 4,466 5,660 5,660
---------------- ---------------- ----------------
Total 52,740 50,205 48,383
================ ================ ================
Net income $37,633 $23,991 $17,573
Interest expense during the period on
convertible subordinated debentures,
net of tax 1,460 1,857 1,815
---------------- ---------------- ----------------
Net income adjusted for
fully diluted calculations $39,093 $25,848 $19,388
================ ================ ================
Fully diluted earnings per share $0.74 $0.51 $0.40
================ ================ ================
</TABLE>
<PAGE> 1
EXHIBIT 13.1
<THIS EXHIBIT OMITS CERTAIN GRAPHICAL INFORMATION CONTAINED IN THE PAPER VERSION
OF THE 1996 ANNUAL REPORT TO SHAREHOLDERS. SUCH GRAPHICAL INFORMATION IS NOT
INTENDED TO BE INCORPORATED BY REFERENCE HEREIN.>
Excerpt from page 23 of the 1996 Annual Report to Shareholders.
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996(a) 1995(b) 1994 1993 1992(c)
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share and employee data)
<S> <C> <C> <C> <C> <C>
Net revenues $308,703 $198,972 $147,239 $106,473 $71,021
Gross margin 174,781 111,596 81,561 58,812 37,104
(% of net revenues) 57% 56% 55% 55% 52%
Research and development 34,585 25,250 15,774 11,491 8,807
(% of net revenues) 11% 13% 11% 11% 12%
Selling, general and administrative 82,478 50,726 37,662 29,273 23,037
(% of net revenues) 27% 25% 26% 27% 32%
Income from operations 57,718 35,620 28,125 18,048 5,260
(% of net revenues) 19% 18% 19% 17% 7%
Net income $ 37,633 $ 23,991 $ 17,573 $ 11,475 $ 5,812
(% of net revenues) 12% 12% 12% 11% 8%
Primary earnings per share(d):
Net income per share $ 0.79 $ 0.55 $ 0.41 $ 0.27 $ 0.14
Shares used in per
share computations 47,698(e) 43,692 42,713 42,107 40,935
Fully diluted earnings per share(d):
Net income per share $ 0.74 $ 0.51 $ 0.40 $ 0.27 $ 0.14
Shares used in per
share computations 52,740 50,205 48,383 44,258 40,935
...................................................................................................................................
As of December 31:
Cash, cash equivalents,
and short-term investments $115,797 $ 93,633 $102,597 $ 93,105 $36,163
Working capital 140,079 108,588 113,128 103,632 41,229
Total assets 283,093 215,871 166,035 138,326 64,569
Long-term debt 4,500(e) 59,500 55,000 55,000 --
Shareholders' equity $219,448(e) $112,285 $ 80,813 $ 64,333 $50,166
Shares outstanding(d) 48,807(e) 41,753 40,652 40,642 39,848
...................................................................................................................................
Capital spending $ 33,210 $ 16,627 $ 13,112 $ 8,853 $ 4,451
Regular full-time employees 1,330 950 640 500 380
</TABLE>
- ----------
(a) During 1996, the Company acquired Envoy Holdings Limited and Prospect
Software, Inc., in transactions accounted for as pooling of interests. Results
for prior years have not been restated since the adjustments would not be
material (see Note 2 to the Consolidated Financial Statements).
(b) In October 1995, the Company acquired TCS Management Group, Inc., in a
transaction accounted for as a purchase. In connection with the transaction, a
charge of $1.8 million, or $0.02 per share on a fully diluted basis, was
recorded for purchased in-process technology and is included in 1995 research
and development expenses (see Note 2 to the Consolidated Financial Statements).
(c) Results for the year ended December 31, 1992, include an extraordinary tax
credit of $1.7 million, or $0.04 per share, related to the use of net operating
loss carryforwards.
(d) Share and per share data reflect a two-for-one stock split effective January
28, 1997.
(e) Amount reflects the October 1996 conversion of $55 million of 5% convertible
subordinated debentures into approximately 5.7 million shares of common stock
(see Note 7 to the Consolidated Financial Statements).
<PAGE> 2
Excerpts from pages 24 - 31 of the 1996 Annual Report to Shareholders.
Management's Discussion and Analysis
BACKGROUND
Aspect Telecommunications Corporation (the Company) is a global provider of
comprehensive business solutions for companies with mission-critical call
centers that exist to generate revenue, service customers, and handle inquiries.
The Company's products include automatic call distributors, interactive response
systems, management information and reporting tools, computer-telephony
integration technology, and call center planning and forecasting packages. The
Company also provides services vital to call center environments, including
business applications consulting, systems integration, and training.
In 1996, the Company completed two acquisitions: Envoy Holdings Limited (Envoy)
on September 30, 1996, and Prospect Software, Inc. (Prospect), on October 21,
1996. Envoy provides call center and telebusiness solutions designed to improve
customer service through consulting services, software, and systems integration.
Prospect is a provider of application development tools for building
connectivity to a variety of call center systems and network-based computer
applications. Both acquisitions were accounted for as pooling of interests and
all financial results for 1996 reflect the acquisitions. As the historical
operations of Envoy and Prospect were not significant to any year presented, the
Company's financial statements for prior years have not been restated and the
financial effects of the prior years' results of operations for both acquired
companies have been accounted for as increases to retained earnings in 1996.
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. The acquisition was accounted for as a purchase and the operating
results of TCS have been included in the consolidated statements of income since
the date of acquisition.
On December 20, 1996, the Company announced that its Board of Directors approved
a two-for-one stock split effective January 28, 1997, for shareholders of record
as of January 6, 1997. All share and per share amounts and share prices in this
annual report reflect the stock split.
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 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 without limitation, statements
regarding the Company's expectations, beliefs, intentions, or future strategies,
which are dependent on certain risks and uncertainties that 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 in the section titled "Risk Factors."
RESULTS OF OPERATIONS
Net revenues for the Company increased by 55% to $309 million in 1996 from $199
million in 1995, and 1995 revenues increased by 35% from $147 million in 1994.
Net revenues for 1995 include results for TCS for the two-month period ending
December 31, 1995, and net revenues for 1996 include a full year of results for
Envoy and Prospect (see Note 2 to the Consolidated Financial Statements).
Excluding revenues associated with TCS, Envoy, and Prospect, 1996 net revenues
increased by 42% over 1995.
Product revenues grew by 55% to $231 million in 1996 from $148 million in 1995,
and 1995 product revenues increased by 29% from $115 million in 1994. The
increases in product revenues were primarily attributable to increased market
demand for the Company's products, as the volume of new systems and add-ons
increased from year to year, and the inclusion of TCS's product revenues in
1996. There were no significant changes in average selling prices for new
systems across the periods presented.
<PAGE> 3
Customer support revenues increased by 55% to $78 million in 1996 from $51
million in 1995, and 1995 customer support revenues also increased by 55% from
$33 million in 1994, due primarily to the growth in the Company's installed base
and the inclusion of TCS's customer support revenues in 1996. Customer support
revenues include charges for providing contractually agreed-upon ongoing system
service and maintenance, which typically commences twelve months from the date a
system is first installed; charges to install products at customer sites;
consulting and systems integration revenue; and other support services provided
to the Company's customers. Contract support revenues are largely dependent on
renewable customer support contracts and will be primarily affected by the
general growth in the installed base. Installation revenue will generally follow
product revenue fluctuations, although no installation revenue is ordinarily
received for product sales to the Company's distributors. In 1996, the Company
established the Aspect Consulting and Systems Integration (C&SI) business unit.
C&SI revenues are dependent on the Company's ability to obtain contracts for
suitable projects and successfully complete these projects. Since most of the
costs associated with providing customer support are fixed, quarterly
fluctuations in customer support revenues can have a significant impact on the
related gross margin.
No single customer accounted for 10% or more of net revenues in 1996 or 1995,
and one customer accounted for approximately 11% of net revenues in 1994. Net
revenues to customers outside of North America have continued to increase in
total dollars. As a percentage of net revenues, such revenues were 25% in 1996,
24% in 1995, and 23% in 1994. The revenues generated from international
operations are generally denominated in foreign currencies. The Company enters
into forward exchange contracts to reduce the impact of foreign currency
fluctuations on the results of operations.
Gross margin on product revenues increased to 66% in 1996 from 65% in 1995 and
64% in 1994. The increase between 1996 and 1995 primarily reflects the inclusion
of TCS's product revenues, which typically carry higher margins than the
Company's other product revenues. The increase in gross margin between 1995 and
1994 was primarily related to increased sales through direct channels (which
typically generate higher margins than sales through distributors) and higher
margins on TCS product revenues. On a forward-looking basis, the Company expects
that the following factors, among others, could have a material impact on
product gross margins: the mix of products sold; the channel of distribution;
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 the results of newly acquired subsidiaries and newly established
business units.
Gross margin on customer support revenues was 28% in 1996, 30% in 1995, and 26%
in 1994. The decrease in customer support margins in 1996 reflects customer
support revenues not growing proportionately with the costs associated with
providing the related services, and ongoing efforts to expand the Company's
customer support infrastructure, particularly in the United States. In the
fourth quarter of 1996, the Company established an additional domestic customer
operations support center that will further increase support costs. The
improvement in customer support gross margins from 1994 to 1995 was primarily
attributable to the increase in the Company's installed base with a
proportionately lower increase in fixed costs associated with providing customer
support. On a forward-looking basis, the Company anticipates that customer
support margins will vary from quarter to quarter due to fluctuations in
customer support revenues (since most of the costs associated with providing
customer support are fixed), the expansion of its customer support
infrastructure, and the Company's ability to build a successful C&SI business
unit.
<PAGE> 4
Research and development (R&D) expense increased by 37% to $35 million in 1996
from $25 million in 1995, and 1995 R&D expenses increased by 60% from $16
million in 1994, reflecting the Company's ongoing efforts to remain competitive
through both new product development and expanding features for existing
products. The increases across the periods presented reflect increased R&D
personnel and external consultants and the associated costs for facilities and
other infrastructure costs, and the inclusion of TCS's R&D expenses in 1996. As
a percentage of net revenues, R&D expenses were 11% in 1996, 13% in 1995, and
11% in 1994. The 1995 R&D expenses include a $1.8 million charge for purchased
in-process technology associated with the October 1995 acquisition of TCS. The
Company continues to believe that significant investment in R&D is required to
remain competitive and anticipates, on a forward-looking basis, that such
expenses will increase in terms of absolute dollars for 1997 as a whole,
although such expenses as a percentage of net revenues may fluctuate on a
quarterly basis.
Selling, general and administrative (SG&A) expenses increased by 63% to $82
million in 1996 from $51 million in 1995, and 1995 SG&A expenses increased by
35% from $38 million in 1994. The increases across the periods presented were
primarily caused by increased personnel; increased commissions and travel costs
related to higher revenues; the inclusion of TCS's SG&A expenses in 1996 and
amortization of intangibles related to the acquisition of TCS; costs related to
the expansion of the Company's foreign and domestic operations; increased
infrastructure costs, including costs associated with a new internal integrated
business application software program; and expenses related to acquisitions.
SG&A expenses as a percentage of net revenues were 27% in 1996, 25% in 1995, and
26% in 1994. The Company anticipates, on a forward-looking basis, that SG&A
expenses will continue to increase in absolute dollars throughout 1997, although
as a percentage of net revenues such expenses may fluctuate on a quarterly
basis.
Net interest income decreased by 14% to $2.1 million in 1996 from $2.5 million
in 1995, and 1995 net interest income increased from $0.2 million in 1994. The
decrease from 1995 to 1996 was primarily attributable to lower interest earning
balances and lower interest rates. The increase from 1994 to 1995 was due to
higher interest earning balances and higher interest rates. Through October 15,
1996, the Company incurred interest expense related to $55 million of
convertible subordinated debentures issued in September 1993. The interest
expense related to the debentures was $2.3 million in 1996 and $2.9 million in
1995 and 1994. On a forward-looking basis, the Company anticipates that net
interest income will increase in the near term as a result of the conversion of
the convertible subordinated debentures in October 1996 (see "Liquidity and
Capital Resources").
Income taxes for the Company reflect an effective income tax rate of 37% in both
1996 and 1995, and 38% in 1994. On a forward-looking basis, the Company
anticipates that expanding international operations, the anticipated expiration
of the R&D tax credit, and other factors will place modest upward pressure on
the Company's effective tax rate in the future.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's principal source of liquidity consisted
of cash, cash equivalents, and short-term investments totaling $116 million,
which represented 41% of total assets. The primary sources of cash during 1996
consisted of cash provided by operating activities of $49 million, proceeds from
the issuance of common stock under various stock plans of $8 million, and net
sales and maturities of short-term investments of $3 million. The primary uses
of cash during 1996 consisted of $33 million for the purchase of property and
equipment, including $10.5 million for the acquisition of a 98,000-square-foot
building and approximately ten acres of land adjacent to the Company's
headquarters facility in San Jose, California.
<PAGE> 5
As of December 31, 1996, the Company's outstanding borrowings consisted of a
$4.5 million note payable incurred in connection with the acquisition of TCS
(see Note 2 to the Consolidated Financial Statements). On October 15, 1996, the
Company converted all $55 million of its convertible subordinated debentures
into approximately 5.7 million shares of the Company's common stock.
The Company believes, on a forward-looking basis, that its cash, cash
equivalents, 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.
RISK FACTORS
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. The following discussion
highlights some of these risk factors.
Variability and Uncertainty
of Revenues and Operating Results
The Company's revenues, gross margins, and operating results may fluctuate
significantly from quarter to quarter for many reasons including, without
limitation, the following: (1) 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 significant portion of product revenues in any
particular quarter; (2) a significant percentage of product revenues continues
to be derived from new customers; (3) the portion of product revenues related to
accounts purchasing multiple systems may fluctuate; (4) the mix of products and
services sold and channels of distribution may fluctuate; (5) operating results
of newly acquired subsidiaries may fluctuate; and (6) the Company's newly
established business units (e.g., consulting and systems integration and
computer-telephony integration) may require substantial investments, while
revenues from such business units may be difficult to predict.
The Company's products typically represent substantial capital commitments by
Aspect's customers involving a long sales cycle and, as a result, customer
purchase decisions have been, and in the future may be, significantly affected
by a variety of factors including, without limitation, the following: general
economic conditions; world political events; trends in capital spending,
particularly for telecommunications products; market competition and the
availability or announcement of alternative technologies; and the degree to
which call transaction processing is mission critical for customers. Reduced
demand for the Company's products could have a material adverse effect on the
Company's business, operating results, and financial condition.
Volatility of Stock Price
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 achieved revenue or earnings from the levels expected
by securities analysts or others could have an immediate and adverse effect on
the 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 Company's common stock price. Such
volatility may be exacerbated further by the relatively low trading volume of
the Company's common stock. Further, the Company participates in a rapidly
changing high-technology industry, which has in the past exhibited significant
stock market volatility. Often, when a high-technology company's stock price
declines rapidly, the company may become subject to class action securities
litigation. Were the Company to become involved in such litigation, it could
expend significant financial and management resources, which could have a
material adverse effect on the Company's business, operating results, and
financial condition.
<PAGE> 6
Product Concentration,
Technological Change, and New Products
Sales and installations of new Aspect CallCenter systems, the Company's
principal product, account for a substantial portion of net revenues. Any factor
adversely affecting the market for the Aspect CallCenter system or the failure
of any Aspect product to meet customer requirements, including system
performance, system availability, or other requirements, could have a material
adverse effect on the Company's business, operating results, and financial
condition.
The market for Aspect's products is subject to rapid technological change and
new product introductions. Current competitors or new market entrants may
develop new, proprietary products with features that could adversely affect the
competitive position of the Company's products. There can be no assurance that
the Company will be successful in accurately anticipating market demand for
products being developed; in developing, manufacturing, and marketing new
products; or in enhancing its existing products.
Due to the complexity and sophistication of the Company's software products, the
Company's products from time to time contain defects that can be difficult to
correct. There can be no assurance that software defects will not cause delays
in product introductions and shipments, result in increased costs, require
design modifications, or impair customer satisfaction with the Company's
products. Any such event could materially adversely affect the Company's
business, operating results, and financial condition.
Competition
The Company believes the market for its products is highly competitive and that
competition is likely to intensify. The Company's principal competitors
currently include companies that market automatic call distributor (ACD) systems
and companies that market private branch exchange systems that include ACD
features. The Company's current competitors include, but are not limited to,
Lucent Technologies Inc. (previously a unit of AT&T Corp.); Northern Telecom
Limited (Nortel); Siemens Business Communication Systems, Inc.; Rockwell
International Corporation; Alcatel Alsthom; L.M. Ericsson; and N.V. Philips. The
Company anticipates that the regional Bell operating companies and other
telephone operating companies could market ACD functionality through equipment
located in the telephone operating company's central office rather than on
customers' premises. Additional potential competitors include companies with
technologies capable of providing mission-critical call transaction processing
capabilities, including participants in the problem tracking and resolution
client/server software market, pre-network routing companies, and a wide variety
of computer-telephony integration software companies. As the hardware
requirements for a traditional call center diminish due to the emergence of the
Internet, local area networks, and other factors, other companies may obtain a
significant position in the call transaction processing market.
Many of Aspect's current competitors have longer operating histories;
considerably greater financial, technical, sales, and marketing resources; and
larger installed customer bases than Aspect. Moreover, Lucent Technologies, the
largest provider of call center products and services, may emerge as a more
focused, aggressive competitor following its recent divestiture from AT&T.
Consequently, the Company expects to encounter substantial competition from
these and other companies, as well as from new market entrants and emerging
technologies. Intensified price-based competition or changes in the Company's
price structure could result in lower prices and lower margins for Aspect's
products, which could materially adversely affect the Company's business,
operating results, and financial condition.
<PAGE> 7
Intellectual Property; Litigation
The Company's success depends in part upon its internally developed technology.
While the Company relies on patent, trademark, trade secret, and copyright law
to protect its technology, the Company believes that the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition, and product reliability are more essential to
establishing and maintaining a technology leadership position. The Company
generally enters into confidentiality or license agreements with its employees,
consultants, and vendors, and generally controls access to and distribution of
its software, documentation, and other proprietary information. Despite these
precautions, unauthorized third parties may attempt to copy or otherwise obtain
and use the Company's technology. In addition, third parties may develop similar
technology independently.
As is common in the telecommunications industry, the Company has been and may in
the future be notified of claims that it may be infringing other parties'
patents or other proprietary rights. Although the Company attempts to ensure
that its products and processes do not infringe such third-party patents or
proprietary rights, there can be no assurance that infringement or invalidity
claims (or claims for indemnification resulting from infringement claims) will
not be asserted or prosecuted against the Company. Periodically, the Company
negotiates with third parties to establish patent license or cross-license
agreements, and the Company is currently in such negotiations. While the Company
cannot predict the outcome of the current negotiations, and to date such
negotiations have not resulted in any license or cross-license agreements, based
on discussions to date the Company does not expect that any such agreement would
have a material adverse effect on the Company's financial condition. Although
the Company intends to resolve intellectual property disputes through licensing
arrangements, when appropriate, and on terms it believes to be commercially
reasonable, there can be no assurance that the Company would be able to license
valid and infringed patents (if any) on commercially reasonable terms or that it
would prevail in any litigation over third-party claims.
In the future, Aspect could become involved in other types of litigation, such
as shareholder lawsuits for alleged violations of securities laws, claims
asserted by current or former employees, and product liability claims. Any
litigation in which the Company is involved, regardless of merit, source, or
outcome, could result in substantial cost to and diversion of effort by the
Company, which could have a material adverse effect on the Company's business,
operating results, and financial condition.
Management of Growth
The Company has experienced a period of rapid growth that has placed a
significant strain on the Company's managerial and operational resources. To
manage its growth, the Company must continue to implement and improve its
operational and financial systems and to expand, train, and manage its employee
base. For example, the Company recently implemented, and in the future may
implement, additional versions of a new internal integrated business application
software system. There can be no assurance that complications will not arise
from this software system transition, resulting in substantial unanticipated
expenses. An additional challenge created by the Company's rapid growth is in
hiring, assimilating, training, and retaining a large number of employees in a
labor market characterized by a high demand for and limited supply of qualified
people. In addition, the Company must carefully maintain inventories at levels
consistent with product demand and the requirements of new product
introductions. Inaccuracies in demand forecasts could quickly result in either
insufficient or excessive inventories and obsolescence expense.
Dependence on Key Personnel
The Company depends upon certain key management and technical personnel, the
loss of whom could have a material adverse effect on the Company's business,
operating results, and financial condition. The Company's future success will
depend in part upon its ability to attract and retain highly qualified
personnel, broaden and diversify its management team, and ensure successful
management transition.
<PAGE> 8
Limited Sources of Component Supply
Although the Company primarily uses standard parts and components in its
products, certain components, including certain central processing units, other
integrated circuits, and circuit cards, are presently available only from a
single source or from limited sources of supply. The inability of the Company to
develop alternative sources if and as required in the future, or to obtain
sufficient sole or limited source components as required, could have a material
adverse effect on the Company's business, operating results, and financial
condition. In addition, there can be no assurance that manufacturers of
component parts used by the Company will not modify their products in a manner
incompatible with the Company's use of such products.
Licenses from Third Parties
The Company currently manufactures certain components incorporated into its
products pursuant to engineering and manufacturing licenses from third parties.
The Company depends upon the licensors' abilities to provide certain technical
support and cooperation in optimizing the Company's use of the licensed
technologies. Should any of the licensors become unable to provide such
technical support, the Company would have to develop internal capabilities or
otherwise locate alternative technical support. This in turn could adversely
affect the Company's ability to complete timely shipments during the transition.
If, due to a breach of a license agreement or otherwise, the Company becomes
unable to continue to utilize the applicable licensed technology, the Company's
business, operating results, and financial condition could be materially
adversely affected.
Geographic Concentration
Aspect's product development, manufacturing, information technology systems,
corporate offices, and support functions are concentrated in the Silicon Valley
area of California. In the event of a natural disaster, such as an earthquake or
flood, the Company could experience a business interruption that would have a
material adverse effect on the Company's business, operating results, and
financial condition.
Acquisitions and Investments
Since October 1995, Aspect has acquired three companies: TCS, Envoy, and
Prospect. During the same period, the Company made minority equity investments
in companies with products, services, or technologies that potentially
complement Aspect's business. In the future, the Company may make further
strategic acquisitions and investments or enter into joint ventures or strategic
alliances with other companies. Such transactions entail numerous risks,
including the following: inability to successfully integrate such companies'
personnel and businesses; inability to realize anticipated synergies, economies
of scale, or other value associated with such transactions; diversion of
management's attention and disruption of the Company's ongoing business;
inability to retain key technical and managerial personnel; inability to
establish and maintain uniform standards, controls, procedures, and policies;
and impairment of relationships with employees and customers as a result of the
integration of new personnel. In addition, future acquisitions or investments by
the Company may result in the issuance of additional equity or debt securities,
significant one-time write-offs, and the creation of goodwill or other
intangible assets. Failure to avoid these or other risks associated with such
business combinations, investments, joint ventures, or strategic alliances could
have a material adverse effect on the Company's business, operating results, and
financial condition.
<PAGE> 9
International Operations
The Company currently operates in several international markets and anticipates
entering additional markets in the future. The financial resources required to
enter a new international market may vary substantially among markets based
upon, among other factors, the market's regulatory environment, the Company's
expansion strategy in the market, and the level of acceptance of the Company's
products in that market. Many countries require multiple governmental approvals
prior to allowing a new entrant into the market. The cost and timing of these
approvals, which may require the Company to modify its products, are often
subject to considerable uncertainty and could result in longer lead times than
initially anticipated. The Company's international operations are subject to
additional risks, including exchange rate fluctuations; delays in
telecommunications deregulation; difficulties in staffing and managing foreign
subsidiary operations; political and economic instability; potentially negative
tax consequences; and foreign and domestic trade legislation, which could result
in the creation of trade barriers such as tariffs, duties, quotas, and other
restrictions. Failure to successfully enter certain international markets on a
timely basis could impair the Company's competitive position in such markets and
prevent the Company from obtaining the scale advantages of global competitors.
Regulatory Requirements
The Company's products are subject to various regulations that require, among
other things, that the Company's products meet certain radio frequency emission
standards, be compatible with the public telephone networks, and conform to
certain safety and other standards. Sales of products that fail to comply with
these regulations may be prohibited by regulatory authorities until appropriate
modifications are made. There can be no assurance that the Company will be
successful in obtaining or maintaining the necessary regulatory approvals for
its products, and its failure to do so could have a material adverse effect on
the Company's business, operating results, and financial condition.
Expansion of Distribution Channels
The Company has historically sold its products through its direct sales force
and a limited number of distributors. The Company is currently investing, and
plans to continue to invest, significant resources to expand its domestic and
international direct sales force and develop distribution relationships with
certain third-party distributors. Any failure by the Company to maintain or
expand its direct sales force or other distribution channels would materially
adversely affect the Company's business, operating results, and financial
condition.
<PAGE> 10
Excerpts from pages 32-44 of the 1996 Annual Report to Shareholders,
"Consolidated Financial Statements."
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 47,996 $ 22,102
Short-term investments 67,801 71,531
Accounts receivable (net of allowance for doubtful
accounts: $1,202 in 1996 and $825 in 1995) 53,211 39,291
Inventories 15,485 11,051
Other current assets 14,731 8,699
- -------------------------------------------------------------------------------------------------------
Total current assets 199,224 152,674
Property and equipment--net 51,348 28,418
Intangible assets--net 28,888 31,405
Other assets 3,633 3,374
- -------------------------------------------------------------------------------------------------------
Total assets $ 283,093 $ 215,871
- -------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,187 $ 11,142
Accrued compensation and related benefits 8,896 8,427
Other accrued liabilities 22,581 15,242
Customer deposits and deferred revenue 19,481 9,275
- -------------------------------------------------------------------------------------------------------
Total current liabilities 59,145 44,086
Convertible subordinated debentures -- 55,000
Note payable 4,500 4,500
Commitments and contingencies
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, shares outstanding:
48,806,580 in 1996 and 41,752,922 in 1995 128,186 62,082
Net unrealized gain on securities 2,534 102
Accumulated translation adjustments (45) (437)
Retained earnings 88,773 50,538
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 219,448 112,285
- -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 283,093 $ 215,871
- -------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 11
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands, except per share amounts)
Net revenues:
Product $ 230,539 $ 148,436 $ 114,632
Customer support 78,164 50,536 32,607
- ------------------------------------------------------------------------------------------------------------
Total net revenues 308,703 198,972 147,239
............................................................................................................
Cost of revenues:
Cost of product revenues 77,374 52,007 41,406
Cost of customer support revenues 56,548 35,369 24,272
- ------------------------------------------------------------------------------------------------------------
Total cost of revenues 133,922 87,376 65,678
............................................................................................................
Gross margin 174,781 111,596 81,561
Operating expenses:
Research and development 34,585 25,250 15,774
Selling, general and administrative 82,478 50,726 37,662
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 117,063 75,976 53,436
- ------------------------------------------------------------------------------------------------------------
Income from operations 57,718 35,620 28,125
............................................................................................................
Interest income 4,884 5,649 3,390
Interest expense (2,774) (3,188) (3,172)
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 59,828 38,081 28,343
Provision for income taxes 22,195 14,090 10,770
- ------------------------------------------------------------------------------------------------------------
Net income $ 37,633 $ 23,991 $ 17,573
............................................................................................................
Primary earnings per share:
Net income per share $ 0.79 $ 0.55 $ 0.41
Shares used in per share computations 47,698 43,692 42,713
Fully diluted earnings per share:
Net income per share $ 0.74 $ 0.51 $ 0.40
Shares used in per share computations 52,740 50,205 48,383
</TABLE>
See notes to consolidated financial statements.
<PAGE> 12
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Notes Net
Receivable Unrealized
Common Stock from Sale Gain Accumulated
-------------------------- of Common (Loss) on Translation Retained
Shares Amount Stock Securities Adjustments Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except share amounts)
BALANCES, DECEMBER 31, 1993 40,642,376 $ 54,554 $(23) $ -- $(704) $ 10,506 $ 64,333
Issuance of common stock
under stock purchase plans 115,816 683 -- -- -- -- 683
Issuance of common stock
under other stock plans 354,008 949 -- -- -- -- 949
Stock repurchases (460,000) (1,661) -- -- -- (1,532) (3,193)
Collection of notes receivable -- -- 13 -- -- -- 13
Income tax benefit for employee
stock option transactions -- 701 -- -- -- -- 701
Net unrealized loss on securities -- -- -- (606) -- -- (606)
Accumulated translation adjustments -- -- -- -- 360 -- 360
Net income -- -- -- -- -- 17,573 17,573
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 40,652,200 55,226 (10) (606) (344) 26,547 80,813
Issuance of common stock
under stock purchase plans 344,800 2,524 -- -- -- -- 2,524
Issuance of common stock
under other stock plans 755,922 2,911 -- -- -- -- 2,911
Collection of notes receivable -- -- 10 -- -- -- 10
Income tax benefit for employee
stock option transactions -- 1,421 -- -- -- -- 1,421
Net unrealized gain on securities -- -- -- 708 -- -- 708
Accumulated translation adjustments -- -- -- -- (93) -- (93)
Net income -- -- -- -- -- 23,991 23,991
..................................................................................................................................
BALANCES, DECEMBER 31, 1995 41,752,922 62,082 -- 102 (437) 50,538 112,285
Adjustment in connection with
pooling of interests 490,836 378 -- -- -- 602 980
Issuance of common stock
under stock purchase plans 178,426 3,149 -- -- -- -- 3,149
Issuance of common stock
under other stock plans 725,232 4,633 -- -- -- -- 4,633
Income tax benefit for employee
stock option transactions -- 4,177 -- -- -- -- 4,177
Issuance of common stock related to
the conversion of the convertible
subordinated debentures, net of
unamortized debt issuance costs
of $1,233 5,659,164 53,767 -- -- -- -- 53,767
Net unrealized gain on securities -- -- -- 2,432 -- -- 2,432
Accumulated translation adjustments -- -- -- -- 392 -- 392
Net income -- -- -- -- -- 37,633 37,633
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 48,806,580 $ 128,186 $ -- $ 2,534 $ (45) $ 88,773 $ 219,448
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 13
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Cash flows from operating activities:
Net income $ 37,633 $ 23,991 $ 17,573
Reconciliation of net income to cash provided by
operating activities:
Depreciation and amortization 16,296 8,687 7,075
Purchased in-process technology -- 1,800 --
Changes in assets and liabilities, net of effects from company acquired
in 1995:
Accounts receivable (12,024) (9,764) (7,993)
Inventories (4,265) (2,297) (2,000)
Other current assets and other assets (4,191) (1,351) (546)
Accounts payable (3,966) 3,520 2,579
Accrued compensation and related benefits 67 464 2,129
Other accrued liabilities 9,147 5,593 3,923
Customer deposits and deferred revenue 10,078 (810) 2,432
.................................................................................................................................
Cash provided by operating activities 48,775 29,833 25,172
Cash flows from financing activities:
Repurchase of common stock -- -- (3,193)
Repayment of capital lease obligations -- -- (91)
Other common stock transactions--net 7,782 5,445 1,645
- ----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 7,782 5,445 (1,639)
Cash flows from investing activities:
Short-term investment purchases (93,174) (85,794) (87,810)
Short-term investment sales and maturities 96,531 89,597 62,525
Property and equipment purchases (33,210) (16,627) (13,112)
Purchase of company, net of cash acquired -- (28,408) --
.................................................................................................................................
Cash used in investing activities (29,853) (41,232) (38,397)
Effect of exchange rate changes on cash and cash equivalents (810) 85 334
.................................................................................................................................
Increase (decrease) in cash and cash equivalents 25,894 (5,869) (14,530)
Cash and cash equivalents:
Beginning of year 22,102 27,971 42,501
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 47,996 $ 22,102 $ 27,971
.................................................................................................................................
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,127 $ 2,750 $ 3,172
Cash paid for income taxes $ 18,852 $ 11,329 $ 9,019
Supplemental schedule of noncash investing and financing activities:
Income tax benefit from employee stock transactions $ 4,177 $ 1,421 $ 701
Conversion of convertible subordinated debentures
into shares of common stock, net of unamortized
debt issuance costs of $1,233 $ 53,767 $ -- $ --
.................................................................................................................................
</TABLE>
See notes to consolidated financial statements.
<PAGE> 14
Notes to Consolidated Financial Statements
NOTE 1: ORGANIZATION AND
SIGNIFICANT ACCOUNTING POLICIES
Organization
Aspect Telecommunications Corporation (the Company) is a global provider of
comprehensive business solutions for companies with mission-critical call
centers that exist to generate revenue, service customers, and handle inquiries.
The Company's products include automatic call distributors, interactive response
systems, management information and reporting tools, computer-telephony
integration technology, and call center planning and forecasting packages. The
Company also provides services vital to call center environments, including
business applications consulting, systems integration, and training.
Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity date of three months or less to be cash equivalents.
Investments
The Company has classified all of its investments as available-for-sale
securities. While the Company's practice is to hold debt securities to maturity,
the Company has classified all debt securities as available-for-sale securities,
as the sale of such securities may be required prior to maturity to implement
management strategies. The carrying value of all securities is adjusted to fair
market value, with unrealized gains and losses, net of deferred taxes, being
excluded from earnings and reported as a separate component of shareholders'
equity. Cost is based on the specific identification method for purposes of
computing realized gains or losses.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives of three to thirty years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful life.
Intangible Assets
Intangible assets at December 31, 1996, consist of $28,888,000 (net of
accumulated amortization of $4,475,000) of purchased existing technology,
goodwill, a covenant not to compete, and a trademark acquired in the acquisition
of TCS Management Group, Inc. (see Note 2). These intangible assets are
amortized on a straight-line basis over periods of five to ten years.
Software Development Costs
The costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs would be capitalized in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Software to be Sold, Leased or
Otherwise Marketed." Because the Company believes its current process for
developing software is essentially completed concurrently with the establishment
of technological feasibility, no costs have been capitalized to date.
Customer Deposits and Deferred Revenue
Customer deposits primarily represent payments received from customers upon
product order. Deferred revenue represents payments received from customers for
maintenance support or products prior to revenue recognition.
<PAGE> 15
Revenue Recognition
The Company generally recognizes revenue from the sale of systems upon
installation at the customer site; revenues from add-ons, upgrades, software
licenses, and systems sales to distributors are generally recognized upon
shipment to the customer or distributor. Customer support revenues primarily
consist of revenues from new system installations, which are recognized when the
service is provided, and ongoing customer support revenues, which are recognized
ratably over the support period. Revenues are recorded net of sales returns and
allowances. Product warranty costs and costs related to insignificant vendor
obligations for post-contract customer support are accrued when revenue is
recognized.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB No. 25, "Accounting for Stock Issued to
Employees."
Per Share Information
Per share information is computed using the weighted average number of common
and common equivalent shares outstanding. For primary earnings per share, common
equivalent shares consist of the incremental shares issuable upon the assumed
exercise of dilutive stock options (using the treasury stock method). For fully
diluted earnings per share, common equivalent shares also include the dilutive
effect of incremental shares issuable upon the conversion of the 5% convertible
subordinated debentures (see Note 7, "Convertible Subordinated Debentures"), and
net income is adjusted for the interest expense (net of income taxes) related to
the debentures.
Foreign Currency Translation and Foreign Exchange Contracts
Operations of the Company's foreign subsidiaries are measured using the local
currency as the functional currency for each subsidiary. Assets and liabilities
of the foreign subsidiaries are translated into U.S. dollars at the exchange
rates in effect as of the balance sheet dates, and results of operations for
each subsidiary are translated using average rates in effect for the periods
presented. Foreign currency transaction gains and losses, which are included in
the consolidated statements of income, have not been material in any of the
three years presented. The Company enters into foreign exchange contracts as a
hedge against intercompany account balances. Market value gains and losses on
these contracts offset foreign exchange gains or losses on the balances being
hedged.
Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. Such
management estimates include the allowance for doubtful accounts receivable, the
recoverability of intangible assets, and warranty reserves. Actual results could
differ from those estimates.
The Company sells its products primarily to large organizations in diversified
industries in North America and Europe, and generally does not require its
customers to provide collateral or other security to support accounts
receivable. However, the Company's intention is to mitigate its credit risk on
system sales by receiving a portion of the sales price prior to shipping the
product. While the Company maintains allowances for potential bad debt losses,
such losses to date have not been material.
<PAGE> 16
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control, that could have a
material adverse effect on the Company's future financial position or results of
operations. These risks include variability and uncertainty of revenues and
operating results; product concentration, technological change, and new
products; competition; intellectual property/litigation; management of growth;
dependence on key personnel; limited sources of component supply; licenses from
third parties; geographic concentration; acquisitions and investments;
international operations; regulatory requirements; and expansion of distribution
channels.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
NOTE 2: BUSINESS COMBINATIONS
On October 21, 1996, the Company acquired Prospect Software, Inc. (Prospect), by
issuing 280,000 shares of common stock for all of the outstanding stock of
Prospect. Prospect is a provider of application development tools for building
connectivity to a variety of call center systems and network-based computer
applications. The acquisition was accounted for as a pooling of interests.
On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy) by
issuing approximately 211,000 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 reflects the acquisitions of Envoy and Prospect, and
all material intercompany transactions during such period have been eliminated.
As the historical operations of Envoy and Prospect 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 and Prospect has been accounted for as a $602,000 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>
<CAPTION>
Net Revenues Net Income
- --------------------------------------------------------------------------------
<S> <C> <C>
Aspect $215,613 $26,646
Envoy 2,638 157
Envoy acquisition costs -- (374)
Prospect 2,378 883
Eliminations (475) (123)
- --------------------------------------------------------------------------------
$220,154 $27,189
................................................................................
</TABLE>
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 aggregate
purchase price of $37,500,000, consisting of $33,000,000 in cash and a
promissory note of $4,500,000, plus costs of approximately $250,000 directly
attributable to the acquisition, have been allocated to the assets acquired and
liabilities assumed. The promissory note is due October 31, 1998, and bears
interest at the prime rate (8.25% at December 31, 1996). Approximately
$1,800,000 of the total purchase price represented the value of in-process
technology that had not reached technological feasibility and that had no
alternative future use and was charged to research and development expense in
the fourth quarter of 1995.
The fair value of assets acquired, excluding the $1,800,000 of purchased
in-process technology charged to operations, was $42,214,000 and liabilities of
$6,514,000 were assumed.
<PAGE> 17
The operating results of TCS have been included in the consolidated statements
of income since the date of acquisition. Had the acquisition taken place at the
beginning of 1994, unaudited pro forma results of operations would have been as
follows for the years ended December 31 (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $211,852 $162,045
Net income 24,204 15,974
Fully diluted earnings per share 0.52 0.37
</TABLE>
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill, interest expense
on the promissory note, the elimination of certain non-recurring expenses, and
interest income associated with funding the acquisition. The $1,800,000 charge
for purchased in-process technology has been excluded from the pro forma results
as it is a non-recurring charge.
NOTE 3: INVESTMENTS
Short-term investments at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1996
- --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal obligations $ 34,680 $ 105 $ (320) $ 34,465
Corporate notes
and bonds 26,804 63 (38) 26,829
Treasury bills 3,506 -- (7) 3,499
Foreign debt issues 3,009 -- (1) 3,008
- --------------------------------------------------------------------------------
Total $67,999 $ 168 $ (366) $ 67,801
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995
- --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Market Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal obligations $24,776 $ 70 $ (7) $ 24,839
Corporate notes
and bonds 24,441 138 (46) 24,533
Treasury bills 19,094 31 (23) 19,102
Foreign debt issues 3,050 7 -- 3,057
- --------------------------------------------------------------------------------
Total $71,361 $ 246 $ (76) $ 71,531
- --------------------------------------------------------------------------------
</TABLE>
The maturity of short-term investments at December 31, 1996, was as follows (in
thousands):
<TABLE>
<CAPTION>
Market Value
- --------------------------------------------------------------------------------
Within One to
One Year Two Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Municipal obligations $ 20,274 $14,191
Corporate notes and bonds 24,483 2,346
Treasury bills 1,997 1,502
Foreign debt issues 3,008 --
- --------------------------------------------------------------------------------
Total $ 49,762 $18,039
- --------------------------------------------------------------------------------
</TABLE>
Included in other current assets at December 31, 1996, is an investment in an
equity security with a market value of $4,736,000 (cost of $450,000).
Realized gains and losses were not significant in 1996, 1995, or 1994.
<PAGE> 18
NOTE 4: INVENTORIES
Inventories at December 31 consist of
(in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 9,598 $ 7,556
Work in progress 541 660
Finished goods 5,346 2,835
- --------------------------------------------------------------------------------
Total $ 15,485 $11,051
- --------------------------------------------------------------------------------
</TABLE>
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,505 $ --
Building and improvements 7,195 --
Computer and development
equipment 48,107 32,781
Field spares 13,633 11,034
Office equipment 15,393 10,808
Leasehold improvements 8,844 6,431
- --------------------------------------------------------------------------------
Total 96,677 61,054
Accumulated depreciation
and amortization (45,329) (32,636)
- --------------------------------------------------------------------------------
Property and equipment--net $ 51,348 $28,418
- --------------------------------------------------------------------------------
</TABLE>
NOTE 6: OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Income taxes payable $ 6,263 $ 5,115
Product warranty 3,778 2,397
Other 12,540 7,730
- --------------------------------------------------------------------------------
Total $ 22,581 $15,242
- --------------------------------------------------------------------------------
</TABLE>
NOTE 7: CONVERTIBLE
SUBORDINATED DEBENTURES
During September 1993, the Company issued convertible subordinated debentures
("the debentures") with a face value totaling $55,000,000 in a Rule 144A private
placement transaction. In October 1996, the Company converted the debentures,
net of unamortized debt issuance costs of $1,233,000, into 5,659,164 shares of
common stock.
NOTE 8: SHAREHOLDERS' EQUITY
Stock Split
On December 20, 1996, the Company announced that its Board of Directors approved
a two-for-one stock split of the Company's common stock effective January 28,
1997 for holders of record on January 6, 1997. All references in the
consolidated financial statements with regard to shares, per share amounts, and
share prices have been adjusted for the stock split.
<PAGE> 19
Stock Option Plans
Under the Company's stock option plans, incentive and nonqualified stock options
may be granted to employees, officers, and directors. All options must be
granted at fair market value. Options granted to nondirectors become exercisable
as determined by the Board of Directors (generally over four or five years) and
typically expire ten years after the date of grant. Options granted to outside
directors become exercisable over four years and expire five years after the
date of grant.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding,
December 31, 1993 4,417,044 $ 4.11
Granted 1,830,900 $ 8.92
Canceled (395,700) $ 5.52
Exercised (352,488) $ 2.68
- --------------------------------------------------------------------------------
Outstanding,
December 31, 1994 5,499,756 $ 5.70
Granted 2,788,100 $ 13.03
Canceled (690,412) $ 7.09
Exercised (754,682) $ 3.86
- --------------------------------------------------------------------------------
Outstanding,
December 31, 1995 6,842,762 $ 8.75
Granted 2,554,000 $ 25.84
Canceled (525,089) $ 13.05
Exercised (723,724) $ 6.16
- --------------------------------------------------------------------------------
Outstanding,
December 31, 1996 8,147,949 $ 14.06
- --------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted-Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.50 - $ 9.50 2,806,740 5.73 years $ 5.09 1,846,101 $ 4.16
$ 9.88 - $17.19 2,820,783 8.17 $ 12.31 919,307 $ 11.84
$ 18.25 - $31.50 2,520,426 9.11 $ 26.00 48,596 $ 18.25
- -----------------------------------------------------------------------------------------------------------
$ 0.50 - $31.50 8,147,949 7.62 $ 14.06 2,814,004 $ 6.91
- -----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 4,658,185 shares were available for future grant under the
Company's stock option plans.
At December 31, 1995 and 1994, options to purchase 1,967,694 and 1,681,780
shares, respectively, were exercisable at weighted-average exercise prices of
$4.43 and $3.18, respectively.
Employee Stock Purchase Plan
In April 1990, the Board of Directors established the 1990 Employee Stock
Purchase Plan, under which 2,100,000 common shares are authorized for sale to
qualified employees through payroll withholdings at a price equal to 85% of the
lower of the fair market value as of the beginning or end of each six-month
offering period. At December 31, 1996, 1,621,894 shares had been issued under
this plan.
<PAGE> 20
Stock-Based Compensation
The Company utilizes stock options to attract new employees and retain existing
employees. Such options provide the grantee an opportunity to purchase the
Company's common stock at the fair market value of such shares as of the date of
grant, pursuant to a vesting period ranging from four to five years from the
grant date. The options expire based on the earlier of the employee's
termination date or typically ten years from the grant date. In 1996, the
Company was required to adopt Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123 requires
that the fair value of stock-based awards to employees be calculated through the
use of option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which differ significantly from the Company's stock-based awards.
These models also require highly subjective assumptions, including future stock
price volatility and expected time until exercise, which greatly affect the
calculated values. Accordingly, management believes that the pro forma amounts
below, which are based on the methodology required under SFAS 123, do not
necessarily provide a reliable single measure of the fair value of the Company's
stock-based awards.
SFAS 123 encourages, but does not require, companies to record compensation cost
for stock-based awards at fair value. Under this method, compensation cost is
measured based on the fair value of the stock award when granted and is
recognized as an expense over the service period, which is usually the vesting
period. As discussed in Note 1, the Company has chosen to continue to account
for stock-based awards using the intrinsic value method prescribed in APB No.
25, "Accounting for Stock Issued to Employees." Accordingly, no compensation
cost has been recognized for its stock option plans and its stock purchase plan.
Had the compensation cost for the Company's stock-based awards been determined
based on the fair value at the grant dates for awards under those plans in 1996
and 1995 consistent with the method of SFAS 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $ 37,633 $23,991
Pro forma $ 27,849 $21,812
- --------------------------------------------------------------------------------
Primary earnings As reported $ 0.79 $ 0.55
per share Pro forma $ 0.58 $ 0.50
- --------------------------------------------------------------------------------
Fully diluted earnings As reported $ 0.74 $ 0.51
per share Pro forma $ 0.56 $ 0.47
</TABLE>
The initial impact of adopting SFAS 123 disclosures may not be representative of
the effect on pro forma net income and earnings per share in future years
because of the following: the impact of outstanding nonvested stock options
granted prior to 1995 has been excluded from the pro forma calculations; options
vest over several years; and additional option grants may be made each year.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: expected life, six months following vesting; stock volatility, 50%;
risk-free interest rate, approximately 6%; and no dividends during the expected
term. The Company's calculations are based on a multiple option valuation
approach and forfeitures are recognized as they occur. The weighted-average fair
value of options granted during 1996 and 1995 was approximately $10.00 and
$5.00, respectively.
The fair value of the employees' purchase rights under the Employee Stock
Purchase Plan was estimated using the Black-Scholes model with the following
weighted-average assumptions: expected life, six months; expected volatility,
54% in 1996 and 39% in 1995; risk-free interest rate, approximately 6%; and no
dividends during the expected term. The weighted-average fair value of purchase
rights granted in 1996 and 1995 was approximately $6.00 and $2.50, respectively.
<PAGE> 21
Shares Reserved for Issuance
At December 31, 1996, the Company had reserved shares of common stock for
issuance as follows:
<TABLE>
<CAPTION>
<S> <C>
Stock option plans 12,806,134
Stock purchase plan 478,106
Other stock plans 8,820
- --------------------------------------------------------------------------------
Total 13,293,060
- --------------------------------------------------------------------------------
</TABLE>
Repurchase Program
During 1992, the Board of Directors approved a program to repurchase up to
3,000,000 shares of the Company's common stock from the open market. Through
July 31, 1994, 1,292,000 shares had been repurchased at an aggregate price of
$4,934,000 and no shares have been repurchased subsequent to such date. During
1996, the Company terminated its share repurchase program.
NOTE 9: INCOME TAXES
Tax provisions for the years ended December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $14,842 $ 10,140 $ 8,257
State 2,371 2,300 1,985
Foreign--net 6,245 3,487 1,346
Deferred:
Federal (1,294) (1,730) (753)
State 31 (107) (65)
- --------------------------------------------------------------------------------
Total $22,195 $ 14,090 $10,770
- --------------------------------------------------------------------------------
</TABLE>
Income before income taxes for the years ended December 31 consists of (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $42,315 $ 27,740 $23,658
Foreign--net 17,513 10,341 4,685
- --------------------------------------------------------------------------------
Total $59,828 $ 38,081 $28,343
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
A reconciliation of the statutory federal income tax rate and the effective tax
rate as a percentage of income before income taxes for the years ended December
31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes--
net of federal effect 2.7 3.8 4.3
Research and develop-
ment tax credits (0.5) (0.6) (0.9)
Tax exempt
investment income (0.7) (1.3) (0.6)
Other 0.6 0.1 0.2
................................................................................
Total 37.1% 37.0% 38.0%
................................................................................
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as operating loss
carryforwards. Significant components of the Company's deferred income tax
assets and liabilities as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accruals deductible in
different periods $ 4,976 $ 3,557
Depreciation and amortization 1,495 1,752
Revenue recognized in
different periods 224 1,291
Net operating loss of
foreign subsidiaries 520 404
Overhead in inventory 514 415
................................................................................
7,729 7,419
Deferred tax liabilities:
Unrealized gains
on investments (1,554) --
Tax expenses recognized in
different periods -- (97)
Valuation allowance for net
operating loss of
foreign subsidiaries (520) (404)
................................................................................
Net deferred tax asset $ 5,655 $ 6,918
................................................................................
</TABLE>
<PAGE> 23
The Company has net operating loss carryforwards of approximately $1,486,000
related to its German and UK subsidiaries that may be utilized to offset future
taxable income of those entities. The valuation allowance increased by $116,000
and $40,000 in 1996 and 1995, respectively, and decreased by $250,000 in 1994.
NOTE 10: COMMITMENTS
AND CONTINGENCIES
Manufacturing and administrative facilities are leased under operating leases
through 2006. Certain leases provide for escalating rental payments over the
lease period, and rent expense for such leases is recognized on a straight-line
basis over the terms of the leases. Rent expense was $5,613,000, $3,720,000, and
$2,631,000 in 1996, 1995, and 1994, respectively.
Future minimum payments under the Company's operating leases at December 31,
1996, are (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 6,109
1998 5,033
1999 4,592
2000 4,267
2001 2,802
2002 and thereafter 7,405
................................................................................
Total $30,208
................................................................................
</TABLE>
Periodically, the Company negotiates with third parties to establish patent
license or cross-license agreements, and the Company is currently in such
negotiations. While the Company cannot predict the outcome of the current
negotiations, and to date such negotiations have not resulted in any license or
cross-license agreements, based on discussions to date the Company does not
expect that any such agreement would have a material adverse effect on the
Company's financial condition. In addition, the Company is subject to legal
proceedings and claims that arise in the normal course of business. The Company
does not expect that any such proceedings or claims would have a material
adverse effect on the Company's financial condition or results of operations.
NOTE 11: EMPLOYEE BENEFIT PLAN
Qualified employees are eligible to participate in the Company's 401(k)
tax-deferred savings plan. Participants may contribute up to 17% of their
eligible earnings to this plan, for which the Company, at the discretion of the
Board of Directors and within certain limitations, may make matching
contributions, in addition to discretionary contributions to cover the
administrative costs of the plan. Contributions made by the Company to the plan
were $1,811,000, $799,000, and $338,000 in 1996, 1995, and 1994, respectively.
NOTE 12: OPERATIONS BY GEOGRAPHIC AREA AND MAJOR CUSTOMER
The Company operates in the telecommunications industry primarily in North
America and Europe. The following represents a summary of operations by
geographic area for the years ended December 31 (in thousands):
<PAGE> 24
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
North America $239,412 $152,731 $112,863
Europe 69,291 46,241 34,376
................................................................................
Consolidated $308,703 $198,972 $147,239
................................................................................
North American
transfers to other
geographic areas $ 19,747 $ 13,076 $ 11,171
................................................................................
Income from operations:
North America $ 41,356 $ 25,256 $ 23,705
Europe 17,360 10,165 4,579
Eliminations (998) 199 (159)
................................................................................
Consolidated $ 57,718 $ 35,620 $ 28,125
................................................................................
Identifiable assets:
North America $247,199 $199,690 $157,682
Europe 40,421 28,746 22,115
Eliminations (4,527) (12,565) (13,762)
................................................................................
Consolidated $283,093 $215,871 $166,035
................................................................................
</TABLE>
Intercompany sales between geographic areas are recorded on the basis of
intercompany prices established by the Company. No single customer accounted for
10% or more of net revenues in 1996 or 1995, and one customer accounted for 11%
of net revenues in 1994.
NOTE 13: FINANCIAL INSTRUMENTS
FAIR VALUE DISCLOSURE
The following summary disclosures are made in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About
Fair Value of Financial Instruments," which requires the disclosure of fair
value information about both on- and off-balance sheet financial instruments
where it is practicable to estimate the value. Fair value is defined in SFAS No.
107 as the amount at which an instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale
which is not the Company's intent.
Because SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements, any aggregation of the fair value
amounts presented would not represent the underlying value of the Company.
Amounts at December 31 consist of (in thousands):
<PAGE> 25
<TABLE>
<CAPTION>
1996 1995
------------------------ --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 47,996 $ 47,996 $ 22,102 $ 22,102
Short-term
investments 67,801 67,801 71,531 71,531
Investment in
equity security 4,736 4,736 -- --
Liabilities:
Convertible
subordinated
debentures $ -- $ -- $ 55,000 $ 96,456
Commitments:
Foreign exchange
contracts $ 14,004 $ 14,070 $ 4,170 $ 4,169
</TABLE>
At December 31, 1996 and 1995, the Company had $7,848,000 and $1,026,000,
respectively, of outstanding foreign exchange contracts in which foreign
currencies (primarily German mark and British pound) were sold; and $6,156,000
and $3,144,000, respectively, of outstanding foreign exchange contracts in which
British pounds were purchased. Unrealized gains or losses on forward exchange
contracts were not significant at December 31, 1996 or 1995. Other than the
items disclosed in the previous table, the Company has not entered into any
other material financial derivative instruments.
The following methods and assumptions were used in estimating the fair values of
financial instruments.
Cash and Cash Equivalents
The carrying amounts reported in the balance sheets for cash and cash
equivalents approximate their estimated fair values.
Other Financial Instruments
The fair value of short-term investments, investment in equity security,
convertible subordinated debentures, and foreign exchange contracts is based on
quoted market prices.
<PAGE> 26
Excerpts from page 45 of the 1996 Annual Report to Shareholders.
Independent Auditors' Report.
To the Shareholders and
Board of Directors of Aspect Telecommunications Corporation:
We have audited the accompanying consolidated balance sheets of Aspect
Telecommunications Corporation and its subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material aspects, the financial position of Aspect Telecommunications
Corporation and its subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 14, 1997
<PAGE> 27
Quarterly Financial Data
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31(a) JUNE 30(a) SEPT. 30(a) DEC. 31(b)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(Unaudited; in thousands, except per share data)
Consolidated statement of income data:
1996
Net revenues $ 67,025 $ 72,905 $ 80,224 $ 88,549
Gross margin 38,684 41,873 45,138 49,086
Income from operations 13,158 14,112 14,948 15,500
Net income 8,425 9,074 9,690 10,444
Net income per share(c):
Primary 0.18 0.19 0.21 0.20
Fully diluted 0.17 0.18 0.19 0.20
1995
Net revenues $ 42,726 $ 46,229 $ 49,299 $ 60,718
Gross margin 23,525 26,119 27,614 34,338
Income from operations 7,823 8,665 9,087 10,045
Net income 5,149 5,833 6,398 6,611
Net income per share(c):
Primary 0.12 0.14 0.15 0.15
Fully diluted 0.12 0.13 0.14 0.14
</TABLE>
- ----------
(a) The financial results for 1996 have been restated to reflect the
acquisitions of Envoy Holdings Limited on September 30, 1996, and Prospect
Software, Inc., on October 21, 1996. Both acquisitions were accounted for as
pooling of interests. Results for 1995 have not been restated since the
adjustments would not be material (see Note 2 to the Consolidated Financial
Statements).
(b) In October 1995, the Company acquired TCS Management Group, Inc., in a
transaction accounted for as a purchase. In connection with the transaction, a
charge of $1.8 million, or $0.02 per share on a fully diluted basis, was
recorded for purchased in-process technology (see Note 2 to the Consolidated
Financial Statements).
(c) Per share data reflects a two-for-one stock split effective January 28,
1997.
<PAGE> 28
Excerpts from page 46 of the 1996 Annual Report to Shareholders.
Corporate Information
CORPORATE OFFICERS
James R. Carreker
Chairman and Chief Executive Officer
Dennis L. Haar
President and Chief Operating Officer
Robert A. Blatt
Vice President, Worldwide Products
Shelley C. Brown
Vice President, People Programs and Services
Kathleen M. Cruz
Vice President, Information Technology and
Chief Information Officer
Robert D. Drescher
Vice President, Worldwide Marketing
Eric J. Keller
Vice President, Finance and Chief Financial Officer
John D. Meyers
Principal Engineer, Product Technology and
Chief Technical Officer
Larry S. Miller
Vice President, North America
R. Dixon (Dirk) Speas, Jr.
Vice President, International
David M. Yoffie
Vice President, Worldwide Operations
BOARD OF DIRECTORS
James R. Carreker
Chairman and Chief Executive Officer
Aspect Telecommunications Corporation
Debra J. Engel
Senior Vice President of Corporate Services
3Com Corporation
Norman A. Fogelsong
General Partner
Institutional Venture Partners
James L. Patterson
Chairman of the Board
Clarify Inc.
John W. Peth
Executive Vice President
TAB Products Company
SECRETARY
Craig W. Johnson
Director, Venture Law Group
INDEPENDENT AUDITORS
Deloitte & Touche LLP
San Jose, California
<PAGE> 29
LEGAL COUNSEL
Venture Law Group
Menlo Park, California
TRANSFER AGENT
Boston EquiServe, L.P.
Boston, Massachusetts
INVESTOR RELATIONS
Additional copies of this Annual Report and other financial information are
available without charge upon written request to:
Investor Relations Department
Aspect Telecommunications
1730 Fox Drive
San Jose, California 95131-2312
Telephone: +1 (408) 325-2629
E-mail: [email protected]
STOCK LISTING
Aspect Telecommunications Corporation's common stock is traded on the Nasdaq
Stock Market under the symbol "ASPT." As of December 31, 1996, there were
approximately 650 shareholders of record of the Company's common stock.
STOCK PRICE
<TABLE>
<CAPTION>
Quarter High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
Q1 1995 9 5/8 7 11/16
Q2 1995 11 7/16 8 7/8
Q3 1995 13 7/8 10 9/16
Q4 1995 19 5/8 12 1/8
Q1 1996 26 1/4 14 7/8
Q2 1996 29 1/2 22 1/16
Q3 1996 32 3/4 14 5/8
Q4 1996 32 3/8 22 3/8
</TABLE>
All prices have been adjusted for the January 1997 and September 1995
two-for-one stock splits.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. The Company
currently anticipates that it will retain all available funds for use in its
business.
ANNUAL MEETING
Aspect Telecommunications Corporation's annual meeting of shareholders will be
held at 3:30 p.m. on April 29, 1997, at:
The Four Seasons Hotel
57 East 57th Street
New York, New York
Telephone: +1 (212) 758-5700
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Aspect Telecommunications Ltd.
The Harlequin Centre
Southall Lane
Southall, Middlesex UB2 5NH
United Kingdom
011-44-181-574-6969
011-44-181-571-6126 (fax)
Aspect Telecommunications B.V.
Antareslaan 35-37
Postbus 3014
2130 KA Hoofddorp
The Netherlands
011-31-23-567-5678
011-31-23-562-3408 (fax)
Aspect Telecommunications GmbH
Monza Park
Monza Strasse 2 B
63225 Langen
Germany
011-49-61-039-070
011-49-61-039-07100 (fax)
Aspect Telecommunications N.V.
Bessenveldstraat 25a
1832 Diegem
Belgium
011-32-2-716-4010
011-32-2-716-4105 (fax)
Envoy Holdings Limited
Sovereign Gate
18-20 Kew Road
Richmond, Surrey TW9 2NA
United Kingdom
011-44-181-948-6000
011-44-181-948-6712 (fax)
Prospect Software, Inc.
1737 N. First Street
Suite 240
San Jose, California 95112
(408) 451-2451
(408) 451-2454 (fax)
TCS Management Group, Inc.
5410 Maryland Way
Brentwood, Tennessee 37027
(615) 221-6800
(615) 221-6810 (fax)
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
ASPECT TELECOMMUNICATIONS CORPORATION:
We consent to the incorporation by reference in Registration Statement Nos.
33-36437, 33-36438, 33-39243, 33-69010, 33-50048, 33-94810 and 333-07407 of
Aspect Telecommunications Corporation on Form S-8 and Registration Statement No.
333-19893 of Aspect Telecommunications Corporation on Form S-3 of our report
dated January 14, 1997, incorporated by reference in this Annual Report on Form
10-K of Aspect Telecommunications Corporation for the year ended December 31,
1996.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Aspect Telecommunications
Corporation, listed in Item 14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCORPORATED BY
REFERENCE, IN THE COMPANY'S FORM 10-K AS OF AND FOR THE YEAR ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 47,996
<SECURITIES> 67,801
<RECEIVABLES> 54,413
<ALLOWANCES> 1,202
<INVENTORY> 15,485
<CURRENT-ASSETS> 199,224
<PP&E> 96,677
<DEPRECIATION> 45,329
<TOTAL-ASSETS> 283,093
<CURRENT-LIABILITIES> 59,145
<BONDS> 4,500
0
0
<COMMON> 128,186
<OTHER-SE> 91,262
<TOTAL-LIABILITY-AND-EQUITY> 283,093
<SALES> 230,539
<TOTAL-REVENUES> 308,703
<CGS> 77,374
<TOTAL-COSTS> 133,922
<OTHER-EXPENSES> 117,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,774
<INCOME-PRETAX> 59,828
<INCOME-TAX> 22,195
<INCOME-CONTINUING> 37,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,633
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.74
</TABLE>
