<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
AMENDMENT NO. 2
TO
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: May 11, 1998
ASPECT TELECOMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3962471
(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) (Zip code)
(408) 325-2200
(Registrant's telephone number, including area code)
-1-
<PAGE>
This Current Report on Form 8-K/A is being filed to amend the Current Report on
Form 8-K/A as filed by the Registrant on July 24, 1998 to reflect the
restatement of the Registrant's condensed consolidated financial statements for
the quarters ended June 30, 1998 and September 30, 1998. See Item 7. (b) in
this Current Report on Form 8-K/A for a discussion of the basis for such
restatement.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 11, 1998, pursuant to an Agreement and Plan of Merger dated April 1,
1998 (the "Merger Agreement") among the Registrant, Venus Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary of the
Registrant ("Sub"), and Voicetek Corporation, a Massachusetts corporation
("Voicetek"), related Articles of Merger dated May 11, 1998 between Sub and
Voicetek filed with the Secretary of State of the Commonwealth of Massachusetts,
and a related Certificate of Merger dated May 11, 1998 filed with the Secretary
of State of the State of Delaware, Sub was merged with and into Voicetek and
Voicetek, as the surviving corporation, became a wholly-owned subsidiary of the
Registrant ("The Merger").
Pursuant to the Merger Agreement, the Registrant paid approximately $72
million in cash for all Voicetek common and preferred shares outstanding,
converted all outstanding Voicetek options into options to purchase
approximately 450,000 shares of Registrant's common stock, and assumed certain
operating assets and liabilities of Voicetek. The Registrant has recorded a
one-time charge against after-tax earnings of $9.9 million for purchased in-
process technology and development expense in the quarter ended June 30, 1998.
The source of the funds paid by the Company under the Merger Agreement was the
Company's cash and cash equivalents and short-term investments. The purchase
price was agreed upon in arms' length negotiation of the terms of the Merger.
The Registrant received an opinion from its financial advisor that the Merger
was fair to the Registrant's shareholders from a financial point of view. The
Merger was treated by the Registrant as a purchase for accounting purposes.
Voicetek is a leading provider of software platforms and application
solutions, including highly scalable, mission-critical interactive voice
response (IVR) and network-deployed enhanced services solutions.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Audited financial statements of Voicetek Corporation as of December
31, 1997 and 1996 and for the two years ended December 31, 1997 as well as
unaudited condensed financial statements as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 are attached hereto and filed
herewith.
(b) Pro Forma Financial Information.
Subsequent to the issuance of the Company's June 30, 1998 condensed
consolidated financial statements, the Securities and Exchange Commission
(the SEC) issued new guidance on its views regarding the valuation
methodology used in determining purchased in-process technology expensed on
the date of acquisition. The Company has had discussions with the SEC
staff concerning the valuation of purchased in-process technology and
other intangible assets acquired in connection with the acquisition of
Voicetek Corporation in May 1998 (see "Business Combinations" note). As a
result of these discussions, the Company has modified its methods used to
value the purchased in-process technology and other intangible assets.
The revised valuation is based on management estimates of the after-tax
net cash flows and gives explicit consideration to the SEC's views on
purchased in-process technology as set forth in its September 9, 1998
letter to the American Institute of Certified Public Accountants. As a
result of the revised valuation, the amount of purchase price allocated
to in-process technology decreased from $68.2 million to $9.9 million and
the amount ascribed to other intangible assets increased from $17.8
million to $89.8 million, including the impact of deferred taxes of $1.4
million and $15.2 million respectively. The Registrant's condensed
consolidated financial statements included in its Quarterly Reports on
Form 10-Q for the quarterly periods ended June 30, 1998 and September 30,
1998 have been restated to reflect the revised valuation. The attached
-2-
<PAGE>
unaudited pro forma condensed combining financial statements have also
been similarly restated to reflect the revised valuation amounts.
The attached unaudited pro forma condensed combining financial
statements for the year ended December 31, 1997 and as of and for the three
months ended March 31, 1998 give effect to the purchase of Voicetek as of
the beginning of the periods presented, whereby Aspect Telecommunications
("Aspect") paid approximately $72 million in cash for all Voicetek common
and preferred shares outstanding, converted all outstanding Voicetek
options into options to purchase approximately 450,000 shares of
Registrant's common stock, and assumed certain operating assets and
liabilities of Voicetek. Accordingly, the acquired assets and liabilities
were recorded at their estimated fair market value at the date of
acquisition. The pro forma condensed combining statements of operations
assume that the acquisition took place at the beginning of the earliest
period presented and combine Aspect's and Voicetek's results of operations
for the year ended December 31, 1997 and the three months ended March 31,
1998. The unaudited pro forma condensed combining balance sheet combines
Aspect's balance sheet as of March 31, 1998 with the Voicetek balance sheet
as of March 31, 1998, giving effect to the acquisition as if it had
occurred on March 31, 1998.
The pro forma condensed combining financial information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred had the
acquisition been consummated at the beginning of the periods presented, nor
is it necessarily indicative of future operating results or financial
position.
The pro forma condensed combining financial information should be
read in conjunction with the audited historical consolidated financial
statements and the related notes thereto of Aspect Telecommunications
Corporation previously filed and the historical financial statements and
related notes thereto of Voicetek Corporation included herein.
The following financial statements are attached hereto and filed
herewith:
Audited financial statements of Voicetek Corporation as of December
31, 1997 and 1996 and for the two years in the period ended December 31,
1997.
Unaudited condensed balance sheet of Voicetek Corporation as of March
31, 1998 and unaudited statements of operations and cash flows for the
three months ended March 31, 1998 and 1997.
Unaudited pro forma condensed combining financial statements of
Aspect Telecommunications Corporation as of March 31, 1998 and for the
year and three months ended December 31, 1997 and March 31,
1998,respectively.
(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.
20.2 * Press release of the Company dated May 11, 1998.
23.1 * Independent Auditors' Consent.
* Previously filed.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ASPECT TELECOMMUNICATIONS CORPORATION
(Registrant)
Date: January 18, 1999 By: /s/ Eric J. Keller
---------------------------------
Eric J. Keller
Vice President, Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
-4-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Voicetek Corporation
- --------------------
Report of Independent Auditors.................................................................... F-3
Balance Sheets at December 31, 1997 and 1996...................................................... F-4
Statements of Operations for the Years Ended December 31, 1997 and 1996........................... F-5
Statements of Stockholders' Deficit for the Years Ended December 31, 1997 and 1996................ F-6
Statement of Cash Flows for the Years Ended December 31, 1997 and 1996............................ F-7
Notes to Financial Statements..................................................................... F-8
Unaudited Condensed Balance Sheets at March 31, 1998 and December 31, 1997........................ F-22
Unaudited Condensed Statements of Operations for the Three Months Ended March 31, 1998 and 1997... F-23
Unaudited Condensed Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997... F-24
Notes to Condensed Financial Statements........................................................... F-25
Aspect Telecommunications Corporation
- -------------------------------------
Pro Forma Condensed Combining Balance Sheet as of March 31, 1998.................................. F-26
Pro Forma Condensed Combining Statement of Operations for the year ended December 31, 1997........ F-27
Pro Forma Condensed Combining Statement of Operations for the Three Month Period Ended
March 31, 1998............................................................................. F-28
Notes to Pro Forma Condensed Combining Financial Statements....................................... F-29
</TABLE>
F-1
<PAGE>
VOICETEK CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Voicetek Corporation:
We have audited the accompanying balance sheets of Voicetek Corporation as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Voicetek Corporation as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has limited available financing to fund
operations, and has preferred stock which becomes redeemable in July 1998, which
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 11. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 25, 1998
F-3
<PAGE>
VOICETEK CORPORATION
BALANCE SHEETS
as of December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 96 $ --
Accounts receivable, less allowances of $591 and $70 in 1997 and 1996,
respectively 6,826 7,460
Unbilled accounts receivable 866 440
Inventories 2,177 1,188
Deferred taxes -- 2,728
Other current assets 751 388
-------- --------
Total current assets 10,716 12,204
Property and equipment, net 3,445 1,900
Intangible assets, net 44 25
Deferred taxes -- 1,886
-------- --------
Total assets $ 14,205 $ 16,015
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 2,808 $ 1,705
Current portion of debt 3,654 2,841
Accrued expenses 2,205 2,300
Deferred revenues 685 762
-------- --------
Total current liabilities 9,352 7,608
Long-term debt, less current portion 3,360 236
Redeemable convertible preferred stock, at liquidation preference 12,502 11,297
Commitments and contingencies (Note 8)
Stockholders' deficit:
Common stock, $.01 par value; 20,000,000 shares authorized, 483,989, and
450,916 shares issued and outstanding at
December 31, 1997 and 1996, respectively 5 5
Additional paid-in capital 6,210 7,087
Accumulated deficit (17,224) (10,218)
-------- --------
Total stockholders' deficit (11,009) (3,126)
-------- --------
Total liabilities and stockholders' deficit $ 14,205 $ 16,015
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
VOICETEK CORPORATION
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Systems $ 21,314 $ 16,239
Services 7,503 5,862
-------- --------
Total revenues 28,817 22,101
Cost of revenues:
Systems 6,850 5,183
Services 4,937 3,161
-------- --------
Total cost of revenues 11,787 8,344
-------- --------
Gross profit 17,030 13,757
Operating expenses:
Research and development 7,596 5,771
Sales and marketing 8,161 5,435
General and administrative 2,773 1,629
-------- --------
Total operating expenses 18,530 12,835
-------- --------
Income (loss) from operations (1,500) 922
Interest expense (546) (229)
Other income (expense), net (342) 11
-------- --------
Income (loss) before (benefit from) provision for income taxes (2,388) 704
(Benefit from) provision for income taxes 4,618 (3,359)
-------- --------
Net income (loss) (7,006) 4,063
Accretion of redeemable convertible preferred stock to
redemption value 1,205 1,096
-------- --------
Net income (loss) available to common stockholders $ (8,211) $ 2,967
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
STATEMENTS OF STOCKHOLDERS' DEFICIT
for the years ended December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 381 $ 4 $ 8,024 $ (14,281) $ (6,253)
Stock options exercised 50 1 5 6
Conversion of stockholder note payable 20 -- 154 154
Accretion of redeemable convertible preferred
stock to redemption value (1,096) (1,096)
Net income 4,063 4,063
------ ------ ------- --------- ---------
Balance at December 31, 1996 451 5 7,087 (10,218) (3,126)
Stock options exercised 33 -- 33 33
Issuance of warrants pursuant to debt agreement 295 295
Accretion of redeemable convertible preferred
stock to redemption value (1,205) (1,205)
Net loss (7,006) (7,006)
------ ------ ------- --------- ---------
Balance at December 31, 1997 484 $ 5 $ 6,210 $ (17,224) $ (11,009)
====== ====== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
VOICETEK CORPORATION
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,006) $ 4,063
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 1,121 716
Provision for doubtful accounts 521 25
Accrued interest converted into common stock -- 19
Deferred taxes 4,614 (3,414)
Changes in operating assets and liabilities:
Accounts receivable 113 (3,967)
Unbilled accounts receivable (426) 68
Inventories (989) (314)
Other current assets (363) (224)
Accounts payable 1,103 659
Accrued expenses (95) 1,503
Deferred revenues (77) 342
-------- --------
Net cash used in operating activities (1,484) (524)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (2,666) (1,771)
Acquisition of intangible assets (19) (25)
-------- --------
Net cash used in investing activities (2,685) (1,796)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in revolving line of credit 510 --
Proceeds from long-term debt and warrants 3,923 2,152
Proceeds from exercise of stock options 33 6
Payments on long-term debt (201) --
-------- --------
Net cash provided by financing activities 4,265 2,158
-------- --------
Net change in cash and cash equivalents 96 (162)
Cash and cash equivalents, beginning of year -- 162
-------- --------
Cash and cash equivalents, end of year $ 96 $ --
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 546 $ 217
Taxes paid $ 18 $ 50
Supplemental disclosure of noncash financing transactions:
Conversion of related party note payable to common stock $ -- $ 154
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Voicetek Corporation, a Massachusetts corporation, (the "Company") was
incorporated in 1981 and operates in one business segment. The Company
develops, markets and supports interactive communications systems. The
Company's principal market and its operations are located in the United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables include
receivables from significant customers. The Company's customers are
concentrated in one industry segment, the telecommunications industry,
and, historically, a significant portion of the Company's revenues have
been to a limited number of customers within this industry. The Company
does not require collateral or other security to support customer
receivables. The Company maintains reserves for credit losses and such
losses have been within management's expectations. The Company's
allowances amounted to $591,000 and $70,000 at December 31, 1997 and
1996, respectively. The provision charged to the Statement of Operations
was $521,000 and $39,000 in 1997 and 1996, respectively, and write-offs
against the allowances were $0 and $14,000 in 1997 and 1996,
respectively.
CASH AND CASH EQUIVALENTS
The Company's policy is to include amounts as cash and cash equivalents
that are short-term, highly liquid investments purchased with a
remaining maturity of three months or less.
INVENTORIES
Inventories, consisting primarily of purchased components, including
materials, labor and overhead, are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO) method.
Continued
F-8
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method based on the following estimated useful
lives:
Equipment 3 to 7 years
Furniture and fixtures 3 to 5 years
Leasehold improvements The shorter of the lease term or the life of
the asset
Expenditures for major improvements which substantially increase the
useful lives of assets are capitalized. Repair and maintenance costs are
expensed as incurred. When assets are sold or retired, the related cost
and accumulated depreciation are removed from the accounts and any gain
or loss is included in results of operations.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs incurred prior to the establishment of technological feasibility
are charged to research and development expense. Based on the Company's
product development process, technological feasibility is established
upon completion of a working model. Software development costs incurred
subsequent to the establishment of technological feasibility and for
significant product enhancements are capitalized until the product is
available for general release to customers, and amortized to cost of
revenues. Amortization of capitalized software costs is recognized on
the greater of the straight-line basis over the estimated economic lives
of the related products, and the ratio of current gross revenues to
total current and expected future gross revenues of the related
products. The Company did not capitalize any software development costs
during 1997 and 1996 because the amounts eligible for capitalization
were immaterial.
REVENUE RECOGNITION
The Company recognizes product and license revenues upon execution of a
contract and shipment to customers provided that no significant vendor
obligations remain outstanding and collection of the resulting
receivable is deemed probable by management. If insignificant vendor
obligations remain after shipment of the product, the Company accrues
for the estimated costs of such obligations. Additionally, the Company
accrues for warranty costs upon shipment. Revenue from post-customer
support (maintenance) contracts is recognized ratably over the life of
the contract, generally one year. Revenue from training and consulting
is recognized as the services are provided. For certain contracts
eligible under AICPA Statement of Position No. 81-1, revenue is
recognized using the percentage-of-completion accounting method based
upon an efforts-expended method. In all cases, changes to total
estimated costs and anticipated losses, if any, are recognized in the
period in which determined. The percentage-of-completion method requires
estimates of costs to complete which may differ from actual costs.
Continued
F-9
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
UNBILLED ACCOUNTS RECEIVABLE
Unbilled accounts receivable represents revenue recognized for contracts
accounted for under the percentage-of-completion method which had not
been billed at the balance sheet date. All amounts are expected to be
collected within one year. There are no amounts included in accounts
receivable or unbilled accounts receivable which represent retainages.
INCOME TAXES
The Company provides for income taxes using the liability method whereby
recognition of deferred tax liabilities and assets is based on expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between
the financial statement basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected
to reverse. The Company provides for a valuation allowance against net
deferred tax assets if, based upon the available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Equipment $6,547 $4,511
Furniture and fixtures 623 422
Leasehold improvements 599 258
Construction in progress 88 --
------ ------
7,857 5,191
Less accumulated depreciation and amortization 4,412 3,291
------ ------
$3,445 $1,900
====== ======
</TABLE>
Continued
F-10
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Equipment under capital leases consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Equipment $ 178 $ 211
Less accumulated amortization 178 184
------ ------
$ -- $ 27
====== ======
</TABLE>
Depreciation and amortization expense was approximately $1,121,000 and
$716,000 for 1997 and 1996, respectively.
4. INVENTORIES:
Inventories consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Raw materials (purchased components) $1,588 $ 885
Work in process 157 67
Finished goods 432 236
------ ------
Total inventories $2,177 $1,188
====== ======
</TABLE>
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT:
REDEEMABLE CONVERTIBLE PREFERRED STOCK
The authorized, issued and outstanding preferred stock of the Company
consists of Redeemable Convertible Preferred Stock (issued and
outstanding: 5,455,713 shares of Senior Preferred ("Senior") and 679,803
shares of Junior Preferred Series 1 ("Junior Series 1") and 729,758
shares of Junior Preferred Series 2 ("Junior Series 2"), respectively)
(together the "Preferred Stock").
Continued
F-11
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The carrying amounts of the Preferred Stock were the same as the
respective redemption amounts, and were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior Preferred $ 8,002 $ 7,228
Junior Series 1 2,889 2,611
Junior Series 2 1,611 1,458
------- -------
Total $12,502 $11,297
======= =======
</TABLE>
VOTING
The Preferred Stock has the same voting rights as common stock on an
as-converted basis.
DIVIDENDS
The holders of Preferred Stock have the right to receive out of funds
legally available cumulative dividends, when and if declared by the
Board of Directors. The dividends for the Senior, Junior Series 1, and
Junior Series 2 shares shall be at the annual rate of $0.10, $0.25 and
$0.13 per share, respectively. Holders of Senior, Junior Series 1 and
Junior Series 2 Preferred Stock shall also be entitled to an annual 10%
interest on unpaid dividends, as defined.
LIQUIDATION
Upon any liquidation, dissolution or winding up of the Company the
holders of Preferred Stock are entitled to receive the liquidation
preference (as defined) plus any declared and unpaid dividends before
any distribution may be made to common stockholders.
CONVERSION
Each share of Senior, Junior Series 1 and Junior Series 2 Preferred
Stock is convertible, on a two-for-three basis, into shares of common
stock at the option of the holders. The conversion rate is adjustable
for certain dilutive events.
REDEMPTION
The Preferred Stock is redeemable at the option of the holder at any
time on or after July 31, 1998, for Senior, Junior Series 1 and Junior
Series 2 shares at redemption prices per share of $1.005785, $2.501729
and $1.329820, respectively, plus all accrued but unpaid dividends at
per share amounts of $0.10, $0.25 and $0.13 for Senior, Junior Series 1
and Junior Series 2, respectively, on a per annum basis plus 10%
interest. This redemption date was extended from July 31, 1997, by
certain holders of Preferred Stock in February 1997.
Continued
F-12
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
COMMON STOCK SPLIT
In February 1997, the Board of Directors authorized, and the
shareholders later approved, a reverse two-for-three stock split of the
Company's common stock. All share and per share amounts have been
restated in these financial statements to reflect the reverse stock
split.
WARRANTS
In September 1997, the Company issued warrants for the purchase of
191,327 shares of the Company's common stock at an exercise price of
$7.84 per share, vesting immediately with a term of seven years. These
warrants were issued in conjunction with a new debt arrangement (see
Note 7). The fair market value of these warrants at the date of issuance
was $295,000.
STOCK OPTION PLANS
1992 EQUITY INCENTIVE PLAN
In 1992, the Company amended its previous qualified stock option plan
and established the 1992 Equity Incentive Plan (the "1992 Plan").
Options granted under the 1992 Plan vest over a period of four years.
The options expire ten years from the date of grant.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Option Plan") was
adopted by the Board of Directors of the Company in August 1996. The
1996 Option Plan provides for the grant of stock options to key
employees (including officers who may be members of the Company's Board
of Directors), directors who are not employees and consultants to
Company. Under the 1996 Option Plan, the Company could grant options
intended to qualify as incentive stock options within the meaning of
Section 422A of the Code, and options not intended to qualify as
incentive stock options. Options granted under the 1996 Stock Option
Plan vest over a period of four years. The options expire ten years from
date of grant. A total of 333,333 shares of Common Stock were originally
authorized for issuance under the 1996 Option Plan. Effective January 1,
1997 and each January 1 thereafter through January 1, 2006, the number
of shares of Common Stock authorized for issuance under the 1996 Option
Plan shall be increased cumulatively such that the number of shares of
Common Stock subject to the 1996 Option Plan shall equal 15% of the
total number of fully diluted shares of Common Stock (excluding shares
of Common Stock issuable upon the exercise of options to purchase Common
Stock granted under the Company's 1996 Director Option Plan, as defined
below) as of the close of business on December 31 of the preceding year.
1996 DIRECTOR OPTION PLAN
The Company's 1996 Stock Option Plan for Non-Employee Directors and
Clerk (the "1996 Director Option Plan") was adopted by the Board of
Directors of the Company in August 1996. The 1996 Director Option Plan
provides for the grant of stock options to the Clerk and Directors who
are not employees of the Company. Under the 1996 Director Option Plan,
the Company
Continued
F-13
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
could grant options not intended to qualify as incentive stock options
within the meaning of Section 422A of the Code. Options granted under
the 1996 Director Option Plan vest over a period of four years. The
options expire ten years from the date of grant. A total of 60,000
shares of Common Stock were originally authorized for issuance under the
1996 Director Option Plan.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which is effective for periods
beginning after December 15, 1995. SFAS No. 123 requires that companies
either recognize compensation expense for grants of stock, stock options
and other equity instruments based on fair value, or provide pro forma
disclosures of net income in the notes to the financial statements. The
Company has adopted the pro forma disclosure provision of SFAS No. 123
effective in 1996 and has applied Accounting Principles Board Opinion 25
"Accounting for Stock Issued to Employees" and related Interpretations
in accounting for its plans. Accordingly, compensation cost of stock
options granted to employees and directors is measured as the excess, if
any, of the fair value of the Company's stock at the date of grant over
the amount that must be paid to acquire the stock. Had compensation cost
for the Company's stock-based compensation plans been determined based
on the fair value at the grant dates for the awards under these plans
consistent with the methodology prescribed under SFAS No. 123, the
Company's net income (loss) would have been reduced to the pro forma
amount indicated below:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
NET LOSS NET INCOME
-------- ----------
<S> <C> <C>
As reported $ (7,006) $ 4,063
Pro forma $ (7,121) $ 3,893
</TABLE>
The fair value of each option granted during 1997 and 1996 is estimated
on the date of grant using the minimum value method utilizing the
following weighted-average assumptions: (1) weighted average risk-free
interest rates of 6.6% and 6.8% in 1997 and 1996, respectively, (2)
expected option life of 8 years and 10 years in 1997 and 1996,
respectively and (3) expected dividend yield of 0 for both years.
The effects of applying SFAS 123 for the purposes of pro forma
disclosures may not be indicative of the effects on reported net income
(loss) for future years, as the pro forma disclosures include the
effects of only those awards granted after January 1, 1995.
Continued
F-14
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Information with respect to options granted under all stock option plans
is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
PRICE PER PRICE PER
SHARES SHARE SHARES SHARE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Options outstanding at beginning
of year January 1, 759,775 $ 1.546 714,074 $ 0.432
Granted 380,873 $ 4.000 155,827 $ 6.740
Exercised (32,238) $ 1.026 (49,746) $ 0.111
Canceled (71,421) $ 5.018 (60,380) $ 2.957
---------- ---------- ---------- ----------
Options outstanding at end of year
December 31, 1,036,989 $ 2.225 759,775 $ 1.546
========== ========== ========== ==========
Options exercisable at December 31, 556,867 $ 0.548 459,631 $ 0.206
========== ========== ========== ==========
Options available for future grant at
December 31, 185,986 495,438
========== ==========
Weighted average fair value of
options granted during the year $ 1.608 $ 3.507
========== ==========
</TABLE>
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING WEIGHTED- AVERAGE
NUMBER OF CONTRACTUAL AVERAGE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE EXERCISE PRICE OPTIONS PRICE
- ---------------------------- ------------- -------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$0.075 453,682 5.0 $ 0.075 453,088 $ 0.075
$0.150 to $0.375 85,062 7.0 $ 0.225 58,156 $ 0.222
$1.120 to $7.500 498,245 9.4 $ 4.524 45,623 $ 5.663
------------- ------------
$0.075 to $7.500 1,036,989 7.3 $ 2.225 556,867 $ 0.548
============= ============== ================ ============ ===========
</TABLE>
Continued
F-15
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES:
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal $ $ 22
State 4 33
-------- --------
4 55
-------- --------
Deferred:
Federal 3,729 (2,825)
State 885 (589)
-------- --------
4,614 (3,414)
-------- --------
Total provision for (benefit from)
income taxes $ 4,618 $ (3,359)
======== ========
</TABLE>
The following is a reconciliation between the U.S. federal statutory tax
rate and the effective tax rate:
<TABLE>
<CAPTION>
YEARS ENDED
-----------
(IN THOUSANDS)
1997 1996
------ ------
<S> <C> <C>
U. S. federal statutory tax rate (34.0)% 34.0%
State income taxes, net of federal benefit (5.2) 5.5
Nondeductible expenses 1.8 3.8
Alternative minimum tax -- --
Increase (decrease) in valuation allowance 243.0 (520.4)
Credits carried forward (12.2) --
------ ------
Effective tax rate 193.4% (477.1)%
====== ======
</TABLE>
Continued
F-16
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The following represents the significant components of the Company's net
deferred tax assets:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Federal net operating losses $ 3,959 $ 3,303
Tax credit carryforwards 625 334
Depreciation and amortization 22 46
State tax credits and NOL, net of federal benefit 598 473
Other temporary differences 600 458
Valuation allowance for deferred tax assets (5,804) --
-------- --------
Net tax asset $ -- $ 4,614
======== ========
</TABLE>
As of December 31, 1997, the Company had approximately $11,600,000 of
net operating loss carryforwards for federal income tax purposes which
expire in the years 2004 through 2009. The Company had approximately
$3,700,000 of state net operating losses which expire in the years 1997
through 2012. The Company had research and development credits for
federal and state income tax purposes of approximately $848,000 and
$637,000, which begin to expire at various dates through 2012. The
federal and state net operating losses and credits are subject to
certain limitations under IRC Section 382 which may affect the Company's
ability to utilize them prior to expiration.
Management of the Company has evaluated the positive and negative
evidence bearing upon the realizability of its deferred tax assets.
Under the applicable accounting standards, management has considered the
Company's history of losses and concluded that it is more likely than
not that the Company will not generate future taxable income prior to
the expiration of these net operating losses. Accordingly, the deferred
tax assets have been fully reserved. Management reevaluates the positive
and negative evidence periodically.
Continued
F-17
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. DEBT:
The Company's debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit $3,210 $2,700
Equipment term loan 1,099 377
Note payable, net of discount 2,705 --
------ ------
7,014 3,077
Less current portion 3,654 2,841
------ ------
$3,360 $ 236
====== ======
</TABLE>
The aggregate maturities of the Company's debt outstanding at December
31, 1997, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, (IN THOUSANDS)
<S> <C>
1998 $3,654
1999 351
2000 490
2001 750
2002 and beyond 1,769
------
$7,014
======
</TABLE>
Interest expense on notes payable and long-term debt was $546,000 and
$229,000 in 1997 and 1996, respectively.
In November 1997, the Company amended its revolving credit agreement
with a bank to increase its revolving line-of-credit from $5,000,000 to
$6,000,000, expiring on November 30, 1998. Outstanding balances under
the agreement bear interest at the prime rate plus 0.75% (9.25% and 9.0%
at December 31, 1997 and 1996, respectively). The line of credit is
collateralized by certain receivables of the Company.
Amounts borrowed under the term loan agreement are payable in monthly
installments over a three-year period at an interest rate of the prime
rate plus 1.00% (9.50% and 9.25% at December 31, 1997 and 1996,
respectively). The term loan is collateralized by certain equipment of
the Company.
In September 1997, the Company issued a note to a third party for an
amount of $3,000,000. The note bears interest at a rate of 10% and is
payable in monthly installments commencing on
Continued
F-18
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 2000, with the full amount due by September 30, 2004. The note
payable had warrants attached granting the right to purchase 191,327 shares
of common stock of the Company at a purchase price of $7.84 per share
before September 30, 2004. The fair market value of the warrants at the
date of issuance was $295,000, which has been recorded as a discount on the
note payable and will be amortized over the term of the note.
The Company is subject to certain financial covenants under its debt
agreements including specified debt to worth ratios and maintenance of a
specified capital base and profitability, as defined. At December 31, 1997,
the Company was in violation of these covenants on all three loans. The
parties involved subsequently waived these covenants.
8. COMMITMENTS AND CONTINGENCIES:
The Company occupies manufacturing and office space under an operating
lease which expires in October 2002. The Company must pay insurance,
maintenance, utilities and a percentage of real estate taxes on the lease.
Approximate future minimum annual payments under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, (IN THOUSANDS)
- ------------ --------------
<S> <C>
1998 $ 333
1999 350
2000 414
2001 429
2002 429
------
$1,955
======
</TABLE>
Rent expense under operating leases was approximately $462,000 and $233,000
in 1997 and 1996, respectively.
The Company also leases certain equipment under noncancelable capital
leases that mature at various dates. The future minimum payments under the
capital leases are immaterial.
Continued
F-19
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. EMPLOYEE PLAN:
As amended on January 1, 1988, the Company approved the establishment of
the Voicetek Corporation 401(k) Plan (the "Plan"). Employees are eligible
to participate in the Plan by meeting certain requirements, including
length of service and minimum age. The Company can elect to make
discretionary matching contributions. The annual contributions may not
exceed the maximum allowed under the applicable provisions of the Internal
Revenue Code.
The Company has provided for contributions of approximately $74,000 and
$58,000 in 1997 and 1996, respectively.
10. SIGNIFICANT CUSTOMERS AND EXPORT SALES:
The following represents significant customer revenue:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Customer A 24% 24%
Customer B 11% 12%
Customer C 10% 12%
</TABLE>
Export sales were approximately $8,011,000 and $2,352,000 in 1997 and 1996,
respectively.
11. GOING CONCERN MATTERS:
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.
The Company incurred a net loss in 1997 and used cash to fund operations,
and the Company's redeemable convertible preferred stock becomes redeemable
at a value of $12,502,000 from August 1, 1998 (see Note 5). These factors
indicate that the Company may be unable to continue as a going concern for
a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flows to meet its obligations on a timely basis,
to comply with the terms of its financing agreements, to obtain additional
financing or refinancing as may be required,
Continued
F-20
<PAGE>
VOICETEK CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
and ultimately to obtain profitability. The Company is also actively
pursuing additional financing through discussions with potential investors.
Continued
F-21
<PAGE>
VOICETEK CORPORATION
CONDENSED BALANCE SHEETS
(In thousands, unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27 $ 96
Accounts receivable, net 7,932 7,692
Inventories 2,216 2,177
Other current assets 522 751
-------- --------
Total current assets 10,697 10,716
Property and equipment, net 4,148 3,445
Other assets 165 44
-------- --------
Total assets $ 15,010 $ 14,205
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,503 $ 2,808
Current portion of debt 3,511 3,654
Other accrued liabilities 3,403 2,890
-------- --------
Total current liabilities 10,417 9,352
Long-term debt, less current portion 3,673 3,360
Redeemable convertible preferred stock, at liquidation preference 8,302 12,502
Stockholders' deficit:
Common stock, $.01 par value: 20,000,000 shares authorized,
664,423 and 483,989 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 9 5
Additional paid-in-capital 10,423 6,210
Accumulated deficit (17,814) (17,224)
-------- --------
Total stockholders' deficit (7,382) (11,009)
-------- --------
Total liabilities and stockholders' deficit $ 15,010 $ 14,205
======== ========
</TABLE>
See notes to condensed financial statements.
F-22
<PAGE>
VOICETEK CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands - unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Systems $ 6,332 $ 4,527
Services 1,647 1,818
-------- --------
Total revenues 7,979 6,345
Cost of revenues:
Systems 1,962 1,617
Services 1,121 1,112
-------- --------
Total cost of revenues 3,083 2,729
-------- --------
Gross profit 4,896 3,616
Operating expenses:
Research and development 2,488 1,654
Sales and marketing 2,188 1,868
General and administrative 608 578
-------- --------
Total operating expenses 5,284 4,100
-------- --------
Loss from operations (388) (484)
Interest expense (202) (80)
-------- --------
Loss before income taxes (590) (564)
Provision for income taxes -- 4,618
-------- --------
Net loss (590) (5,182)
Accretion of redeemable convertible preferred stock
to redemption value 331 301
======== ========
Net loss available to common stockholders $ (921) $ (5,483)
======== ========
</TABLE>
See notes to condensed financial statements.
F-23
<PAGE>
VOICETEK CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands - unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (590) $(5,182)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 394 243
Provision for doubtful accounts 30 9
Changes in operating assets and liabilities:
Accounts receivable (270) 754
Inventories (39) (17)
Other current assets 229 (253)
Other assets (121) --
Accounts payable 695 710
Other accrued liabilities 513 3,901
------- -------
Net cash provided by operating activities 841 165
------- -------
Cash flows from investing activities:
Additions to property and equipment (1,097) (580)
------- -------
Net cash used in investing activities (1,097) (580)
Cash flows from financing activities:
Net increase (decrease) in revolving line of credit (143) 458
Proceeds from long term debt 377 209
Proceeds from exercise of stock options 17 3
Payments on long term debt (64) (35)
------- -------
Net cash provided by financing activities 187 635
------- -------
Net change in cash and cash equivalents (69) 220
Cash and cash equivalents, beginning of period 96 --
------- -------
Cash and cash equivalents, end of period $ 27 $ 220
======= =======
Non Cash Transaction:
Conversion of redeemable convertible preferred stock
to common stock $ 4,200 $ --
======= =======
</TABLE>
F-24
<PAGE>
VOICETEK CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 8-K 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.
2. INCOME TAXES:
Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Under the
applicable accounting standards, management has considered the Company's
history of losses and concluded that it is more likely than not that the
Company will not generate future taxable income prior to the expiration of
these net operating losses. Accordingly, the deferred tax assets have been
fully reserved in the amount of $4,618,000.
3. SUBSEQUENT EVENT:
In May 1998, the Company was acquired by Aspect Telecommunications
Corporation (Aspect) for cash of $72 million and Aspect options to the
stockholders of the Company valued at approximately $11 million. The
transaction was accounted for as a purchase.
F-25
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
PRO FORMA CONDENSED COMBINING BALANCE SHEET
(In thousands, unaudited)
<TABLE>
<CAPTION>
Aspect Voicetek
as of as of
March 31, March 31, Pro Forma Pro Forma
1998 1998 Adjustments Notes Combined
--------- --------- ----------- ----- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 59,563 $ 27 ($18,326) 2,3,6 $ 41,264
Short-term investments 87,243 0 (61,843) 2,3,6 25,400
Accounts receivable, net 94,866 7,932 (2,071) 4 100,727
Inventories 13,265 2,216 (225) 4 15,256
Other current assets 16,152 522 58 6 16,732
--------- --------- ----------- --------
Total current assets 271,089 10,697 (82,407) 199,379
--------- --------- ----------- --------
Property and equipment, net 62,161 4,148 0 66,309
Intangible assets, net 41,022 0 85,892 5 126,914
Other assets 3,138 165 0 3,303
--------- --------- ----------- --------
Total assets $377,410 $15,010 $3,485 $395,905
========= ========= =========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 12,120 $ 3,503 $0 $ 15,623
Current portion of long-term debt 6,149 3,511 (3,511) 3 6,149
Accrued compensation and related benefits 15,740 1,162 0 16,902
Other accrued liabilities 29,966 1,345 1,265 3,4,6 32,576
Customer deposits and deferred revenue 22,637 896 0 23,533
--------- --------- ----------- --------
Total current liabilities 86,612 10,417 (2,246) 94,783
Long-term debt, less current portion 6,607 3,673 (3,673) 1,3 6,607
Redeemable convertible preferred stock
at liquidation preference 0 8,302 (8,302) 1 0
Deferred Tax Liabilities 0 0 9,130 5,8 9,130
Shareholders' equity:
Common stock 147,897 9 11,175 2 159,081
Paid-in-capital 0 10,423 (10,423) 1,2 -
Net unrealized gain on available-for-sale securities 148 0 0 148
Accumulated translation adjustments (1,706) 0 0 (1,706)
Retained earnings (deficit) 137,852 (17,814) 7,824 4,7,9 127,862
--------- --------- ----------- --------
Total shareholders' equity (deficit) 284,191 (7,382) 8,576 285,385
--------- --------- ----------- --------
Total liabilities and shareholders' equity $377,410 $15,010 $3,485 $395,905
========= ========= =========== ========
</TABLE>
See notes to pro forma condensed combining financial statements.
F-26
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
(In thousands, except per share amounts - unaudited)
<TABLE>
<CAPTION>
Aspect Voicetek
Year Ended Year Ended
December 31, December 31, Pro Forma Pro Forma
1997 1997 Adjustments Notes Combined
------------ ------------ ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Net revenues:
Product $276,471 $21,314 ($611) 4 $ 297,174
Customer support 114,171 7,503 0 121,674
----------- ------------ ----------- ---------
Total net revenues 390,642 28,817 (611) 418,848
----------- ------------ ----------- ---------
Cost of revenues:
Cost of product revenues 89,529 6,850 318 4 96,697
Cost of customer support revenues 79,444 4,937 0 84,381
----------- ------------ ----------- ---------
Total cost of revenues 168,973 11,787 318 181,078
----------- ------------ ----------- ---------
Gross margin 221,669 17,030 (929) 237,770
----------- ------------ ----------- ---------
Operating expenses:
Research and development 45,723 7,596 4,119 10 57,438
Selling, general and administrative 104,431 10,934 9,833 4,10 125,198
Purchased in-process technology 4,910 0 0 4,910
Intellectual property settlement 14,000 0 0 14,000
----------- ------------ ----------- ---------
Total operating expenses 169,064 18,530 13,952 201,546
----------- ------------ ----------- ---------
Income (loss) from operations 52,605 (1,500) (14,881) 36,224
Interest and other income (expense), net 7,673 (888) (3,943) 11 2,842
----------- ------------ ----------- ---------
Income (loss) before income taxes 60,278 (2,388) (18,824) 39,066
Provision for (benefit from) income taxes 25,096 4,618 (10,171) 13 19,543
----------- ------------ ----------- ---------
Net income (loss) 35,182 (7,006) (8,653) 19,523
Accretion of redeemable convertible preferred stock
to redemption value 0 1,205 (1,205) 14 0
----------- ------------ ----------- ---------
Net income (loss) available to common shareholders $35,182 (8,211) (7,448) $ 19,523
=========== ============ =========== =========
Basic earnings per share $ 0.71 $ 0.40
=========== =========
Weighted average shares outstanding 49,302 49,302
=========== =========
Diluted earnings per share $ 0.67 $ 0.37
========= =========
Weighted average shares outstanding--assuming
dilution 52,307 52,586
========= =========
</TABLE>
See notes to pro forma condensed combining financial statements.
F-27
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
(In thousands, except per share amounts - unaudited)
<TABLE>
<CAPTION>
Aspect Voicetek
Three Months Three Months
Ended Ended
March 31, March 31, Pro Forma Pro Forma
1998 1998 Adjustments Notes Combined
---------- ------------ ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues:
Product $77,332 $6,332 ($560) 4 $ 83,104
Customer support 36,125 1,647 - 37,772
---------- ------------ ----------- -----------
Total net revenues 113,457 7,979 (560) 120,876
---------- ------------ ----------- -----------
Cost of revenues:
Cost of product revenues 24,372 1,962 23 4 26,357
Cost of customer support revenues 24,170 1,121 - 25,291
---------- ------------ ----------- -----------
Total cost of revenues 48,542 3,083 23 51,648
---------- ------------ ----------- -----------
Gross margin 64,915 4,896 (583) 69,228
---------- ------------ ----------- -----------
Operating expenses:
Research and development 12,830 2,488 1,030 10 16,348
Selling, general and administrative 31,084 2,796 2,233 10 36,113
---------- ------------ ----------- -----------
Total operating expenses 43,914 5,284 3,263 52,461
---------- ------------ ----------- -----------
Income (loss) from operations 21,001 (388) (3,846) 16,767
Interest and other income (expense), net 1,413 (202) (920) 11 291
---------- ------------ ----------- -----------
Income (loss) before income taxes 22,414 (590) (4,766) 17,058
Provision for (benefit from) income taxes 8,517 - (1,390) 12 7,127
---------- ------------ ----------- -----------
Net income (loss) 13,897 (590) (3,376) 9,931
Accretion of redeemable convertible preferred stock
to redemption value - 331 (331) 14 -
---------- ------------ ----------- -----------
Net income (loss) available to common shareholders $13,897 ($921) ($3,045) $ 9,931
========== ============ =========== ===========
Basic earnings per share $ 0.28 $ 0.20
========== ===========
Weighted average shares outstanding 50,146 50,146
========== ===========
Diluted earnings per share $ 0.26 $ 0.19
========== ===========
Weighted average shares outstanding--assuming dilution 53,071 53,446
========== ===========
</TABLE>
See notes to pro forma condensed combining financial statements.
F-28
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
ACQUISITION
VOICETEK CORPORATION - On May 11, 1998, pursuant to an Agreement and Plan of
Merger dated April 1, 1998 (the "Merger Agreement") among the Registrant, Venus
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
the Registrant ("Sub"), and Voicetek Corporation, a Massachusetts corporation
("Voicetek"), related Articles of Merger dated May 11, 1998 between Sub and
Voicetek filed with the Secretary of State of the Commonwealth of Massachusetts,
and a related Certificate of Merger dated May 11, 1998 filed with the Secretary
of State of the State of Delaware, Sub was merged with and into Voicetek and
Voicetek, as the surviving corporation, became a wholly-owned subsidiary of the
Registrant ("The Merger").
Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated
financial statements the SEC issued new guidance on its views regarding the
valuation methodology used in determining purchased in-process technology
expensed on the date of acquisition. The Company has had discussions with the
SEC staff concerning the valuation of purchased in-process technology and
other intangible assets acquired in connection with the acquisition of
Voicetek Corporation in May 1998 (see "Business Combinations" note). As
a result of these discussions, the Company has modified its methods used to
value the purchased in-process technology and other intangible assets.
The revised valuation was based on management's estimates of the after tax net
cash flows and gives explicit consideration to the SEC's views on purchased in-
process technology as set forth in its September 9, 1998 letter to the American
Institute of Certified Public Accountants. Specifically, the revised valuation
gave consideration to the following: (i) a fair market value premise was
employed, excluding any Aspect-specific considerations which would result in
estimates of investment value for the subject assets; (ii) comprehensive due
diligence concerning all potential intangible assets including
trademarks/tradenames, patents, copyrights, non-compete agreements, assembled
workforce and customer relationships and sales channel; (iii) the value of core
technology was explicitly addressed, with a view toward ensuring the relative
allocations to core technology and in-process technology were consistent with
the relative contributions of each to the final product; (iv) the allocation to
in-process technology was based on a calculation that considered only the
efforts completed as of the transaction date, and only the cash flow associated
with said completed efforts for one generation of the products currently in-
process; and (v) it was assessed by the Company's independent accountants and
deemed reasonable in light of all the quantitative and qualitative information
available.
Aspect recorded a one-time charge of $9.9 million in the second quarter of
1998 for purchased in-process technology related to two development projects
that had not reached technological feasibility, had no alternative future use,
and for which successful development was uncertain. The conclusion that each
in-process development effort, or any material sub-component, had no
alternative future use was reached in consultation with engineering personnel
from both Aspect and Voicetek.
The first of these projects is an interactive voice response (IVR) product that
represents the next generation of Voicetek's "Generations" platform, ported to a
Windows NT environment. The primary project tasks open include porting to
Windows NT, compliance to industry standard protocols and various feature
enhancements. At the time of acquisition, development remained on all tasks and
estimated costs to complete were approximately $1.5 million. The second
development project is a suite of personal communications services, which will
provide modular, integrated applications for voice activated dialing, single
number service, personal assistant call screening and unified message control.
At the time of acquisition, most of the remaining development effort was focused
on completing one of the applications, voice activated dialing, and additional
coding for final feature development, as well as further testing. Estimated
costs to complete were approximately $2.2 million. Management expects that both
products being developed will become available for sale in fiscal 1999; however,
no assurances can be given. Aspect will begin to benefit from the acquired
research and development related to these products once they begin shipping.
Failure to reach successful completion of these projects could result in
impairment of the associated capitalized intangible assets and could require the
Company to accelerate the time period over which the intangibles are being
amortized, which could have a material adverse effect on the Company's business,
financial condition or results of operations.
Significant assumptions used to determine the value of in-process technology
included several factors, including the following. First, a forecast of net cash
flows that were expected to result from the development effort, using
projections prepared by Voicetek management, portions of which (1998 and 1999)
were provided to Aspect's Board of Directors. Second, a percentage complete for
each project (40% for the first project and 50% for the second project)
estimated by considering a number of factors, including the costs invested to
date relative to the expected total cost of the development effort and the
amount of progress completed as of the transaction date, on a technological
basis, relative to the overall technological achievements required to achieve
the intended functionality of the eventual product. The technological issues
were addressed by engineering representatives from both Aspect and Voicetek.
Third, discount rates of approximately 28% and 23% respectively, computed under
two discount rate scenarios. The first discount rate was equivalent to the
discount rate that would be employed in a Fair Value analysis, i.e., one that
considers all cash flows associated with the project and resulting product, and
therefore represents a blended rate of all the risks associated with the
product. The second discount rate employed was moderately lower, and was
intended to be reflective of the fact that the "Exclusion Method" only considers
the "completed portion" of the development and the cash flow associated with the
same. The results of each scenario were not materially different, and our final
allocation to in-process research and development was based on an average of the
results of the two scenarios for each project. As of September 30, 1998,
technological feasibility had not been reached with respect to either project
and no significant departures from the assumptions included in the valuation
analysis have occurred.
As a result of the revised valuation, the amount of purchase price allocated
to in-process technology decreased from $68.2 million to $9.9 million and the
amount ascribed to other intangible assets increased from $17.8 million to
$89.8 million, including the impact of deferred taxes of $1.4 million and
$15.2 million respectively. The Registrant's condensed consolidated financial
statements included in its Quarterly Reports on Form 10-Q for the quarterly
periods ended June 30, 1998 and September 30, 1998 have been restated to
reflect the revised valuation. The unaudited pro forma condensed combining
financial statements have also been similarly restated to reflect the revised
valuation amounts.
Pursuant to the Merger Agreement, the Registrant paid approximately $72 million
in cash for all Voicetek common and preferred shares outstanding, converted all
outstanding Voicetek options into options to purchase approximately 450,000
shares of Registrant's common stock, and assumed certain operating assets and
liabilities of Voicetek. The Registrant has recorded a one-time charge against
after-tax earnings of $9.9 million for purchased in-process technology and
development expense in the quarter ended June 30, 1998. The source of the funds
paid by the Company under the Merger Agreement was the Company's cash and cash
equivalents and short-term investments. The purchase price was agreed upon in
arms' length negotiation of the terms of the Merger. The Registrant received an
opinion from its financial advisor that the Merger was fair to the Registrant's
shareholders from a financial point of view. The Merger was treated by the
Registrant as a purchase for accounting purposes.
Voicetek is a leading provider of software platforms and application solutions,
including highly scalable, mission-critical interactive voice response (IVR) and
network-deployed enhanced services solutions.
2. PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements are presented in accordance with
Article 11 of Regulation S-X.
The unaudited pro forma condensed combining balance sheet has been prepared as
if the acquisition, which was accounted for as a purchase, was completed as of
March 31, 1998. The aggregate purchase price, and approximately $3 million of
costs directly attributable to the completion of the acquisition have been
allocated to the assets and liabilities acquired. The allocation of the purchase
price among the identifiable intangible assets was based on estimates of the
fair market value of those assets. As a result, $9.9 million was allocated to
purchased in-process research and development, which has not yet reached
technological feasibility and does not have alternative future uses. This amount
was charged to the company's operations in accordance with generally accepted
accounting principles in the quarter ended June 30, 1998.
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To prepare the pro forma unaudited condensed combining statements of operations,
the Aspect Telecommunications ("Aspect") statement of income for the year ended
December 31, 1997 has been combined with the statement of operations of Voicetek
for the year ended December 31, 1997. Also, the Aspect statement of income for
the three months ended March 31, 1998 has been combined with the statement of
operations of Voicetek for the three months ended March 31, 1998. This method of
combining the companies is only for the presentation of pro forma unaudited
condensed combining financial statements. Actual statements of operations of the
companies will be combined from the effective date of the acquisition, with no
retroactive restatement.
The unaudited pro forma condensed combining financial statements should be read
in conjunction with the historical financial statements of Aspect and Voicetek.
The unaudited pro forma condensed combining statements of operations do not
include the one-time $9.9 million charge for purchased in-process technology
arising from this acquisition, as it is a material nonrecurring charge. This
charge will be included in the actual consolidated statement of income of Aspect
in the second quarter of fiscal 1998.
The following pro forma adjustments have been made to the pro forma condensed
combining financial statements.
(1) Reflects exercise of warrants and conversion of Voicetek preferred stock to
Voicetek common stock.
(2) Reflects cash paid of approximately $72 million and options issued valued
at approximately $11 million to the stockholders of Voicetek.
(3) Reflects payments of Voicetek line of credit, equipment term loan, and note
payable.
(4) Reflects adjustments to conform to Aspect's accounting policies for revenue
recognition, allowance for doubtful accounts, inventory reserves and
certain accrued liabilities.
(5) Reflects the allocation of purchase price to the intangible assets
identified in the purchase price allocation and the related deferred tax.
(6) Reflects the payment and accrual of estimated costs directly attributable
to the completion of the acquisition of approximately $3 million.
(7) Reflects the elimination of Voicetek's shareholders' equity.
(8) Reflects the reversal of valuation reserve related to deferred tax assets
of $5.5 million arising from the estimated future benefit of Voicetek's net
operating loss carryforwards.
(9) Includes the one-time charge of $9.9 million for purchased in-process
technology identified in the purchase price allocation.
(10) Reflects pro forma amortization of the purchased intangibles over the
estimated useful life ranging from four to seven years of $13.1 million for
the year ended December 31, 1997 and $3.3 million for the three months
ended March 31, 1998.
(11) Reflects interest that would not have been earned, offset by interest
expense that would not have been incurred.
(12) Reflects the tax effect of pro forma adjustments at the statutory rate and
the additional tax benefit of Voicetek net operating losses.
(13) Reflects the tax effect of pro forma adjustments at the statutory rate, the
additional tax benefit of Voicetek net operating losses, and the reversal
of Voicetek tax provision.
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(14) Reflects the reversal of Voicetek's accretion of redeemable convertible
preferred stock to redemption value.
F-31
