<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______to ______
Commission file number: 0-18391
ASPECT TELECOMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
California 94-2974062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 Fox Drive, San Jose, California 95131-2312
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 325-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, was 49,352,904 at July 31, 1997.
<PAGE> 2
ASPECT TELECOMMUNICATIONS CORPORATION
INDEX
<TABLE>
<CAPTION>
Description Page Number
----------- -----------
<S> <C>
Cover Page 1
Index 2
Part I: Financial Information
Item 1:Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for the
Three and Six Month Periods Ended June 30, 1997
and 1996 4
Condensed Consolidated Statements of Cash Flows for the
Six Month Periods Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2:Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II: Other Information
Item 1:Legal Proceedings 13
Item 4:Submission of Matters to a Vote of Security Holders 14
Item 6:Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
<PAGE> 3
ASPECT TELECOMMUNICATIONS CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
(unaudited) **
ASSETS
Current assets:
Cash and cash equivalents $ 76,751 $ 47,996
Short-term investments 57,438 67,801
Accounts receivable, net 67,624 53,211
Inventories 11,403 15,485
Other current assets 13,848 14,731
------------ ------------
Total current assets 227,064 199,224
Property and equipment, net 56,521 51,348
Intangible assets, net 26,970 28,888
Other assets 3,512 3,633
------------ ------------
Total assets $ 314,067 $ 283,093
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,758 $ 10,027
Accrued compensation and related benefits 9,712 8,896
Other accrued liabilities 28,275 20,741
Customer deposits and deferred revenue 14,781 19,481
------------ ------------
Total current liabilities 64,526 59,145
Note payable 4,500 4,500
Shareholders' equity:
Preferred stock, $.01 par value:
2,000,000 shares authorized, none outstanding in 1997 and 1996 -- --
Common stock, $.01 par value:
100,000,000 shares authorized, shares outstanding:
49,264,783 in 1997 and 48,806,580 in 1996 132,546 128,186
Net unrealized gain on available-for-sale securities 1,086 2,534
Accumulated translation adjustments (1,166) (45)
Retained earnings 112,575 88,773
------------ ------------
Total shareholders' equity 245,041 219,448
------------ ------------
Total liabilities and shareholders' equity $ 314,067 $ 283,093
============ ============
** Derived from audited financial statements.
</TABLE>
See accompanying notes.
3
<PAGE> 4
ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------ ------------------------
1997 1996 1997 1996
======== ======== ======== ========
<S> <C> <C> <C> <C>
Net revenues:
Product $ 65,932 $ 54,927 $133,484 $105,501
Customer support 27,610 17,978 51,676 34,429
-------- -------- -------- --------
Total net revenues 93,542 72,905 185,160 139,930
Cost of revenues:
Cost of product revenues 20,479 18,097 43,684 34,634
Cost of customer support revenues 19,673 12,935 36,899 24,739
-------- -------- -------- --------
Total cost of revenues 40,152 31,032 80,583 59,373
-------- -------- -------- --------
Gross margin 53,390 41,873 104,577 80,557
Operating expenses:
Research and development 11,550 8,181 22,512 15,665
Selling, general and administrative 24,820 19,580 48,204 37,622
-------- -------- -------- --------
Total operating expenses 36,370 27,761 70,716 53,287
-------- -------- -------- --------
Income from operations 17,020 14,112 33,861 27,270
Interest and other income, net 3,428 314 4,841 551
-------- -------- -------- --------
Income before income taxes 20,448 14,426 38,702 27,821
Provision for income taxes 7,872 5,352 14,900 10,322
-------- -------- -------- --------
Net income $ 12,576 $ 9,074 $ 23,802 $ 17,499
======== ======== ======== ========
Primary earnings per share:
Net income per share (a) $ 0.24 $ 0.19 $ 0.46 $ 0.38
======== ======== ======== ========
Shares used in per share computations (a) 51,956 46,623 52,201 46,346
======== ======== ======== ========
Fully diluted earnings per share:
Net income per share (a) $ 0.24 $ 0.18 $ 0.46 $ 0.35
======== ======== ======== ========
Shares used in per share computations (a) 52,063 52,282 52,201 52,143
======== ======== ======== ========
(a) Share and per share data for all periods presented reflect a
two-for-one stock split effective January 28, 1997.
</TABLE>
See accompanying notes.
4
<PAGE> 5
ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,802 $ 17,499
Reconciliation of net income to cash provided by
operating activities:
Depreciation and amortization 9,567 6,771
Gain on the sale of equity securities (2,070) --
Changes in:
Accounts receivable (15,083) (3,056)
Inventories 3,826 (987)
Other current assets and other assets 568 (1,974)
Accounts payable 1,782 (3,882)
Accrued compensation and related benefits 835 (146)
Other accrued liabilities 8,911 6,768
Customer deposits and deferred revenue (4,518) 1,744
-------- --------
Cash provided by operating activities 27,620 22,737
Cash flows from financing activities:
Common stock transactions 4,360 3,930
-------- --------
Cash provided by financing activities 4,360 3,930
Cash flows from investing activities:
Short-term investment purchases (26,770) (51,719)
Short-term investment sales and maturities 37,345 48,522
Property and equipment purchases (13,822) (10,419)
-------- --------
Cash used in investing activities (3,247) (13,616)
Effect of exchange rate changes on cash and cash equivalents 22 346
-------- --------
Increase in cash and cash equivalents 28,755 13,397
Cash and cash equivalents:
Beginning of period 47,996 22,102
-------- --------
End of period $ 76,751 $ 35,499
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The consolidated financial statements include the accounts of Aspect
Telecommunications Corporation and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report to Shareholders.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Per Share Information
Per share information for the periods presented is computed using the weighted
average number of common and common-equivalent shares outstanding. For primary
earnings per share calculations, common-equivalent shares consist of the
incremental shares issuable upon the assumed exercise of dilutive stock options
using the treasury stock method.
The fully diluted earnings per share calculations for both the three and six
month periods ended June 30, 1997 are computed in a manner similar to the
primary earnings per share calculations. For the fully diluted earnings per
share calculations for both the three and six month periods ended June 30, 1996,
common-equivalent shares also include the dilutive effect of incremental shares
issuable upon the conversion of the 5% convertible subordinated debentures, and
net income is adjusted for the interest expense, net of income taxes, related to
the debentures. 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.
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of:
<TABLE>
<CAPTION>
(in thousands)
June 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $ 9,239 $ 9,598
Work-in-progress 341 541
Finished goods 1,823 5,346
---------- ----------
Total $ 11,403 $ 15,485
========== ==========
</TABLE>
6
<PAGE> 7
ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
If SFAS 128 had been in effect during the three month periods ended June 30,
1997 and 1996, basic EPS would have been $0.26 and $0.21, respectively. If the
pronouncement had been in effect during the six month periods ended June 30,
1997 and 1996, basic EPS would have been $0.49 and $0.41, respectively. Diluted
EPS under SFAS 128 would have been the same as the fully diluted EPS currently
reported for all periods presented.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources, and No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these statements will not
impact the Company's consolidated financial position, results of operations or
cash flows. Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted.
Contingencies
Periodically, the Company negotiates with third parties to establish patent
license or cross-license agreements, and the Company is currently in such
negotiations. There can be no assurance that current or future negotiations will
result in the Company obtaining licenses on satisfactory terms or at all.
On March 5, 1997, Lucent Technologies Inc. ("Lucent") filed a lawsuit in the
United States District Court for the Eastern District of Pennsylvania alleging
that the Company infringes four of Lucent's U.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. On May 2, 1997, the Company filed an
answer in response to the Lucent complaint, asserting that the Lucent Patents
are invalid and denying the alleged patent infringement. The Company believes
that it has meritorious defenses to the asserted claims and intends to defend
the litigation vigorously. Although the Company does not believe that any of its
products infringe any valid claims of the Lucent Patents, the outcome of
litigation is inherently unpredictable, and there can be no assurance that the
results of these proceedings will be favorable to the Company or that they will
not have a material adverse effect on the Company's business, operating results
or financial condition. Regardless of the ultimate outcome, the Lucent
litigation could result in substantial expense to the Company and significant
diversion of effort by the Company's technical and managerial personnel. If the
court determines that the Company infringes the Lucent Patents and that the
Lucent Patents are valid and enforceable, it could issue an injunction
prohibiting the Company from making, using or selling certain products and it
could assess significant damages against the Company. Accordingly, an adverse
determination in the proceeding could subject the Company to significant
7
<PAGE> 8
ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
liabilities and require the Company to seek a license from Lucent. Although
intellectual property disputes are often settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial, and
there can be no assurance that a license from Lucent, if required, would be
available to the Company on acceptable terms or at all. Jury selection for the
trial of this lawsuit is scheduled to begin on April 13, 1998.
8
<PAGE> 9
ASPECT TELECOMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis in the
Company's 1996 Annual Report to Shareholders.
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, call center management information and reporting tools, call center
planning and forecasting packages, and computer-telephony integration tools and
software. 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 years prior to 1996 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 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 in this Form 10-Q 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. These risks and
uncertainties include variability and uncertainty of revenues and operating
results; volatility of stock price; 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. For a more detailed description of these risks and
uncertainties, see the section titled "Management's Discussion and Analysis -
Risk Factors" in the Company's 1996 Annual Report to Shareholders.
9
<PAGE> 10
ASPECT TELECOMMUNICATIONS CORPORATION
RESULTS OF OPERATIONS
Net Revenues
Total net revenues for the second quarter of 1997 were $94 million, representing
an increase of 28% when compared with total net revenues of $73 million for the
same period of 1996. Total net revenues for the first six months of 1997 were
$185 million, representing an increase of 32% when compared with total net
revenues of $140 million for the same period in 1996.
Product revenues for the second quarter of 1997 were $66 million, representing
an increase of 20% when compared with product revenues of $55 million for the
same period of 1996. For the first six months of 1997, product revenues were
$133 million, an increase of 27% compared with the same period in 1996. The
increases in product revenues for both periods were primarily attributable to
increased demand for the Company's products, as both the volume of new system
sales and the volume of add-ons and upgrades increased from the same periods of
1996. Growth in product revenues for the second quarter and first six months of
1997, compared with the same periods of 1996, was significantly higher in
International markets than in North America. Average selling prices on new
systems remained relatively unchanged across the periods.
Customer support revenues for the second quarter of 1997 were $28 million, an
increase of 54% compared with the second quarter of 1996. For the first six
months of 1997, customer support revenues were $52 million, an increase of 50%
compared with the same period of 1996. The increases in customer support
revenues for both periods resulted primarily from the growth in the Company's
installed base. 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 many of the costs
associated with providing customer support do not vary with customer support
revenues, quarterly fluctuations in customer support revenues can have a
significant impact on the related gross margin.
Gross Margin on Product Revenues
Product gross margin increased to 69% for the second quarter of 1997 from 67%
for the same period of 1996. The increase in product gross margin primarily
reflects higher add-on revenues, which generally carry higher margins. For the
first six months of 1997, product gross margins remained essentially unchanged
at 67% when compared to the same period of 1996. 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
Customer support gross margin was 29% for both the second quarter and
the first six months of 1997, essentially unchanged from 28% for the
same periods of 1996.
10
<PAGE> 11
ASPECT TELECOMMUNICATIONS CORPORATION
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 many of the costs associated with providing customer
support do not vary with customer support revenues, the expansion of its
customer support infrastructure, and the Company's ability to build a successful
C&SI business unit.
Research and Development Expenses
Research and development ("R&D") expenses were $12 million for the second
quarter of 1997, representing an increase of 41% when compared with R&D expenses
of $8 million for the same period of 1996. R&D expenses were $23 million for the
first six months of 1997, representing an increase of 44% when compared with R&D
expenses of $16 million for the same period of 1996. The increases in R&D for
both periods primarily reflect increased personnel and other infrastructure
costs. As a percentage of net revenues, R&D spending was 12% for both the second
quarter and first six months of 1997 compared to 11% for the same periods of
1996. 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,
when compared to 1996, although such expenses as a percentage of net revenues
may fluctuate on a quarterly basis.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $25 million for the
second quarter of 1997, representing an increase of 27% when compared with SG&A
expenses of $20 million for the same period of 1996. SG&A expenses were $48
million for the first six months of 1997, representing an increase of 28% when
compared with SG&A expenses of $38 million for the same period of 1996. The
increases in SG&A for both periods were primarily related to increased
personnel, infrastructure, and legal costs partially offset by the donation of
appreciated equity securities in lieu of cash to fund the Company's corporate
giving program. As a percentage of net revenues, SG&A was 27% for the second
quarter of 1997 and 26% for the first six months of 1997 compared with 27% for
both periods in 1996. The Company anticipates, on a forward-looking basis, that
SG&A expenses will increase in terms of absolute dollars for 1997 as a whole,
when compared to 1996, although such expenses as a percentage of net revenues
may fluctuate on a quarterly basis. In addition, on a forward-looking basis,
legal expenses are expected to increase in future periods due to the Lucent
Technologies Inc. litigation (see Part II, Item 1. Legal Proceedings).
Net Interest and Other Income
Net interest and other income increased to $3.4 million for the second quarter
of 1997 from $0.3 million for the same period of 1996. Net interest and other
income increased to $4.8 million for the first six months of 1997 from $0.6
million for the same period of 1996. Included in the current year amounts is
approximately $2 million from a gain on the sale of appreciated equity
securities. The increases for both periods were due primarily to such gain on
the sale of equity securities, higher interest earning balances, and the
conversion of the Company's $55 million of convertible subordinated debentures
in October 1996, partially offset by the increase in the relative mix of
tax-advantaged securities in the Company's portfolio. Interest expense on the
convertible subordinated debentures for the three month and six month periods
ended June 30, 1996 was $0.7 million and $1.4 million, respectively.
Income Taxes
The Company's effective income tax rate was 38.5% for the second quarter and
first six months of 1997, up from 37.1% for the same periods of 1996. The
increase reflects expanding international operations and other factors.
11
<PAGE> 12
ASPECT TELECOMMUNICATIONS CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company's principal source of liquidity consisted of
cash, cash equivalents, and short-term investments totaling $134 million, which
represented 43% of total assets. The primary sources of cash for the first six
months of 1997 consisted of cash provided by operating activities of $28
million, net of a $15 million increase in accounts receivable, net sales and
maturities of short-term investments of $11 million, and proceeds from the
issuance of common stock under various stock plans of $4 million. The primary
use of cash during the first six months of 1997 consisted of $14 million for
purchases of property and equipment.
As of June 30, 1997, 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 Company's 1996 Consolidated Financial Statements).
The Company believes, on a forward-looking basis, that its cash, cash
equivalents, and short-term investments and anticipated cash flow from
operations will be sufficient to meet the Company's presently anticipated cash
requirements during at least the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted. The requirements of
SFAS 128 and the pro forma effect of adopting SFAS 128 are disclosed in the
Notes to Condensed Consolidated Financial Statements.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources, and No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these statements will not
impact the Company's consolidated financial position, results of operations or
cash flows. Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted.
12
<PAGE> 13
ASPECT TELECOMMUNICATIONS CORPORATION
Part II: Other Information
ITEM 1. 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 third 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. There can be no assurance that
current or future negotiations will result in the Company obtaining licenses 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. In
the event an intellectual property dispute is not settled through a license,
litigation could ensue. Any litigation or 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. An adverse determination in such litigation or proceeding, including
without limitation the Lucent litigation discussed below, could prevent the
Company from making, using or selling certain of its products, and subject the
Company to damage assessments, all of which could have a material adverse effect
on the Company's business, operating results or financial condition.
On March 5, 1997, Lucent Technologies Inc. ("Lucent") filed a lawsuit in the
United States District Court for the Eastern District of Pennsylvania alleging
that the Company infringes four of Lucent's U.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. On May 2, 1997, the Company filed an
answer in response to the Lucent complaint, asserting that the Lucent Patents
are invalid and denying the alleged patent infringement. The Company believes
that it has meritorious defenses to the asserted claims and intends to defend
the litigation vigorously. Although the Company does not believe that any of its
products infringe any valid claims of the Lucent Patents, the outcome of
litigation is inherently unpredictable, and there can be no assurance that the
results of these proceedings will be favorable to the Company or that they will
not have a material adverse effect on the Company's business, operating results
or financial condition. Regardless of the ultimate outcome, the Lucent
litigation could result in substantial expense to the Company and significant
diversion of effort by the Company's technical and management personnel. If the
court determines that the Company infringes the Lucent Patents and that the
Lucent Patents are valid and enforceable, it could issue an injunction
prohibiting the Company from making, using or selling certain products and it
could assess significant damages against the Company. Accordingly, an adverse
determination in the proceeding could subject the Company to significant
liabilities and require the Company to seek a license from Lucent. Although
intellectual property disputes are often settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial, and
there can be no assurance that a license from Lucent, if required, would be
available to the Company on acceptable terms or at all. Jury selection for the
trial of this lawsuit is scheduled to begin on April 13, 1998.
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. An
adverse outcome in such litigation could have a material adverse effect on the
13
<PAGE> 14
ASPECT TELECOMMUNICATIONS CORPORATION
Company's business, operating results or financial condition. Regardless of
merit, source, or outcome of the litigation, it could result in substantial cost
to and diversion of effort by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 29, 1997, the Annual Meeting of Shareholders of Aspect
Telecommunications Corporation was held in New York, New York.
An election of directors was held with the following individuals being elected
to the Board of Directors of the Company:
James R. Carreker (44,867,040 votes for, 63,885 votes withheld)
Debra J. Engel (44,865,113 votes for, 65,812 votes withheld)
Norman A. Fogelsong (44,866,979 votes for, 63,946 votes withheld)
James L. Patterson (44,867,079 votes for, 63,846 votes withheld)
John W. Peth (44,866,279 votes for, 64,646 votes withheld)
Other matters voted upon and approved at the meeting, and the number of
affirmative and negative votes cast with respect to each such matter were as
follows:
To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the year ending December 31, 1997
(44,843,248 votes in favor, 26,388 votes opposed, 61,289 abstaining, no
votes withheld).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 11.1 Statement re: Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
14
<PAGE> 15
ASPECT TELECOMMUNICATIONS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Aspect Telecommunications Corporation
(Registrant)
Date: August 13, 1997
By
/s/ Eric J. Keller
--------------------------------------------
Eric J. Keller
Vice President, Finance and Chief Financial
Officer (Duly Authorized and Principal
Financial and Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
11.1 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
ASPECT TELECOMMUNICATIONS CORPORATION
EXHIBIT 11.1:
Statement re: Computation of Earnings Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
========== ========== ========== ==========
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares
outstanding during the period 49,056 42,687 48,975 42,569
Common share equivalents:
Dilutive effect of stock options 2,900 3,936 3,226 3,777
---------- ---------- ---------- ----------
Total 51,956 46,623 52,201 46,346
========== ========== ========== ==========
Net income $ 12,576 $ 9,074 $ 23,802 $ 17,499
========== ========== ========== ==========
Primary earnings per share $ 0.24 $ 0.19 $ 0.46 $ 0.38
========== ========== ========== ==========
</TABLE>
<PAGE> 2
ASPECT TELECOMMUNICATIONS CORPORATION
EXHIBIT 11.1 (CONTINUED):
Statement re: Computation of Earnings Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fully Diluted:
Weighted average common shares
outstanding during the period 49,056 42,687 48,975 42,569
Common share equivalents:
Dilutive effect of stock options 3,007 3,936 3,226 3,915
Weighted average shares issuable
upon assumed conversion of debt -- 5,659 -- 5,659
---------- ---------- ---------- ----------
Total 52,063 52,282 52,201 52,143
========== ========== ========== ==========
Net income $ 12,576 $ 9,074 $ 23,802 $ 17,499
Interest expense during the period on
convertible subordinated debentures,
net of tax -- 461 -- 922
---------- ---------- ---------- ----------
Net income adjusted for
fully diluted calculations $ 12,576 $ 9,535 $ 23,802 $ 18,421
========== ========== ========== ==========
Fully diluted earnings per share $ 0.24 $ 0.18 $ 0.46 $ 0.35
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN
THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 76,751
<SECURITIES> 57,438
<RECEIVABLES> 69,242
<ALLOWANCES> 1,618
<INVENTORY> 11,403
<CURRENT-ASSETS> 227,064
<PP&E> 109,499
<DEPRECIATION> 52,978
<TOTAL-ASSETS> 314,067
<CURRENT-LIABILITIES> 64,526
<BONDS> 4,500
0
0
<COMMON> 132,546
<OTHER-SE> 112,495
<TOTAL-LIABILITY-AND-EQUITY> 314,067
<SALES> 133,484
<TOTAL-REVENUES> 185,160
<CGS> 43,684
<TOTAL-COSTS> 80,583
<OTHER-EXPENSES> 70,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,841)
<INCOME-PRETAX> 38,702
<INCOME-TAX> 14,900
<INCOME-CONTINUING> 23,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,802
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
