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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1999
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 47,487,079 at July 31, 1999.
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ASPECT TELECOMMUNICATIONS CORPORATION
INDEX
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Description Page Number
- ------------------------------------------------------------------------------------------------------------- ---------------------
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Cover Page 1
Index 2
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30,
1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 1999 and
1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3: Qualitative and Quantitative Disclosures About Financial Market Risk 14
Part II: Other Information
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 15
Signature 17
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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)
June 30, December 31,
1999 1998
--------------- --------------
<S> <C> <C>
ASSETS (unaudited) **
Current assets:
Cash and cash equivalents $ 71,009 $ 67,071
Short-term investments 132,999 129,040
Accounts receivable, net 91,346 132,818
Inventories 18,085 18,916
Other current assets 24,786 14,820
--------------- --------------
Total current assets 338,225 362,665
Property and equipment, net 70,809 69,192
Intangible assets, net 108,928 119,052
Other assets 10,962 9,750
--------------- --------------
Total assets $ 528,924 $ 560,659
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,674 $ 18,239
Accrued compensation and related benefits 21,590 21,049
Other accrued liabilities 34,048 38,029
Customer deposits and deferred revenue 37,923 27,171
--------------- --------------
Total current liabilities 113,235 104,488
Deferred taxes 2,884 4,270
Convertible subordinated debentures 158,357 153,744
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value:
2,000,000 shares authorized, none outstanding in 1999 and 1998 -- --
Common stock, $.01 par value:
100,000,000 shares authorized, shares outstanding:
47,328,546 in 1999 and 49,309,383 in 1998 125,088 142,132
Accumulated other comprehensive loss (1,336) (420)
Retained earnings 130,696 156,445
--------------- --------------
Total shareholders' equity 254,448 298,157
--------------- --------------
Total liabilities and shareholders' equity $ 528,924 $ 560,659
=============== ==============
** Derived from audited financial statements.
See notes to the condensed consolidated financial statements.
</TABLE>
3
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<CAPTION>
ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data - unaudited)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -------------------------------------
1999 1998 1999 1998
---------------- ----------------- ---------------- -----------------
Net revenues:
<S> <C> <C> <C> <C>
Product $ 64,566 $ 86,654 $ 115,762 $ 163,986
Customer support 47,620 39,437 96,509 75,562
---------------- ----------------- ---------------- -----------------
Total net revenues 112,186 126,091 212,271 239,548
Cost of revenues:
Cost of product revenues 22,044 27,944 39,784 52,316
Cost of customer support revenues 36,498 28,379 72,151 52,549
---------------- ----------------- ---------------- -----------------
Total cost of revenues 58,542 56,323 111,935 104,865
---------------- ----------------- ---------------- -----------------
Gross margin 53,644 69,768 100,336 134,683
Operating expenses:
Research and development 21,916 16,125 41,417 28,955
Selling, general and administrative 49,186 35,617 95,129 66,701
Purchased in-process technology - 9,899 - 9,899
---------------- ----------------- ---------------- -----------------
Total operating expenses 71,102 61,641 136,546 105,555
---------------- ----------------- ---------------- -----------------
Income (loss) from operations (17,458) 8,127 (36,210) 29,128
Interest income (expense), net (355) 1,091 (574) 2,504
---------------- ----------------- ---------------- -----------------
Income (loss) before income taxes (17,813) 9,218 (36,784) 31,632
Income tax (provision) benefit 5,343 (7,529) 11,035 (16,046)
---------------- ----------------- ---------------- -----------------
Net income (loss) $ (12,470) $ 1,689 $ (25,749) $ 15,586
================ ================= ================ =================
Basic earnings (loss) per share ($0.26) $0.03 ($0.53) $0.31
Weighted average shares outstanding 47,634 50,437 48,395 50,292
Diluted earnings (loss) per share ($0.26) $0.03 ($0.53) $0.29
Weighted average shares outstanding-
assuming dilution 47,634 53,584 48,395 53,392
See notes to the condensed consolidated financial statements.
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4
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<CAPTION>
ASPECT TELECOMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
Six Months Ended June 30,
-----------------------------------
1999 1998
-------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ($25,749) $15,586
Reconciliation of net income (loss) to cash provided by
operating activities:
Depreciation and amortization 20,812 13,761
Purchased in-process technology -- 9,899
Noncash interest expense on debentures 4,613 --
Deferred taxes (3,099) 333
Changes in assets and liabilities net of effect of company acquired in 1998:
Accounts receivable 38,192 (15,870)
Inventories (330) 1,356
Other current assets and other assets (8,120) 13,062
Accounts payable 1,518 3,617
Accrued compensation and related benefits 2,021 (2,687)
Accrued intellectual property settlement -- (14,000)
Other accrued liabilities (2,463) (8,861)
Customer deposits and deferred revenue 11,066 8,085
-------------- ---------------
Cash provided by operating activities 38,461 24,281
Cash flows from financing activities:
Repurchase of common stock (21,709) --
Other common stock transactions - net 4,444 5,388
Payment on note payable (1,574) (7,637)
-------------- ---------------
Cash used in financing activities (18,839) (2,249)
Cash flows from investing activities:
Short-term investment purchases (56,542) (82,638)
Short-term investment sales and maturities 52,583 95,442
Property and equipment purchases (12,305) (15,575)
Purchase of company, net of cash acquired -- (71,382)
-------------- ---------------
Cash used in investing activities (16,264) (74,153)
Effect of exchange rate changes on cash and cash equivalents 580 1,650
-------------- ---------------
Increase (decrease) in cash and cash equivalents 3,938 (50,471)
Cash and cash equivalents:
Beginning of period 67,071 106,046
-------------- ---------------
End of period $71,009 $ 55,575
============== ===============
See notes to the condensed consolidated financial statements.
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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 annual financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended June 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's 1998 Annual
Report to Shareholders attached as an appendix to the Proxy Statement for the
1999 Annual Meeting of Shareholders.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
Inventories
Inventories, stated at the lower of cost (first-in, first-out) or market,
consist of (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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<S> <C> <C>
Raw materials $ 7,317 $ 9,494
Work in progress 2,952 4,829
Finished goods 7,816 4,593
------- -------
Total $18,085 $18,916
======= =======
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6
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Per Share Information
Basic earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per share
further includes the dilutive impact of stock options. Basic and diluted
earnings (loss) per share for the three and six months ended June 30 are
calculated as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- -------------------------
1999 1998 1999 1998
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Basic EPS:
Weighted average shares outstanding 47,634 50,437 48,395 50,292
Net income (loss) $ (12,470) $ 1,689 $ (25,749) $15,586
Basic earnings (loss) per share $ (0.26) $ 0.03 $ (0.53) $ 0.31
========= ======= ========= =======
Diluted EPS:
Weighted average shares outstanding 47,634 50,437 48,395 50,292
Dilutive effect of options -- 3,147 -- 3,100
--------- ------- --------- -------
Total 47,634 53,584 48,395 53,392
Net income (loss) $ (12,470) $ 1,689 $ (25,749) $15,586
Diluted earnings (loss) per share $ (0.26) $ 0.03 $ (0.53) $ 0.29
========= ======= ========= =======
</TABLE>
As of June 30, 1999, the Company had approximately 600,000 common stock options
outstanding which could potentially dilute basic earnings per share in the
future, but were excluded from the computation of diluted earnings per share for
the three and six month periods ended June 30, 1999 because inclusion of these
shares would have had an anti-dilutive effect as the Company had a net loss for
those periods. Similarly, the Company had 9.1 million options outstanding that
were excluded from the computation of diluted earnings per share as the exercise
prices were greater than the average market price of the common shares for the
three and six month periods ending June 30, 1999. Additionally, as of June 30,
1999, there were 4.3 million shares of common stock issuable upon conversion of
debentures. These shares and the effect of accrued interest expense on the
debentures was not included in the calculation of diluted earnings per share for
the three and six month periods ended June 30, 1999 because this inclusion would
have been anti-dilutive.
Contingencies
The Company is from time to time involved in litigation or claims that arise in
the normal course of business. The Company does not expect that any current
litigation or claims will have a material adverse effect on the Company's
business, operating results, or financial condition.
Comprehensive Income (Loss)
For the three and six months ended June 30, 1999, comprehensive loss was
$12,228,000 and $26,665,000, respectively. Comprehensive income for the same
periods of the prior year were $2,308,000 and $15,331,000, respectively.
7
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ASPECT TELECOMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive income (loss) represents net income (loss) for these periods
and changes in unrealized gains on securities and accumulated translation
adjustments.
Share Repurchase Program
In October 1998, the Company's Board of Directors approved a stock repurchase
program to acquire up to five million shares of its common stock. In the quarter
ended June 30, 1999, the Company purchased 1,740,000 shares at an average
acquisition price of $6.87 per share. 2,990,000 shares have been repurchased in
the six months ended June 30, 1999 at an average acquisition price of $7.26
per share and a total of 5,000,000 shares have been repurchased under this
program at an average acquisition price of $10.66 per share. The Company
completed the repurchase program in April 1999 and has retired all shares
repurchased.
Shareholder Rights Plan
On May 11, 1999, the Company's Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of
common stock, $0.01 par value, of the Company. The dividend is payable on
May 26, 1999 to shareholders of record as of the close of business on that
date. Each Right entitles the registered holder to purchase from the Company
one-thousandth of a share of Series A Participating Preferred Stock, $0.01 par
value, of the Company, subject to adjustment, at a price of $80.00 per
one-thousandth of a share, subject to adjustment. The description and terms of
the Rights are set forth in a Preferred Shares Rights Agreement dated as of
May 11, 1999 between the Company and BankBoston, N.A. as Rights Agent.
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 1998 Annual Report to Shareholders.
Overview
Aspect Telecommunications Corporation (Aspect or the Company) is a leading
provider of customer relationship management (CRM) solutions that enable
companies in a broad array of industries worldwide to ensure consistent
interactions with their customers. The Aspect(R) Customer Relationship Portal
(a mixed-media customer contact solution that manages customer interactions by
telephone, Web, e-mail and fax) delivers a consistent customer experience
through one virtual place that connects customers with the right enterprise
resources. The Aspect Customer Relationship Portal, along with Aspect Customer
Self-Service, Aspect Customer Interaction and Aspect Customer DataMart, are
essential for a company's complete CRM solution. These integrate with products
from leading front- and back-office vendors and operate on a range of platforms,
including the mission-critical Aspect Telephony Server.
In May 1998, the Company completed the acquisition of Voicetek Corporation
(Voicetek), a leading supplier of interactive voice response (IVR) and
Intelligent Networks (IN) applications, based in Chelmsford, Massachusetts. The
transaction was accounted for as a purchase. The Company paid approximately $72
million in cash for all Voicetek common and preferred shares outstanding and
converted all outstanding Voicetek options into options to purchase
approximately 450,000 shares of Aspect common stock with a fair value of
approximately $11 million plus transaction costs of approximately $3 million,
and assumed certain operating assets and liabilities. The Company recorded a
one-time charge of $10 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 subcomponent, had no alternative future use
was reached in consultation with engineering personnel from both Aspect and
Voicetek.
In August 1998, the Company completed a private placement of approximately $150
million ($490 million principal amount at maturity) of zero coupon convertible
subordinated debentures (convertible subordinated debentures) due 2018. The
convertible subordinated debentures are priced at a yield to maturity of 6% per
annum and are convertible into Aspect common stock anytime prior to maturity at
a conversion rate of 8.713 share per $1,000 principal amount. Holders can
require Aspect to repurchase the debentures on August 10, 2003, August 10, 2008
and August 10, 2013, for cash, or at the election of Aspect, for Aspect common
stock, if certain conditions are met. The debentures are not secured by any
Aspect assets and are subordinated in right of payment to all of Aspect senior
indebtedness and effectively subordinated to the debt of Aspect subsidiaries. On
October 30, 1998, the Company filed a registration statement with the Securities
and Exchange Commission to register the debentures and shares of Aspect common
stock issuable upon conversion for resale. The registration statement was
declared effective on February 2, 1999.
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, Section 21E of the Securities 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. See
"Business Environment and Risk Factors" discussed in the Company's Annual Report
and Form 10-K
9
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ASPECT TELECOMMUNICATIONS CORPORATION
for the fiscal year ended December 31, 1998. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Results of Operations
Net Revenues
Total revenues for the second quarter of 1999 were $112.2 million, representing
a decrease of 11% from $126.1 million for the same period of 1998. Total net
revenues for the first six months of 1999 were $212.3, representing a decrease
of 11% when compared with total net revenues of $239.5 million for the same
period in 1998.
Product revenues for the second quarter of 1999 were $64.6 million, a decrease
of 25% from product revenues of $86.7 million for the second quarter of 1998.
For the first six months of 1999, product revenues were $115.8 million, a
decrease of 29% from $164.0 million in the same period in 1998. The decrease is
primarily due to declines in revenue from sales of new call center systems and
add-ons in the United States, partially offset by revenue associated with
Voicetek which was acquired in May 1998. International product revenues in the
second quarter of 1999 increased 15.1% over the second quarter of the prior
year.
Customer support revenues for the second quarter of 1999 were $47.6 million, an
increase of 21% over support revenues of $39.4 million for the same period of
1998. For the first six months of 1999, customer support revenues were $96.5
million, an increase of 28% from $75.6 million in the same period in 1998.
Growth in customer support revenues resulted primarily from increases in
maintenance revenues as a result of the growth in the Company's installed base,
including the installed base added through acquisitions; and expanded revenue
from consulting and systems integration projects. Customer support revenues
include fees for providing contractually agreed-upon system service and
maintenance (which typically commence twelve months from the date a system is
installed and, accordingly, are primarily affected by growth in the installed
base); installation of products; systems integration revenues; and other support
services.
Gross Margin on Product Revenues
Product gross margin was 65.9% for the second quarter of 1999 compared to 67.8%
for the second quarter of 1998. For the first six months of 1999, product gross
margin was 65.6%, compared with 68.1% for the same period in 1998. The decline
in product gross margin from 1998 to 1999 primarily reflects increased mix of
revenue from third party products included as part of system integration
projects in the most recent quarter (which typically have lower margins) as well
as the increased proportional impact of fixed costs when compared to revenue. On
a forward-looking basis, the Company expects that the following factors, among
others, could have a material impact on product gross margins: the shift in the
Company's business focus to becoming a provider of customer relationship
solutions; variations in the mix and volume of products sold; the channels 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
cross-licensing or royalty arrangements with third parties.
10
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ASPECT TELECOMMUNICATIONS CORPORATION
Gross Margin on Customer Support Revenues
Customer support gross margin was 23.4% for the second quarter of 1999 compared
to 28.0% for the second quarter of 1998. For the first six months of 1999,
customer support gross margin was 25.2%, compared with 30.5% for the same period
in 1998. The decrease in customer support margins between the periods reflects
customer support revenues not growing proportionately with the costs associated
with providing the related services, in particular costs associated with
consulting and systems integration projects. 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 proportionately with customer support
revenues), ongoing efforts to expand the Company's customer support
infrastructure and fluctuations in the level of consulting and systems
integration revenue.
Research and Development Expenses
Research and development (R&D) expenses were $21.9 million for the second
quarter of 1999, an increase of 36% over $16.1 million for the second quarter of
1998. For the first six months of 1999, R&D expenses were $41.4 million, an
increase of 43% over $29.0 million for the same period in 1998. R&D
expenditures reflect the Company's ongoing efforts to remain competitive through
both new product development and expanded features for existing products. The
increases across the periods presented reflect increased staffing costs,
associated infrastructure costs, and the inclusion of Voicetek's R&D expenses in
1999, including amortization costs associated with developed and core technology
intangible assets. As a percentage of net revenues, R&D spending was 19.5% for
the second quarter of 1999 compared to 12.8% for the second quarter of 1998.
Excluding amortization of intangible assets, R&D expenses were $20.9 million for
the second quarter of 1999 and $15.6 million for the same period of 1998. 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 in 1999 will increase in absolute dollars, 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 $49.2 million for the
second quarter of 1999, an increase of 38% over $35.6 million in the second
quarter of 1998. For the first six months of 1999, SG&A expenses were $95.1
million, an increase of 43% over $66.7 million for the same period in 1998. The
increase between these two periods were primarily caused by increased staffing
costs, infrastructure expansion, and increased amortization expenses related to
the acquisition of Voicetek, partially offset by a decline in legal expenses
following the intellectual property settlement. SG&A expenses as a percentage of
net revenues were 44% for the second quarter of 1999 and 28% for the second
quarter of 1998. Excluding amortization of acquired intangible assets, SG&A
expenses were $46.3 million and $33.8 million for the second quarters of 1999
and 1998, respectively. The Company anticipates, on a forward-looking basis,
that SG&A expenses will continue to increase in absolute dollars for 1999, when
compared with 1998, although such expenses as a percentage of net revenues may
fluctuate between periods.
Net Interest Income (Expense)
Net interest expense was $355,000 for the three months ended June 30, 1999
compared to net interest income of $1.1 million for the three months ended June
30, 1998. This decline resulted from interest expense associated with the
issuance of approximately $150 million of convertible subordinated debentures in
August 1998 (approximately $158 million in principal and accrued interest at
June 30, 1999), the utilization of cash associated with the Company's stock
repurchase program and generally lower interest rates earned on invested cash.
11
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ASPECT TELECOMMUNICATIONS CORPORATION
Income Taxes
The Company recorded an income tax benefit at a 30% rate for the three and six
months ended June 30, 1999. Excluding the non-deductible, non-recurring charge
for purchased in-process technology associated with the acquisition of Voicetek,
the Company's effective tax rate was 39.4% for the second quarter of 1998 and
38.6% for the first six months of 1998. The rate in 1999 is lower primarily due
to the non-deductible goodwill amortization from prior years' acquisitions which
reduces the amount of tax benefit that can be recognized in a loss period. The
Company has sufficient prior year taxable income to allow recognition of the tax
benefit.
Liquidity and Capital Resources
At June 30, 1999, the Company's principal source of liquidity consisted of cash,
cash equivalents, and short-term investments totaling $204 million, which
represented 38.6% of total assets. The primary sources of cash for the first six
months of 1999 were cash provided by operating activities of $38.5 million and
proceeds from the issuance of common stock under various stock plans of $4.4
million.
The primary uses of cash for the first six months of 1999 were net purchases of
short-term investments of $4.0 million, $21.7 million used for the stock
repurchase program, $12.3 million for the purchase of property and equipment,
and $1.6 million for payments on a note payable.
At June 30, 1999, the Company's outstanding borrowings, including current
portions of notes payable, totaled $160 million, and comprised $158 million of
convertible subordinated debentures and $1.7 million remaining on a $4.5 million
note payable incurred in connection with the acquisition of TCS in 1995. Payment
of the remaining balance is being delayed pending resolution of various tax
matters relating to periods prior to the Company's acquisition of TCS. The note
payable is included in "other liabilities" in the accompanying balance sheet.
The Company believes, on a forward-looking basis, that its cash, cash
equivalents, short-term investments, and anticipated cash flow from operations
will be sufficient to meet the Company's presently anticipated cash requirements
during at least the next twelve months.
Year 2000 and Proximate Dates
The information provided below constitutes a "Year 2000 Readiness Disclosure"
for purposes of the Year 2000 Readiness Disclosure Act.
Many computer systems are expected to experience problems handling dates around
the year 2000 (Y2K). Described below are the actions we have taken or plan to
take to address the potential problems that could result as systems attempt to
handle dates around the millennium.
State of Readiness: The Company's Y2K activities include the following phases:
gathering data and taking inventory; testing systems and products to discover or
confirm Y2K compliance; execution of remediation activities to fix non-compliant
products and systems; and ongoing monitoring and testing of products and
systems. The major business areas impacted are as follows:
. Products and Installations: The Company believes that substantially all of
the Company's products are Y2K compliant, or that upgrades will be available
shortly to make them Y2K compliant. The Company has contacted customers on
the Y2K status of company products, posted a full Y2K status of products on
the Aspect web site, is visiting customers to install Y2K solutions and has
furnished test facilities and equipment to allow customers to verify
compliance.
. Procurement: The Company has surveyed the Y2K readiness of critical and sole-
source suppliers. The Company is monitoring these critical suppliers and will
continue to follow up with them on their Y2K readiness. Risk assessments and
contingency plans are being prepared for critical suppliers.
12
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ASPECT TELECOMMUNICATIONS CORPORATION
. Manufacturing: Certain of the Company's manufacturing is outsourced to two
primary suppliers and the Company is monitoring their Y2K readiness. The
Company's assembly and test equipment is scheduled for ongoing upgrades to
Y2K compliant configurations through September 1999. The Company's primary
manufacturing application software has been upgraded to a version that has
successfully passed Y2K testing.
. Information Technology Systems: The Company has conducted a survey of its
information technology hardware and software and has a Y2K project team
focusing on testing and remediation of necessary components. The Company
expects that substantially all non-Y2K compliant hardware and software
will be upgraded or replaced by September 1999.
. Facilities and Infrastructure: An assessment of the Y2K readiness of owned
and leased assets was substantially completed in January 1999. The Company is
currently confirming compliance status and upgrading components as necessary.
The Company anticipates that substantially all non-Y2K compliant facilities
components will be upgraded or replaced by September 1999.
Costs: It is expected that the total costs of Y2K compliance efforts will
approximate $10 million, of which an estimated $8 million has been spent to
date. All anticipated costs are based on the Company's current evaluation of the
Y2K activities and are subject to change as activities progress. The estimated
Y2K costs include consultant fees, internal hardware and software upgrade or
replacement costs and internal resources dedicated to identifiable Y2K efforts.
Some of these costs represent the acceleration of costs that would have been
incurred in the normal course of business in future periods. The Company has
adequate funds to pay for the expected costs of Y2K activities.
Risks: The Company believes the most reasonably likely worst case Y2K scenarios
include the following:
. Customers could change their buying patterns in a number of ways, including
accelerating or delaying purchases of, or replacement of, the Company's
products and services.
. The Company could experience a disruption in service to its customers as a
result of the failure of third party products, including the following:
- Third party products which are non-compliant and are incorporated into
the Company's products could cause such products to fail;
- A breakdown in telephone, e-mail, voicemail, Web or file transfer
programs could impact the responsiveness of the Company's help desk;
- Y2K problems at a number of the Company's suppliers including banks,
telephone companies and transport and mail services could have a
pervasive impact on business as a whole; and/or
- Product features that rely on date parameters, such as scheduled
operating procedures and operating reports, could malfunction.
The Company's products may not contain all of the necessary date code or other
changes to operate in the year 2000. OEM and other customers may use our
products in applications or in ways we are unaware, or customers could delay
reacting to our notification of Y2K non compliance so that remediation is not
practical in 1999. Any failure of such products to perform could result in:
. Claims and lawsuits against the Company;
. Significantly impaired customer satisfaction resulting in customers
withholding cash owed to the Company and delaying or canceling orders; and/or
. Managerial and technical resources being diverted away from product
development and other business activities.
13
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
Any of the above stated consequences, in addition to others that management
cannot yet foresee, could have a significant adverse impact on the Company's
business, operating results or financial condition.
Contingency Plans: The Company is currently developing contingency plans for
critical business processes, suppliers, and systems. The Company presently
anticipates that contingency plans will be complete by October 1999. Once
contingency plans are implemented, however, management cannot be certain that
such plans will prevent significant Y2K problems from occurring.
Item 3. Quantitative and Qualitative Disclosures About Financial Market Risk
Reference is made to the information appearing under the caption "Quantitative
and Qualitative Disclosures About Financial Market Risk" on pages F-11 through
F-12 of the Registrant's 1998 Annual Financial Report to Shareholders attached
as an appendix to the Registrant's 1999 Proxy Statement, which information is
hereby incorporated by reference.
14
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On April 29, 1999, the Annual Meeting of Shareholders of Aspect
Telecommunications Corporation was held in San Jose, California.
An election of directors was held with the following individuals being elected
to the Board of Directors of the Company:
James R. Carreker (39,969,047 votes for, 991,113 votes withheld)
Craig A. Conway (39,987,164 votes for, 972,996 votes withheld)
Debra J. Engel (39,985,132 votes for, 975,028 votes withheld)
Norman A. Fogelsong (39,971,806 votes for, 988,354 votes withheld)
John W. Peth (39,969,149 votes for, 991,011 votes withheld)
Other matters voted upon and approved at the meeting, and the number of
affirmative and negative votes cast with respect to each such matter were as
follows:
To approve the adoption of the 1999 Equity Incentive Plan and the reservation of
1,500,00 shares of Common Stock for issuance thereunder (24,709,455 votes in
favor, 16,159,020 votes opposed, 91,685 votes abstaining).
To amend the 1990 Employee Stock Purchase Plan to reserve an additional 500,000
shares of Common Stock for issuance thereunder (38,732,733 votes in favor,
2,183,043 votes opposed, 44,384 votes abstaining).
To ratify the appointment of Deloitte & Touche LLP as the independent auditors
of the Company for the year ending December 31, 1999 (40,795,585 votes in favor,
132,884 votes opposed, 31,691 votes abstaining).
Item 5. Other Information
On July 15, 1999, the Company announced that it plans, subject to shareholder
approval, to change its corporate name to Aspect Communications Corporation from
Aspect Telecommunications Corporation on or about October 1, 1999, to more
closely reflect the nature of its business as a leading provider of customer
relationship management solutions. The Company will retain both its logo and its
Nasdaq market trading symbol ASPT.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 3.3 Certificate of Determination of the Rights, Preferences and
Privileges of the Series A Participating Preferred Stock, dated
May 11, 1999*.
Exhibit 4.4 Preferred Shares Rights Agreement, dated May 11, 1999*.
Exhibit 10.69 Employment Agreement between the Registrant and Eric J. Keller,
dated May 15, 1999.
15
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
* Incorporated by reference to the Registration Statement on Form 8-A filed
with the Securities and Exchange Commission on June 25, 1999.
Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K
No reports on Form 8-K filed during the quarter ended June 30, 1999.
16
<PAGE>
ASPECT TELECOMMUNICATIONS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Aspect Telecommunications Corporation
(Registrant)
Date: August 11, 1999
By /s/ R. Gregory Miller
-------------------------
R. Gregory Miller
Interim Chief Financial and Accounting Officer
(Principal Financial and Accounting Officer)
17
<PAGE>
Exhibit 10.69
May 15, 1999
Eric J. Keller
Sr. VP, Finance & CFO
Dear Eric:
This confirms the agreement reached today between you and Aspect
Telecommunications Corporation (the "Company") regarding your employment with
the Company. Effective June 30, 1999, you will no longer continue to serve as
the Company's Chief Financial Officer and you will transfer over to the position
of Sr. Vice President, Corporate Development. In this role, you will be focused
on developing key strategic relationships for the Company. You will continue to
report to me in this capacity and you will assist me and your successor in the
CFO role in transitioning your CFO responsibilities to your successor. You will
also continue to act as a Trustee of the Company's 401K Savings and Retirement
Plan.
In recognition of an extended period of commitment and responsibilities that
have repeatedly impinged upon your personal time, it is agreed that you will
begin a 90-day paid leave of absence on June 19, 1999, and that other than
having you provide some limited assistance to Aspect around the mid-July
timeframe, you will not be expected to perform duties for the company during
this leave. Your leave will be paid out of your Flexible Time Off accruals
until exhausted and then through special consideration pay by the company. You
will not participate in the Executive Incentive Plan for third quarter 1999
while you are on this paid leave of absence.
It is expected and anticipated that you will return to your position as Sr. Vice
President of Corporate Development at the end of this leave period on September
19, 1999. If, for any reason, you elect not to return to the Company at the end
of this leave, your employment will cease at that time (the" Termination Date").
However, should you decide to return to Aspect and you and the Company determine
that it is in yours and the Company's best interest for you not to return to the
position of Sr. Vice President of Corporate Development or in an equivalent
capacity, you would resign as an officer of the company effective September 19,
1999. Commencing on September 19, 1999 and continuing through and until the
earlier of: (a) February 15, 2000, or (b) the date you accept full time
employment with another company (the "Termination Date"), whichever applies,
Aspect would retain you as a part-time employee in an Executive Advisor role.
During this "Transition Period", you would be available to provide services to
Aspect as requested, not to exceed 40 hours a month. During this Transition
Period, Aspect would provide you a monthly
<PAGE>
salary of $24,500 less all applicable holdings, and any other employee benefits
that you would be eligible to receive with the following exceptions: after
September 19, 1999, you would not be eligible to participate in the accrual of
flexible time off hours and in the Employee Incentive Plan. Your Stock
Options would continue to vest up through the Termination Date.
Please indicate your agreement with the above terms by signing below.
Sincerely,
/s/ JAMES R. CARREKER
- -----------------------------------------------
James R. Carreker
Chairman, President and Chief Executive Officer
I have read, understand and agree to the terms set forth above.
/s/ ERIC J. KELLER May 15, 1999
- ------------------------- -------------------------------
Eric J. Keller Date
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN THE
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<SECURITIES> $132,999
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<OTHER-EXPENSES> $71,102
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<INTEREST-EXPENSE> $(355)
<INCOME-PRETAX> $(17,813)
<INCOME-TAX> $5,343
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