<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 March 31, 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 50,390,902 at April 30, 1997.
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ASPECT TELECOMMUNICATIONS CORPORATION
INDEX
<TABLE>
<CAPTION>
Description Page Number
- -------------------------------------------------------------------------------- -----------
<S> <C>
Cover Page 1
Index 2
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 3
Condensed Consolidated Statements of Income for the Three Month
Periods Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 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 9
Part II: Other Information
Item 1: Legal Proceedings 13
Item 6: Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
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ASPECT TELECOMMUNICATIONS CORPORATION
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- -----------
(unaudited) **
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 59,563 $ 106,046
Short-term investments 87,243 40,170
Accounts receivable, net 94,866 86,896
Inventories 13,265 12,306
Other current assets 16,152 20,413
---------- ----------
Total current assets 271,089 265,831
Property and equipment, net 62,161 58,704
Intangible assets, net 41,022 42,654
Other assets 3,138 3,154
---------- ----------
Total assets $ 377,410 $ 370,343
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,120 $ 9,401
Current portion of notes payable 6,149 6,399
Accrued compensation and related benefits 15,740 14,256
Accrued intellectual property settlement -- 14,000
Other accrued liabilities 29,966 36,335
Customer deposits and deferred revenue 22,637 15,626
---------- ----------
Total current liabilities 86,612 96,017
Notes payable 6,607 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:
50,250,440 in 1998 and 49,996,731 in 1997 147,897 144,524
Net unrealized gain on available-for-sale securities 148 1,267
Accumulated translation adjustments (1,706) (1,951)
Retained earnings 137,852 123,955
---------- ----------
Total shareholders' equity 284,191 267,795
---------- ----------
Total liabilities and shareholders' equity $ 377,410 $ 370,343
========== ==========
</TABLE>
** Derived from audited financial statements.
See accompanying notes.
3
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Net revenues:
Product $ 77,332 $ 67,552
Customer support 36,125 24,066
-------- --------
Total net revenues 113,457 91,618
Cost of revenues:
Cost of product revenues 24,372 23,205
Cost of customer support revenues 24,170 17,226
-------- --------
Total cost of revenues 48,542 40,431
-------- --------
Gross margin 64,915 51,187
Operating expenses:
Research and development 12,830 10,962
Selling, general and administrative 31,084 23,384
-------- --------
Total operating expenses 43,914 34,346
-------- --------
Income from operations 21,001 16,841
Interest income, net 1,413 1,413
-------- --------
Income before income taxes 22,414 18,254
Provision for income taxes 8,517 7,028
-------- --------
Net income $ 13,897 $ 11,226
======== ========
Basic earnings per share $ 0.28 $ 0.23
Weighted average shares outstanding 50,146 48,893
Diluted earnings per share $ 0.26 $ 0.21
Weighted average shares outstanding--assuming dilution 53,071 52,471
</TABLE>
See accompanying notes.
4
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ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,897 $ 11,226
Reconciliation of net income to cash provided by
operating activities:
Depreciation and amortization 6,710 3,862
Changes in:
Accounts receivable (7,928) (10,776)
Inventories (978) 2,180
Other current assets and other assets 2,050 376
Accounts payable 2,714 3,229
Accrued compensation and related benefits 1,407 1,686
Accrued intellectual property settlement (14,000) -
Other accrued liabilities (4,696) 4,896
Customer deposits and deferred revenue 7,310 (690)
-------- --------
Cash provided by operating activities 6,486 15,989
Cash flows from financing activities:
Common stock transactions 2,192 1,025
Payment on note payable (250) -
-------- --------
Cash provided by financing activities 1,942 1,025
Cash flows from investing activities:
Short-term investment purchases (75,988) (19,903)
Short-term investment sales and maturities 28,915 19,790
Property and equipment purchases (9,006) (5,972)
-------- --------
Cash provided by (used in) investing activities (56,079) (6,085)
Effect of exchange rate changes on cash and cash equivalents 1,168 (105)
-------- --------
Increase in cash and cash equivalents (46,483) 10,824
Cash and cash equivalents:
Beginning of period 106,046 47,996
-------- --------
End of period $ 59,563 $ 58,820
======== ========
</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 month period ended March 31, 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.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Business Combinations
In September 1997, the Company acquired Commerce Soft Inc. (Commerce Soft), 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 that resulted in a one-time
charge of $4.9 million in the third quarter of 1997 related to in-process
technology.
Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of:
<TABLE>
<CAPTION>
(in thousands)
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw materials $ 6,617 $ 5,331
Work in progress 4,360 3,624
Finished goods 2,288 3,351
-------- --------
Total $ 13,265 $ 12,306
======== ========
</TABLE>
6
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Per Share Information
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average common shares outstanding for the period while diluted EPS also
includes the dilutive impact of stock options. Basic and diluted EPS for the
three month periods ended March 31 are calculated as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Basic EPS:
Weighted average shares outstanding 50,146 48,893
Net income $ 13,897 $ 11,226
Basic EPS $ 0.28 $ 0.23
-------- --------
Diluted EPS:
Weighted average shares outstanding 50,146 48,893
Dilutive effect of options 2,925 3,578
-------- --------
Total 53,071 52,471
Net income $ 13,897 $ 11,226
Diluted EPS $ 0.26 $ 0.21
-------- --------
</TABLE>
Contingencies
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 infringed four of Lucent's U.S. patents (the Lucent Patents).
In its complaint, Lucent sought to enjoin the Company from allegedly continuing
to infringe the Lucent Patents and sought an unspecified amount of compensatory
damages; treble damages for alleged willful infringement; and interest,
expenses, and attorneys' fees.
On February 4, 1998, the Company filed a complaint in the United States District
Court, Northern District of California, asserting that Lucent infringed seven
Aspect patents. Lucent responded by filing for a declaratory judgment regarding
these Aspect patents in the United States District Court, Northern District of
Texas.
On February 27, 1998, the Company announced that it entered into a patent
cross-license agreement with Lucent, under which each party agreed to dismiss
their patent lawsuits against each other, released each other from claims of
past infringement, and settled their patent disputes. Under the agreement,
Aspect paid Lucent a one-time fee and, for the duration of the cross-license
agreement, will pay royalties that are not expected to be material to Aspect's
future results of operations. As part of the settlement, Aspect recorded a
non-recurring charge of $14,000,000 (approximately 17 cents per diluted share)
for the quarter and year ended December 31, 1997.
In addition, 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.
7
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive Income
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 ("comprehensive income"). For the three months ended March 31, 1998 and
1997, comprehensive income was $13,023,000 and $9,453,000, respectively,
representing net income for these periods and changes in unrealized gains on
available-for-sale securities and accumulated translation adjustments.
New Accounting Pronouncements
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. 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.
Also, in June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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.
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.
Subsequent Event
On May 11, 1998, the Company acquired Voicetek Corporation (Voicetek), a
leading provider of software platforms and application solutions including
interactive voice response (IVR) and network-deployed enhanced services
solutions. The acquisition will be accounted for as a purchase. The aggregate
purchase price consisted of approximately $72 million in cash for all of
Voicetek's common and preferred shares outstanding, conversion of all
outstanding options to purchase Voicetek common stock into options to purchase
approximately 450,000 shares of the Company's common stock with a fair value of
approximately $11 million, plus transaction costs of approximately $3.5
million. The Company expects to record a one-time charge in the second quarter
of 1998 of between $65 to $70 million ($1.20 to $1.30 per share) for purchased
in-process technology that had not reached technological feasibility and had no
alternative future use.
8
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ASPECT TELECOMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in Part I
- -- Item 1 of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis in the
Company's 1997 Annual Report to Shareholders.
Aspect Telecommunications Corporation (Aspect or the Company) is a worldwide
provider of comprehensive business solutions for companies that generate
revenue, serve customers, and handle inquiries. The Company's solutions include
automatic call distributor (ACD) systems and software; computer-telephony
integration (CTI) application software and tools; interactive voice response
(IVR) systems; Web response systems; management information and reporting tools;
and planning and forecasting packages. The Company also delivers consulting,
training, and systems integration services that help companies plan, integrate,
staff, and manage call centers effectively.
On May 11, 1998, the Company acquired Voicetek Corporation (Voicetek), a
leading provider of software platforms and application solutions including
interactive voice response (IVR) and network-deployed enhanced services
solutions. The acquisition will be accounted for as a purchase. The aggregate
purchase price consisted of approximately $72 million in cash for all of
Voicetek's common and preferred shares outstanding, conversion of all
outstanding options to purchase Voicetek common stock into options to purchase
approximately 450,000 shares of the Company's common stock with a fair value of
approximately $11 million, plus transaction costs of approximately $3.5
million. The Company expects to record a one-time charge in the second quarter
of 1998 of between $65 to $70 million ($1.20 to $1.30 per share) for purchased
in-process technology that had not reached technological feasibility and had no
alternative future use.
In February 1998, Aspect and 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. (Commerce Soft), 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 which resulted in a one-time
charge of $4.9 million in 1997 related to 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 32E of the Securities and
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 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 undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
9
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ASPECT TELECOMMUNICATIONS CORPORATION
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 first quarter of 1998 were $113 million, representing
an increase of 24% compared with total net revenues of $92 million for the same
period of 1997.
Product revenues for the first quarter of 1998 were $77 million, representing an
increase of 14% when compared with product revenues of $68 million for the same
period of 1997. The increase in product revenues was primarily attributable to
increased demand for add-ons and new systems. Growth in product revenues was
higher in international markets than in North America as compared to the same
period of 1997. Average selling prices on new systems remained relatively
unchanged across the periods.
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. 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.
Customer support revenues for the first quarter of 1998 were $36 million,
representing an increase of 50% when compared to the first quarter of 1997. The
increase in customer support revenues resulted primarily from increases in the
Company's maintenance revenue as a result of the growth in its installed base,
and consulting and system 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; consulting and systems integration revenue; and
other support services.
Gross Margin on Product Revenues
Product gross margin increased to 68% for the first quarter of 1998 from 66% for
the same period of 1997. The increase in product gross margin reflects increased
add-on margins, and the higher mix of add-on revenues, which generally carry
higher margins. 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 cross-licensing or royalty arrangements with third parties.
Gross Margin on Customer Support Revenues
Customer support gross margin increased to 33% for the first quarter of 1998
from 28% for the same period of 1997. The increase in customer support gross
margin was primarily attributable to growth in maintenance and C&SI revenues at
a rate greater than related costs. 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 (since many of the costs of
providing customer support do not vary
10
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ASPECT TELECOMMUNICATIONS CORPORATION
proportionately with customer support revenues), ongoing efforts to expand the
Company's customer support infrastructure, and the ongoing results of the
Company's C&SI business unit.
Research and Development Expenses
Research and development (R&D) expenses were $13 million for the first quarter
of 1998, a $2 million, or 17% increase from the same period of 1997. R&D
increases were primarily attributable to increased personnel and labor costs, as
well as other infrastructure costs. As a percentage of net revenues, R&D
spending was 11% for the first quarter 1998 compared to 12% for the same period
of 1997. 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 1998 as a whole,
when compared to 1997, although such expenses as a percentage of net revenues
may fluctuate between periods.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses were $31 million for the
first quarter of 1998, representing an increase of 33% when compared with SG&A
expenses of $23 million for the same period of 1997. The increase in SG&A was
primarily related to increased personnel, infrastructure, and legal costs. As a
percentage of net revenues, SG&A was 27% for the first quarter of 1998 compared
with 26% for the same period in 1997. The Company anticipates, on a
forward-looking basis, that SG&A expenses will continue to 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 between periods.
Net Interest Income
Net interest income was $1.4 million for both first quarter 1998 and 1997. Net
interest income in 1998 remained flat compared to the same period in 1997,
reflecting higher interest earning balances, offset by a higher proportion of
tax advantaged securities, which yield a lower interest before taxes, and
increased interest expense related to notes payable. On a forward looking basis,
net interest income is expected to decline significantly as a result of the
acquisition of Voicetek.
Income Taxes
The Company's effective income tax rate was 38.0% for the first quarter 1998,
down from 38.5% for the comparable period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company's principal source of liquidity consisted of
cash, cash equivalents, and short-term investments totaling $147 million, which
represented 39% of total assets. The primary sources of cash for the first three
months of 1998 consisted of cash provided by operating activities of $6 million,
net of payments related to an intellectual property settlement, and proceeds
from the issuance of common stock under various stock plans of $2 million. The
primary use of cash for the three month period of 1998 was for net purchases of
short-term investments of $47 million and property and equipment purchases of
approximately $9 million.
As of March 31, 1998, the Company's outstanding borrowings, including current
and non-current portions of notes payable, totaled $12.8 million. Borrowings
consisted of a $4.5 million note payable incurred in connection with the
acquisition of TCS Management Group, Inc. (TCS), and $8.3 million related to
acquisitions of intellectual property during 1997.
11
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ASPECT TELECOMMUNICATIONS CORPORATION
On May 11, 1998, the Company paid approximately $72 million in connection with
the acquisition of Voicetek. 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.
NEW ACCOUNTING PRONOUNCEMENTS
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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 or results of operations. This statement is effective for
fiscal years beginning after December 15, 1997.
12
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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. While the Company is not aware that its products or
processes infringe any valid 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. There can be no
assurance that such negotiations will result in the Company obtaining a license
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 managerial
personnel. An adverse determination in such litigation or proceeding, 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 filed a lawsuit in the United States District Court for
the Eastern District of Pennsylvania alleging that the Company infringed four of
Lucent's U.S. patents (the Lucent Patents). In its complaint, Lucent sought to
enjoin the Company from allegedly continuing to infringe the Lucent Patents and
sought an unspecified amount of compensatory damages; treble damages for alleged
willful infringement; and interest, expenses, and attorneys' fees.
On February 4, 1998, the Company filed a complaint in the United States District
Court, Northern District of California, asserting that Lucent infringed seven
Aspect patents. Lucent responded by filing for a declaratory judgment regarding
these Aspect patents in the United States District Court, Northern District of
Texas.
On February 27, 1998, the Company announced that it entered into a patent
cross-license agreement with Lucent, under which each party agreed to dismiss
their patent lawsuits against each other, released each other from claims of
past infringement, and settled their patent disputes. Under the agreement,
Aspect paid Lucent a one-time fee and, for the duration of the cross-license
agreement, will pay royalties that are not expected to be material to Aspect's
future results of operations. As part of the settlement, Aspect recorded a
non-recurring charge of $14,000,000 (approximately 17 cents per diluted share)
for the quarter and year ended December 31, 1997.
In addition, 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.
13
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ASPECT TELECOMMUNICATIONS CORPORATION
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 March 31, 1998:
Form 8-K dated February 27, 1998
Item 5. Other Events - Announcement of settlement of Lucent
Technology Inc. lawsuit and patent cross-licensing agreement.
Item 7. Financial Statements, Pro forma Financial Information and
Exhibits.
Exhibit 99.1 Aspect Telecommunications Corporation and Lucent
Technologies Inc. press release dated February 27, 1998.
Exhibit 99.2 Aspect Telecommunications Corporations press
release dated February 27, 1998.
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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: May 15, 1998
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
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</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 MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 59,563
<SECURITIES> 87,243
<RECEIVABLES> 96,777
<ALLOWANCES> 1,911
<INVENTORY> 13,265
<CURRENT-ASSETS> 271,089
<PP&E> 128,702
<DEPRECIATION> 66,541
<TOTAL-ASSETS> 377,410
<CURRENT-LIABILITIES> 86,612
<BONDS> 6,607
0
0
<COMMON> 147,897
<OTHER-SE> 136,294
<TOTAL-LIABILITY-AND-EQUITY> 377,410
<SALES> 77,332
<TOTAL-REVENUES> 113,457
<CGS> 24,372
<TOTAL-COSTS> 48,542
<OTHER-EXPENSES> 43,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 22,414
<INCOME-TAX> 8,517
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,897
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.26
</TABLE>
