<PAGE>
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, 1998
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 50,783,833 at July 27, 1998.
<PAGE>
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, 1998 and
December 31, 1997 3
Condensed Consolidated Statements of Operations for the
Three and Six Month Periods Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3: Quantitative and Qualitative Disclosures About Market Risk 13
Part II: Other Information
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 6: Exhibits and Reports on Form 8-K 14
Signature 16
</TABLE>
2
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ASPECT TELECOMMUNICATIONS CORPORATION
Part I: Financial Information
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1998 1997
--------- ------------
(unaudited) **
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 55,575 $106,046
Short-term investments 27,366 40,170
Accounts receivable, net 106,590 86,896
Inventories 12,283 12,306
Other current assets 14,715 20,413
-------- --------
Total current assets 216,529 265,831
Property and equipment, net 67,598 58,704
Intangible assets, net 56,333 42,654
Other assets 9,476 3,154
-------- --------
Total assets $349,936 $370,343
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,496 $ 9,401
Current portion of notes payable 6,799 6,399
Accrued compensation and related benefits 18,157 14,256
Accrued intellectual property settlement - 14,000
Other accrued liabilities 33,042 36,335
Customer deposits and deferred revenue 24,681 15,626
-------- --------
Total current liabilities 99,175 96,017
Notes payable 5,782 6,531
Shareholders' equity:
Preferred stock, $.01 par value:
2,000,000 shares authorized, none outstanding in
1998 and 1997 - -
Common stock, $.01 par value:
100,000,000 shares authorized, shares outstanding:
50,605,084 in 1998 and 49,996,731 in 1997 163,497 144,524
Net unrealized gain on securities 149 1,267
Accumulated translation adjustments (1,088) (1,951)
Retained earnings 82,421 123,955
-------- --------
Total shareholders' equity 244,979 267,795
-------- --------
Total liabilities and shareholders' equity $349,936 $370,343
======== ========
</TABLE>
** Derived from audited financial statements.
See accompanying notes
3
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited - in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues:
Product $ 86,654 $ 65,932 $163,986 $133,484
Customer support 39,437 27,610 75,562 51,676
-------- -------- -------- --------
Total net revenues 126,091 93,542 239,548 185,160
Cost of revenues:
Cost of product revenues 27,944 20,479 52,316 43,684
Cost of customer support revenues 28,379 19,673 52,549 36,899
-------- -------- -------- --------
Total cost of revenues 56,323 40,152 104,865 80,583
-------- -------- -------- --------
Gross margin 69,768 53,390 134,683 104,577
Operating expenses:
Research and development 15,565 11,550 28,395 22,512
Selling, general and administrative 34,738 24,820 65,822 48,204
Purchased in-process technology 68,176 - 68,176 -
-------- -------- -------- --------
Total operating expenses 118,479 36,370 162,393 70,716
-------- -------- -------- --------
Income (loss) from operations (48,711) 17,020 (27,710) 33,861
Interest and other income, net 1,091 3,428 2,504 4,841
-------- -------- -------- --------
Income (loss) before income taxes (47,620) 20,448 (25,206) 38,702
Provision for income taxes 7,811 7,872 16,328 14,900
-------- -------- -------- --------
Net income (loss) ($55,431) $ 12,576 ($41,534) $ 23,802
======== ======== ======== ========
Basic earnings (loss) per share ($1.10) $0.26 ($0.83) $0.49
Weighted average shares outstanding 50,437 49,056 50,292 48,975
Diluted earnings (loss) per share ($1.10) $0.24 ($0.83) $0.46
Weighted average shares outstanding--assuming dilution 50,437 51,956 50,292 52,201
</TABLE>
See accompanying notes.
4
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------- ----------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($41,534) $ 23,802
Reconciliation of net income (loss) to cash provided by
operating activities:
Depreciation and amortization 12,321 9,567
Purchased in-process technology 68,176 -
Gain on the sale of equity securities - (2,070)
Changes in assets and liabilities, net of effects of
company acquired in 1998:
Accounts receivable (15,870) (15,083)
Inventories 1,356 3,826
Other current assets and other assets 13,688 568
Accounts payable 3,617 1,782
Accrued compensation and related benefits (2,697) 835
Accrued intellectual property settlement (14,000) -
Other accrued liabilities (8,861) 8,911
Customer deposits and deferred revenue 8,085 (4,518)
-------- --------
Cash provided by operating activities 24,281 27,620
Cash flows from financing activities:
Common stock transactions 5,388 4,360
Payments on notes payable (7,637) -
-------- --------
Cash provided by (used in) financing activities (2,249) 4,360
Cash flows from investing activities:
Short-term investment purchases (82,638) (26,770)
Short-term investment sales and maturities 95,442 37,345
Property and equipment purchases (15,575) (13,822)
Purchase of company, net of cash acquired (71,382) -
-------- --------
Cash used in investing activities (74,153) (3,247)
Effect of exchange rate changes on cash and cash equivalents 1,650 22
-------- --------
Increase (decrease) in cash and cash equivalents (50,471) 28,755
Cash and cash equivalents:
Beginning of period 106,046 47,996
-------- --------
End of period $ 55,575 $ 76,751
======== ========
Noncash investing and financing activities:
Stock options issued in connection with the acquisition
of Voicetek Corporation $ 11,184 -
</TABLE>
See accompanying notes.
5
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The consolidated financial statements include the accounts of Aspect
Telecommunications Corporation (Aspect or the Company) 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, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
1997 Annual Report to Shareholders attached as an appendix to the Proxy
Statement for the 1998 Annual Meeting of Shareholders.
Business Combinations
In May 1998, the Company completed the acquisition of Voicetek Corporation
(Voicetek), a leading supplier of interactive voice response (IVR) and
Intelligent Networks (IN) applications based in Chelmsford, Massachusetts. The
acquisition is intended to augment Aspect's customer premise IVR product
offerings, strengthen Aspect's position in the network service provider
marketplace, and extend the Company's OEM sales channel capabilities. The
acquisition was accounted for as a purchase. The Company paid approximately $72
million in cash for all Voicetek common and preferred shares outstanding and
converted all outstanding Voicetek options into options to purchase
approximately 450,000 shares of Aspect Common Stock with a fair value of
approximately $11 million, plus transaction costs of approximately $3.0 million,
and assumed certain operating assets and liabilities. Aspect recorded a one-time
charge of $68.2 million in the second quarter of 1998 for purchased in-process
technology that had not reached technological feasibility and had no alternative
future use. In addition, the remaining portion of the purchase price that
exceeded the net assets of Voicetek, a total of $17.8 million, was recorded as
intangible assets which are being amortized on a straight line basis over
periods of three to seven years.
The operating results of Voicetek have been included in the consolidated
statements of operations since the date of acquisition. Had the acquisition
taken place at the beginning of 1997, the unaudited pro forma results of
operations would have been as follows for the six months ended June 30 (in
thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net revenues $247,616 $198,472
Net income 22,352 20,581
Basic earnings per share 0.44 0.42
Diluted earnings per share 0.42 0.39
</TABLE>
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill, interest
associated with funding the acquisition, and entries to conform to the Company's
accounting policies. The $68.2 million charge for purchased in-process
technology has been excluded from the pro forma results as it is a material non-
recurring charge.
In September 1997, the Company acquired Commerce Soft Inc., a developer of
customer interaction technology, and its results of operations are included in
the accompanying financial statements since the
6
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
date of acquisition. The transaction was accounted for as a purchase and
resulted in a one-time charge of $4.9 million in the third quarter of 1997
related to purchased in-process technology.
Inventories
Inventories, stated at the lower of cost (first-in, first-out) or market,
consist of:
<TABLE>
<CAPTION>
(in thousands)
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials $ 6,087 $ 5,331
Work in progress 3,469 3,624
Finished goods 2,727 3,351
------- -------
Total $12,283 $12,306
======= =======
</TABLE>
Per Share Information
Basic earnings (loss) per share is computed by dividing net income (loss) by the
weighted average common shares outstanding for the period while diluted earnings
per share also includes the dilutive impact of stock options. Basic and diluted
earnings (loss) per share for the three and six month periods ended June 30 are
calculated as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 50,437 49,056 50,292 48,975
Net income (loss) ($55,431) $12,576 ($41,534) $23,802
Basic earnings (loss) per share ($ 1.10) $ 0.26 ($ 0.83) $ 0.49
======== ======= ======== =======
Weighted average shares outstanding 50,437 49,056 50,292 48,975
Dilutive effect of options - 2,900 - 3,226
-------- ------- -------- -------
Total 50,437 51,956 50,292 52,201
Net income (loss) ($55,431) $12,576 ($41,534) $23,802
Diluted earnings (loss) per share ($ 1.10) $ 0.24 ($ 0.83) $ 0.46
======== ======= ======== =======
</TABLE>
As of June 30, 1998, there were approximately 9,767,000 options outstanding. The
dilutive effect of options was not included in the calculation of diluted loss
per share for the three and six month periods ended June 30, 1998 because to do
so would have had an anti-dilutive effect as the Company had net losses for
these periods. The amount of such options excluded from the diluted loss per
share computation was approximately 3,147,000 and 3,100,000 for the three and
six months ended June 30, 1998, respectively.
7
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
The Company is from time to time involved in litigation or claims that arise in
the normal course of business. The Company does not expect that any current
litigation or claims will have a material adverse effect on the Company's
business, operating results, and financial condition.
Comprehensive Income (Loss)
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
an enterprise to report the change in net assets during the period from nonowner
sources. For the three and six months ended June 30, 1998, comprehensive loss
was $54,812,000 and $41,789,000, respectively. Comprehensive income for the
same periods of the prior year was $11,780,000 and $21,233,000, respectively.
Comprehensive income (loss) represents net income (loss) for these periods and
changes in unrealized gains on securities and accumulated translation
adjustments.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No.133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedging accounting
when certain conditions are met. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. On a forward-looking
basis, although the Company has not fully assessed the implications of this new
statement, the Company does not believe adoption of this statement will have a
material impact on the Company's financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). This statement provides guidance for an enterprise on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
On a forward-looking basis, the Company anticipates that accounting for
transactions under SOP 98-1 will not have a material impact on the Company's
financial position or results of operations.
In October 1997, the AICPA issued Statement of Position 97-2, "Software Revenue
Recognition" (SOP 97-2). This statement provides guidance for an enterprise on
applying generally accepted accounting principles in recognizing revenue on
software transactions. The Company adopted SOP 97-2 in the first quarter of 1998
with an insignificant impact on its consolidated financial position or results
of operations for the periods presented. On a forward-looking basis, the Company
anticipates that accounting for transactions under SOP 97-2 will not have a
material impact on the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS 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.
The Company has not yet determined its segments for reporting under this
pronouncement. This statement is effective for fiscal years beginning after
December 15, 1997. Adoption of this statement will not impact the Company's
consolidated financial position or results of operations.
Year 2000
Many computer systems experience problems handling dates from the year 2000 and
beyond, and will need to be modified prior to the year 2000 in order to remain
functional. The Company is assessing both the internal readiness of its computer
systems and the compliance of its products and software sold to customers for
handling the year 2000. The Company expects to successfully implement the
changes necessary to address these year 2000 issues, and does not believe that
the cost of such actions will have a material effect on the Company. There can
be no assurance, however, that there will not be delays in, or increased costs
associated with, the implementation of such changes, and the Company's inability
to implement such changes could have a material adverse effect on the Company's
business, operating results, and financial condition.
8
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Subsequent Event
In October 1997, the Company acquired certain rights to two intellectual
property portfolios by paying $9,750,000 in cash and issuing $10,000,000 in
notes payable. These notes were stated net of $1,570,000 in discounts with
imputed interest rates of 7%, and payable in installments over the next five to
six years. In July 1998, the Company made additional payments of approximately
$7.5 million to acquire remaining rights under one of these intellectual
property portfolios and extinguished a $5 million face value note payable.
9
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ASPECT TELECOMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis in the
Company's 1997 Annual Report to Shareholders.
Aspect Telecommunications Corporation (Aspect or the Company) is a leading
worldwide provider of mission-critical, integrated call center solutions. The
Company's solutions include automatic call distribution (ACD) systems and
software; computer-telephony integration (CTI) application software and tools;
interactive voice response (IVR) systems; Web response systems; call center
management information and reporting tools; and call center planning and
forecasting packages. The Company also delivers consulting, training, and system
integration services that help organizations effectively plan, integrate, staff,
and manage call centers. Aspect markets its products and services worldwide to
organizations in a broad array of industries including financial services,
government, healthcare, retailing, technology, telecommunications, and
transportation.
In May 1998, the Company completed the acquisition of Voicetek Corporation
(Voicetek), a leading supplier of IVR and Intelligent Networks (IN) applications
based in Chelmsford, Massachusetts. The acquisition is intended to augment
Aspect's customer premise IVR product offerings, strengthen Aspect's position in
the network service provider marketplace, and extend the Company's OEM sales
channel capabilities. The acquisition was accounted for as a purchase. The
Company paid approximately $72 million in cash for all Voicetek common and
preferred shares outstanding and converted all outstanding Voicetek options into
options to purchase approximately 450,000 shares of Aspect Common Stock. Aspect
recorded a one-time charge of $68.2 million in the second quarter of 1998 for
purchased in-process technology that had not reached technological feasibility
and had no alternative future use. In addition, the remaining portion of the
purchase price that exceeded the net assets of Voicetek, a total of $17.8
million, was recorded as intangible assets which are being amortized on a
straight line basis over periods of three to seven years.
In February 1998, Aspect and Lucent Technologies Inc. (Lucent) announced that
they had agreed to dismiss their patent lawsuits against each other, released
each other from claims of past infringement, and settled their patent disputes
by entering into a cross-license agreement. Under the terms of the agreement,
Aspect agreed to pay Lucent a one-time fee and future royalties. As a result of
this subsequent event affecting the 1997 consolidated financial statements, the
Company recorded a non-recurring charge of $14 million in its fourth fiscal
quarter ended December 31, 1997.
In September 1997, the Company acquired Commerce Soft Inc., a developer of
customer interaction technology, and its results of operations are included in
the accompanying financial statements since the date of acquisition. The
transaction was accounted for as a purchase and resulted in a one-time charge of
$4.9 million in 1997 related to purchased in-process technology.
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended; Section 21E of the Securities Exchange
Act of 1934, as amended; and the Private Securities Litigation Reform Act of
1995; and are made under the safe-harbor provisions thereof. Such forward-
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. These risks and
uncertainties include those discussed specifically herein, as well as
variability and uncertainty of revenues and operating results; volatility of
stock price; product concentration, technological change, and new products;
potential software defects; 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; expansion of
distribution channels; and year 2000 compliance issues. For a more detailed
description of these risks and uncertainties, see the section titled
"Management's Discussion and Analysis -Business Environment and Risk Factors" in
the Company's 1997 Annual Report to Shareholders. Readers are cautioned not to
place
10
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ASPECT TELECOMMUNICATIONS CORPORATION
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. Aspect undertakes no obligation to publicly
release any revision to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof.
RESULTS OF OPERATIONS
Net Revenues
Total net revenues for the second quarter of 1998 were $126 million,
representing an increase of 35% compared with total net revenues of $94 million
for the same period of 1997. Total net revenues for the first six months of 1998
were $240 million, representing an increase of 29% when compared with total net
revenues of $185 million for the same period in 1997.
Product revenues for the second quarter of 1998 were $87 million, representing
an increase of 31% from $66 million for the same period of 1997. For the first
six months of 1998, product revenues were $164 million, an increase of 23% when
compared with the same period in 1997. The increases in product revenues for
both periods were primarily attributable to increased volume of new system
sales, add-ons and upgrades, growth associated with TCS Management Group, Inc.
(TCS), and the inclusion of Voicetek revenues since the date of acquisition.
Average selling prices on new ACD systems remained relatively unchanged across
the periods.
Customer support revenues for the second quarter of 1998 were $39 million, an
increase of 43% from the same period of the prior year. For the first six months
of 1998, customer support revenues were $76 million, an increase of 46% when
compared with the same period of 1997. The growth in customer support revenues
for both periods reflects increases in the Company's maintenance revenue as a
result of the growth in its installed base, and consulting and systems
integration (C&SI) revenue. Customer support revenues include charges for
providing contractually agreed-upon system service and maintenance (which are
primarily affected by growth in the installed base); charges to install
products; C&SI revenue; and other support services.
Gross Margin on Product Revenues
Product gross margin decreased to 68% for the second quarter of 1998 from 69%
for the same period of 1997. The decrease in product gross margin primarily
reflects a decline in add-on margins partially offset by the strengthening of
new system margins. For the first six months of 1998, product gross margin was
68% compared to 67% for the same period of 1997. The increase is primarily
attributable to the strengthening of new system margins partially offset by a
decrease in add-on margins internationally. 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; the results of recently acquired subsidiaries and
newly established business units; and licensing, cross-licensing or royalty
arrangements with third parties.
Gross Margin on Customer Support Revenues
Customer support gross margin decreased to 28% for the second quarter of 1998
from 29% for the same period of 1997 with the modest decrease in support gross
margin primarily reflecting lower margins in the Company's C&SI business unit.
For the first six months of 1998, customer support gross margin was 30% compared
to 29% for the same period of 1997. This increase is primarily attributable to
increased North America support margins, partially offset by a decrease in such
margins internationally due to increasing infrastructure costs associated with
international expansion. On a forward-looking basis, the Company anticipates
that customer support margins will fluctuate from period to period due to
fluctuations in customer support revenues
11
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ASPECT TELECOMMUNICATIONS CORPORATION
(since many of the costs of providing customer support do not vary
proportionately with customer support revenues), ongoing efforts to expand the
Company's customer support infrastructure, and the results of recently acquired
subsidiaries and newly established business units. In addition, the Company
anticipates that revenue and related margins from its C&SI business will
continue to fluctuate significantly on a quarterly basis based on the timing and
magnitude of engagements.
Research and Development Expenses
Research and development ("R&D") expenses were $16 million for the second
quarter of 1998, an increase of 35% from the same period of 1997. R&D expenses
were $28 million for the first six months of 1998, an increase of 26% compared
with the same period of 1997. The increases in R&D expenses for both periods
primarily reflect increased personnel and infrastructure costs, and the
inclusion of Voicetek R&D expenses since the date of acquisition. As a
percentage of net revenues, R&D spending was essentially unchanged at 12% for
both the second quarter and first six months of 1998 when compared to the same
periods of 1997. The Company continues to believe that significant spending 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 1998 as
a whole, when compared to 1997, 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 $35 million for the
second quarter of 1998, an increase of 40% from the same quarter of 1997. SG&A
expenses were $66 million for the first six months of 1998, an increase of 37%
from the same period of 1997. The increases in SG&A for both periods reflect
increased personnel, infrastructure costs, and the inclusion of Voicetek SG&A
expenses since the date of acquisition. As a percentage of net revenues, SG&A
was 28% for the second quarter of 1998 and 27% for the first six months of 1998
compared with 27% and 26% for the same periods of 1997. The Company anticipates,
on a forward-looking basis, that SG&A expenses will increase in terms of
absolute dollars for 1998 as a whole, when compared to 1997, although such
expenses as a percentage of net revenues may fluctuate on a quarterly basis.
Purchased In-Process Technology
Purchased in-process technology represents a non-recurring charge of $68.2
million, associated with the acquisition of Voicetek completed in May 1998, for
technology which had not reached technological feasibility and had no
alternative future use.
Net Interest and Other Income
Net interest and other income decreased to $1.1 million for the second quarter
of 1998 from $3.4 million for the same quarter of 1997. Net interest and other
income decreased to $2.5 million for the first six months of 1998 from $4.8
million for the same period of 1997. The prior year amounts included
approximately $2.1 million from a gain on the sale of appreciated equity
securities. Excluding this gain, net interest income declined from approximately
$1.4 million to $1.1 million for the three month periods ended June 30, 1997 and
1998, respectively, and declined from approximately $2.8 million to $2.5 million
for the six month periods ended June 30, 1997 and 1998, respectively. These
decreases reflect lower interest earning balances subsequent to the Voicetek
acquisition and the increased mix of tax-advantaged securities, which typically
carry lower stated interest rates.
Income Taxes
12
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ASPECT TELECOMMUNICATIONS CORPORATION
Excluding the non-deductible, non-recurring charge for purchased in-process
technology associated with the acquisition of Voicetek, the Company's effective
income tax rate was 38.0% for the second quarter and first six months of 1998,
down slightly from 38.5% for the comparable periods of 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's principal source of liquidity consisted of
cash, cash equivalents, and short-term investments totaling $83 million, which
represented 24% of total assets. The primary sources of cash for the first six
months of 1998 consisted of cash provided by operating activities of $24
million, net sales and maturities of short-term investments of $13 million, and
proceeds from the issuance of common stock under various stock plans of $5
million. The primary use of cash during the first six months of 1998 consisted
of $75 million for the Voicetek acquisition and related transaction costs, $16
million for purchases of property and equipment, and $8 million for payments on
notes payable.
As of June 30, 1998, the Company's outstanding borrowings, including current and
non-current portions of notes payable, totaled $12.6 million. Borrowings
consisted of a $4.5 million note payable incurred in connection with the
acquisition of TCS, and $8.1 million related to acquisitions of two intellectual
property portfolios during 1997. In July 1998, the Company made additional
payments of approximately $7.5 million to acquire remaining rights under one of
these intellectual property portfolios and extinguished a $5 million face value
note payable.
The Company believes, on a forward-looking basis, that its cash, cash
equivalents, and short-term investments and anticipated cash flow from
operations, potentially supplemented by additional financing, will be sufficient
to meet the Company's presently anticipated cash requirements during at least
the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not required to provide disclosures regarding market risk in this
quarterly report on Form 10Q as its market capitalization is less than $2.5
billion. Such disclosures will be provided in the Company's Annual Report on
Form 10K for the year ending December 31, 1998.
13
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
Part II: Other Information
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 14, 1998, the Annual Meeting of Shareholders of Aspect Telecommunications
Corporation was held in San Jose, California.
An election of directors was held with the following individuals being elected
to the Board of Directors of the Company:
James R. Carreker (45,519,496 votes for, 47,527 votes withheld)
Debra J. Engel (45,517,696 votes for, 49,327 votes withheld)
Norman A. Fogelsong (45,500,245 votes for, 66,778 votes withheld)
James L. Patterson (45,515,696 votes for, 51,327 votes withheld)
John W. Peth (45,445,048 votes for, 121,975 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 approve the adoption of the Annual Retainer Compensation Plan for the
Board of Directors of the Company and the reservation of 50,000 shares of
Common Stock for issuance thereunder (43,863,264 votes in favor, 1,295,763
votes opposed, 58,715 abstaining, 349,281 votes withheld).
To approve the adoption of the 1998 Directors' Stock Option Plan and the
reservation of 300,000 shares of Common Stock for issuance thereunder
(29,751,615 votes in favor, 15,409,579 votes opposed, 56,548 abstaining,
349,281 votes withheld).
To amend the 1990 Employee Stock Purchase Plan to reserve an additional
1,000,000 shares of Common Stock for issuance thereunder (44,743,869 votes
in favor, 433,165 votes opposed, 40,708 abstaining, 349,281 votes
withheld).
To ratify the appointment of Deloitte & Touche LLP as the independent
auditors of the Company for the year ending December 31, 1998 (45,481,652
votes in favor, 40,077 votes opposed, 45,294 abstaining, no votes
withheld).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit 27 Financial Data Schedule
B. REPORTS ON FORM 8-K
Reports on Form 8-K filed during the quarter ended June 30, 1998
Form 8-K dated May 11, 1998 and filed May 22, 1998
Item 2. Acquisition or Disposition of Assets - Announcement of the
acquisition of Voicetek Corporation.
14
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
Item 7. Financial Statements, Pro forma Financial Information and
Exhibits.
(a), (b) Financial statements and pro forma financial information
omitted in reliance on Item 7 (a) (4) of the Instructions to
Form 8-K.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated April 1, 1998, among
the Registrant, Venus Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the
Registrant, and Voicetek Corporation, a Massachusetts
corporation.
20.1 Press release of the Company dated May 11, 1998.
Form 8-K/A dated May 11, 1998 and filed July 24, 1998
Item 2. Acquisition or Disposition of Assets - Announcement of the
acquisition of Voicetek Corporation.
Item 7. Financial Statements, Pro forma Financial Information and
Exhibits.
(a) Financial Statements of Business Acquired filed in
accordance with Item 7 (a) (4) of the Instructions to
Form 8-K.
(b) Pro Forma Financial Information filed in accordance with
Item 7 (a) (4) of the Instructions to Form 8-K.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated April 1, 1998,
among the Registrant, Venus Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of the
Registrant, and Voicetek Corporation, a Massachusetts
corporation.
20.1 Press release of the Company dated May 11, 1998.
23.1 Independent Auditors' Consent.
15
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Aspect Telecommunications Corporation
(Registrant)
Date: July 29, 1998
By
/s/ Eric J. Keller
-------------------------------------------------
Eric J. Keller
Vice President, Finance and Chief Financial Officer
(Duly Authorized and Principal Financial and
Accounting Officer)
16
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1998 AND IS QUALIFIED IN ITS
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<FISCAL-YEAR-END> DEC-31-1998
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<PERIOD-END> JUN-30-1998
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<SECURITIES> 27,366
<RECEIVABLES> 110,160
<ALLOWANCES> 3,570
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<CURRENT-ASSETS> 216,529
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<SALES> 163,986
<TOTAL-REVENUES> 239,548
<CGS> 52,316
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<INTEREST-EXPENSE> 210
<INCOME-PRETAX> (25,206)
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