-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N1FykVns9WqkDIja3bgFToe6ArUwEXymztE0Fr82VkvzNraCl9Iz2N5kCNIddL/T qG6thuPa18an1rJOHgubtg== 0000891618-96-002706.txt : 19961115 0000891618-96-002706.hdr.sgml : 19961115 ACCESSION NUMBER: 0000891618-96-002706 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASPECT TELECOMMUNICATIONS CORP CENTRAL INDEX KEY: 0000779390 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 953962471 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18391 FILM NUMBER: 96661054 BUSINESS ADDRESS: STREET 1: 1730 FOX DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084412200 MAIL ADDRESS: STREET 1: 1730 FOX DRIVE CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) /x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended September 30, 1996 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 24,314,678 at October 31, 1996. 2 ASPECT TELECOMMUNICATIONS CORPORATION INDEX
Description Page Number ----------- ----------- Cover Page 1 Index 2 Part I: Financial Information Item 1: Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Income for the Three and Nine Month Periods Ended September 30, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II: Other Information Item 2: Changes in Securities 14 Item 6: Exhibits and Reports on Form 8-K 14 Signature 15
2 3 ASPECT TELECOMMUNICATIONS CORPORATION PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
ASSETS September 30, December 31, 1996 1995 --------- --------- (unaudited) ** Current assets: Cash and cash equivalents $ 31,165 $ 22,102 Short-term investments 76,027 71,531 Accounts receivable, net 47,449 39,291 Inventories 15,541 11,051 Other current assets 9,330 8,699 --------- --------- Total current assets 179,512 152,674 Property and equipment, net 48,017 28,418 Other assets 4,407 3,374 Intangible assets, net 28,609 31,405 --------- --------- Total assets $ 260,545 $ 215,871 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,318 $ 11,142 Accrued compensation and related benefits 9,890 8,427 Other accrued liabilities 23,522 15,242 Customer deposits and deferred revenue 12,664 9,275 --------- --------- Total current liabilities 57,394 44,086 Convertible subordinated debentures 55,000 55,000 Note payable 4,500 4,500 Shareholders' equity: Preferred stock, $.01 par value: 2,000,000 shares authorized, none outstanding in 1996 and 1995 -- -- Common stock, $.01 par value: 100,000,000 shares authorized, 21,334,674 outstanding in 1996; 20,876,461 outstanding in 1995 67,468 62,082 Net unrealized gain (loss) on available-for-sale securities (299) 102 Accumulated translation adjustments (953) (437) Retained earnings 77,435 50,538 --------- --------- Total shareholders' equity 143,651 112,285 --------- --------- Total liabilities and shareholders' equity $ 260,545 $ 215,871 ========= =========
** Derived from audited financial statements. See accompanying notes. 3 4 ASPECT TELECOMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except per share data)
Three Months Ended Nine Months Ended ---------------------- ---------------------- September 30, September 30, 1996 1995 1996 1995 -------- -------- -------- -------- Net revenues: Product $ 59,087 $ 36,971 $163,669 $102,643 Customer support 20,153 12,328 54,582 35,611 -------- -------- -------- -------- Total net revenues 79,240 49,299 218,251 138,254 Cost of revenues: Cost of product revenues 20,142 13,224 54,665 35,971 Cost of customer support revenues 14,873 8,461 39,612 25,025 -------- -------- -------- -------- Total cost of revenues 35,015 21,685 94,277 60,996 -------- -------- -------- -------- Gross margin 44,225 27,614 123,974 77,258 Operating expenses: Research and development 8,791 5,896 24,167 16,657 Selling, general and administrative 21,261 12,631 58,883 35,026 -------- -------- -------- -------- Total operating expenses 30,052 18,527 83,050 51,683 -------- -------- -------- -------- Income from operations 14,173 9,087 40,924 25,575 Interest income, net 480 1,069 1,026 2,012 -------- -------- -------- -------- Income before income taxes 14,653 10,156 41,950 27,587 Provision for income taxes 5,421 3,758 15,521 10,207 -------- -------- -------- -------- Net income $ 9,232 $ 6,398 $ 26,429 $ 17,380 ======== ======== ======== ======== Primary earnings per share: Net income per share $ 0.40 $ 0.29 $ 1.15 $ 0.80 ======== ======== ======== ======== Shares used in per share computations 23,154 21,936 23,076 21,614 ======== ======== ======== ======== Fully diluted earnings per share: Net income per share $ 0.37 $ 0.28 $ 1.06 $ 0.76 ======== ======== ======== ======== Shares used in per share computations 26,283 24,938 26,206 24,818 ======== ======== ======== ========
See accompanying notes. 4 5 ASPECT TELECOMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)
Nine Months Ended September 30, ------------------------------- 1996 1995 -------- -------- Cash flows from operating activities: Net income $ 26,429 $ 17,380 Reconciliation of net income to cash provided by operating activities: Depreciation and amortization 10,644 6,016 Changes in: Accounts receivable (6,792) (7,476) Inventories (4,502) 148 Other current assets and other assets (1,627) 1,472 Accounts payable (767) 53 Accrued compensation and related benefits 1,412 856 Other accrued liabilities 8,138 2,212 Customer deposits and deferred revenue 3,465 (1,455) -------- -------- Cash provided by operating activities 36,400 19,206 Cash flows from financing activities: Common stock transactions 5,376 3,295 -------- -------- Cash provided by financing activities 5,376 3,295 Cash flows from investing activities: Short-term investment purchases (75,457) (67,962) Short-term investment sales and maturities 70,313 47,178 Property and equipment purchases (27,248) (9,268) -------- -------- Cash used in investing activities (32,392) (30,052) Effect of exchange rate changes on cash and cash equivalents (321) (325) -------- -------- Increase (decrease) in cash and cash equivalents 9,063 (7,876) Cash and cash equivalents: Beginning of period 22,102 27,971 -------- -------- End of period $ 31,165 $ 20,095 ======== ========
See accompanying notes. 5 6 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The consolidated financial statements include the accounts of Aspect Telecommunications Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's 1995 Annual Report to Shareholders. Business Combination On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy) by issuing approximately 105,000 shares of common stock for all of the outstanding stock of Envoy. Envoy Systems Limited, the primary operating subsidiary of Envoy, provides call center and telebusiness solutions to help improve customer service through consulting services, software and systems integration. The acquisition was accounted for as a pooling of interests. All financial data for 1996 has been restated to reflect the acquisition of Envoy. As the historical operations of Envoy were not significant to any year presented, the Company's financial statements for prior years have not been restated and the financial effect of the prior years results of operations of Envoy has been accounted for as a $468,000 increase to retained earnings in 1996. Summarized results of operations of the separate companies for the nine months ended September 30, 1996 are as follows (in thousands): Net revenues: Aspect $ 215,613 Envoy 2,638 --------- $ 218,251 ========= Net income (amounts are after tax): Aspect $ 26,646 Envoy 157 Acquisition costs (374) --------- $ 26,429 =========
Per Share Information Per share information for the periods presented is computed using the weighted average number of common and common-equivalent shares outstanding. For primary earnings per share calculations, common-equivalent shares consist of the incremental shares issuable upon the assumed exercise of dilutive stock options using the treasury stock method. 6 7 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For fully diluted earnings per share calculations, common-equivalent shares also include the dilutive effect of incremental shares issuable upon the conversion of the 5% convertible subordinated debentures, and net income is adjusted for the interest expense, net of income taxes, related to the debentures. Inventories Inventories, valued at the lower of cost (first-in, first-out) or market, consist of:
(in thousands) September 30, December 31, 1996 1995 ------------- ------------ Raw materials $ 8,819 $ 7,556 Work-in-progress 614 660 Finished goods 6,108 2,835 ------- ------- Total $15,541 $11,051 ======= =======
Subsequent Events On October 15, 1996, the Company redeemed all $55 million of the convertible subordinated debentures in exchange for approximately 2.8 million shares of the Company's common stock. During 1992, the Board of Directors approved a program to repurchase up to 1,500,000 shares of the Company's common stock from the open market. Through July 31, 1994, 646,000 shares had been repurchased at an aggregate price of $4,934,000 and no shares have been repurchased subsequent to such date. On October 25, 1996, the Company terminated its share repurchase program. On October 21, 1996, the Company acquired Prospect Software, Inc. (Prospect) by issuing 140,000 shares of common stock for all of the outstanding stock of Prospect. Prospect develops high-functionality computer-telephony integration software. The acquisition was accounted for as a pooling of interests. The following unaudited pro forma information has been prepared assuming the acquisition had taken place at the beginning of the period presented and all material transactions between the Company and Prospect during such period have been eliminated: Nine months ended September 30, 1996 (in thousands, except per share data) Net revenues: Consolidated Aspect $ 218,251 Prospect 2,378 Eliminations ($ 475) --------- Combined $ 220,154 =========
7 8 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Net income (amounts are after tax): Consolidated Aspect $ 26,429 Prospect 883 Acquisition costs (86) Eliminations (123) -------- Combined $ 27,103 ======== Fully-diluted earnings per share: Consolidated Aspect $ 1.06 Prospect 0.03 Eliminations (.01) -------- Combined $ 1.08 ========
New Accounting Pronouncement In October 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). This standard, which establishes a fair value based method of accounting for stock-based compensations plans, also permits an election to continue following the requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees" with additional disclosures of pro forma net income and earnings per share under the new method. SFAS 123 is effective for the Company's fiscal year ending December 31, 1996. The Company plans to continue to account for its employee stock plans in accordance with the provisions of APB Opinion No. 25 and provide the additional disclosures required by SFAS 123. Accordingly, SFAS 123 is not expected to have a material impact on the Company's financial position or results of operations. 8 9 ASPECT TELECOMMUNICATIONS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I - -- Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis in the Company's 1995 Annual Report to Shareholders. On October 31, 1995, the Company acquired TCS Management Group, Inc. (TCS), a company engaged in the business of designing, marketing, and supporting software that automates the tasks associated with managing the workforce in a call center, specifically, call forecasting, staff scheduling, and staff performance tracking. The acquisition was accounted for as a purchase. The operating results of TCS have been included in the consolidated statements of income since the date of acquisition. On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy). Envoy Systems Limited, the primary operating subsidiary of Envoy, provides call center and telebusiness solutions to help improve customer service through consulting services, software and systems integration. The acquisition was accounted for as a pooling of interests. All financial results for 1996 have been restated to reflect the acquisition. As the historical operations of Envoy were not significant to any year presented, the Company's financial statements for prior years have not been restated and the financial effect of the prior years results of operations of Envoy has been accounted for as a $468,000 increase to retained earnings in 1996. Subsequent to September 30, 1996, the Company acquired Prospect Software, Inc., a company engaged in developing high-functionality computer-telephony integration software. The acquisition was accounted for as a pooling of interests. The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Specifically, the Company wishes to alert readers that, except for the historical information contained herein, the following discussion constitutes forward-looking statements that are dependent on certain risks and uncertainties which may cause actual results to differ materially from those expressed in these or any other forward-looking statements made by or on behalf of the Company. Such risks and uncertainties are described below, in the Company's 1995 Form 10-K and in the Company's 1995 Annual Report to Shareholders in the section titled "Management's Discussion and Analysis - Risk Factors." The Company's common stock price may be subject to significant volatility. Past financial performance should not be considered a reliable indicator of performance for any future period, and investors should not use historical trends to anticipate future results or trends. For any given quarter, a shortfall in the Company's announced revenue or earnings from the levels expected by securities analysts could have an immediate and adverse effect on the trading price of the Company's common stock. Additionally, the Company may not learn of such shortfalls until late in a fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Further, the Company participates in a very dynamic high technology industry, which could result in significant fluctuations in the Company's common stock price at any time. The Company believes that changes in any of the following areas could have a material adverse affect on the Company's future financial position or results of operations: changes in the overall demand for telecommunications products; technological developments in the call transaction processing market; increased competition; actual or threatened litigation against the Company based on securities, intellectual property or other claims; risks associated with international operations; compliance with regulatory requirements; availability of necessary components and manufacturing licenses; the Company's ability to implement and improve its operational and financial systems; the Company's ability to attract and retain 9 10 ASPECT TELECOMMUNICATIONS CORPORATION employees necessary to support its growth; and acquisition risks, including the Company's ability to integrate the personnel and operations of the acquired companies and retain key employees. For a more detailed description of these risks, see the section titled "Management's Discussion and Analysis - Risk Factors" in the Company's 1995 Annual Report to Shareholders. RESULTS OF OPERATIONS Net Revenues Total net revenues for the third quarter of 1996 were $79 million, representing an increase of 61% over total net revenues of $49 million for the same period in 1995. Total net revenues for the first nine months of 1996 were $218 million, representing an increase of 58% over total net revenues of $138 million for the same period in 1995. Net revenues for the third quarter and first nine months of 1996 include approximately $1.0 million and $2.6 million, respectively, of revenue from Envoy, which was acquired in September 1996 and accounted for as a pooling of interests. Substantially all of the Envoy revenue is customer support revenue. Sales of the Company's products generally involve a cycle of six months or longer from the point of initial customer contact until receipt of the first system order, and there will typically be a period ranging from one to six months from the time an order is initially received to the time the system is installed. The Company generally recognizes revenue from the sale of systems upon installation at the customer site; revenues from add-ons, upgrades, software licenses, and sales to distributors are generally recognized upon shipment to the customer or distributor. Within the context of the above-described sales cycle, both product and customer support revenues for the Company remain dependent upon the overall demand for telecommunications products, which has in the past, and may in the future, fluctuate significantly based on numerous factors, including capital spending practices of customers, market competition, and economic conditions in general. Given the relatively large sales prices of the Company's systems in relation to quarterly revenue levels, a limited number of systems can account for a substantial portion of product revenues in any particular quarter. Moreover, a significant percentage of system revenue continues to be derived from new customers. Revenues and the related gross product margins can be expected to fluctuate due to the mix of products sold, channel of distribution, the portion of revenues from the Federal government, the portion of systems revenues related to accounts purchasing multiple systems and the mix and level of third party product included as part of systems integration projects. Because of these and other factors, the Company could experience significant fluctuations in product and customer support revenues and operating results in future periods. While the Company believes that its products will continue to compare favorably with competitive products, competition may create downward pressure on prices, resulting in lower product margins and operating results. Product revenues for the third quarter of 1996 were $59 million, representing an increase of 60% over product revenues of $37 million for the same period in 1995. Product revenues for the first nine months of 1996 were $164 million, representing an increase of 59% over product revenues of $103 million for the same period in 1995. The increases in product revenues for both periods were primarily attributable to increased demand for the Company's products, as both the volume of new system sales and the volume of add-ons and upgrades increased from the same periods in 1995, and the inclusion of TCS's product revenues in 1996. Average selling prices on new systems remained relatively stable across the periods. Customer support revenues for the third quarter of 1996 were $20 million, representing an increase of 63% over customer support revenues of $12 million for the same period in 1995. Customer support revenues for 10 11 ASPECT TELECOMMUNICATIONS CORPORATION the first nine months of 1996 were $55 million, representing an increase of 53% over customer support revenues of $36 million for the same period in 1995. Net revenues for the third quarter and first nine months of 1996 include approximately $0.9 million and $2.4 million, respectively, of revenue from Envoy, which was acquired in September 1996 and accounted for as a pooling of interests. The increases in customer support revenues for both periods resulted primarily from the growth of the installed base and the inclusion of TCS and Envoy customer support revenues in 1996. Customer support revenues include charges to install products at customer sites, charges for providing contractually agreed-upon ongoing system service and maintenance, which typically commences twelve months from the date a system is first installed, and other support services provided to the Company's customers. Installation revenue will generally follow product revenue fluctuations, although no installation revenue is ordinarily received for product sales to the Company's distributors. Contract support revenues are largely dependent on the renewal of customer support contracts and will be significantly affected by the growth rate of Aspect's installed base. Since most costs associated with providing customer support are fixed, quarterly fluctuations in customer support revenues can have a significant impact on the related customer support gross margin. On July 2, 1996, the Company was awarded a contract by the United States Postal Service (USPS) for automatic call distribution systems and certain call center support services. The contract is valued at up to $20 million by the USPS and is expected to be fulfilled over several years. In July 1996, one of the Company's competitors filed a protest with the USPS against the award of the contract to the Company. On October 25, 1996, the USPS Senior Counsel for Protests and Policy issued a decision that did not disturb the award to the Company. The Company believes the USPS decision resolves the protest and the Company's ability to complete the contract, although there can be no assurance that another party will not seek further review or action regarding the contract. In addition, although the Company has begun initial deliveries under the contract, there can be no assurance that the USPS will issue orders for the remaining systems. Gross Margin on Product Revenues Product gross margin increased to 65.9% for the third quarter of 1996 from 64.2% for the same period in 1995. For the first nine months of 1996, product gross margin increased to 66.6% from 65.0% for the same period in 1995. The increase in product gross margins in both periods reflects the inclusion of TCS's product revenues, which typically carry higher margins than the Company's other product revenues, in 1996 and a lower proportion of revenues from sales to the Internal Revenue Service, which typically have lower than average margins. Product gross margin decreased to 65.9% for the third quarter of 1996 from 67.0% for the first half of 1996 due to higher revenues from sales to the Internal Revenue Service in the third quarter of 1996. On a forward-looking basis, the Company expects that any of the following factors could have a material impact on product gross margins in future quarterly periods: the mix of products sold; the channel of distribution; the portion of revenues from the Federal government; the portion of systems revenues related to accounts purchasing multiple systems; the mix and level of third party product included as part of systems integration projects; and other factors. Gross Margin on Customer Support Revenues Customer support gross margin decreased to 26.2% for the third quarter of 1996 from 31.4% for the same period in 1995. For the first nine months of 1996, customer support gross margin decreased to 27.4% from 29.7% for the same period in 1995. The decrease in customer support margins in both periods reflects customer support revenues not growing proportionately with the costs associated with providing the related services and ongoing efforts to significantly expand the customer support infrastructure, particularly in the United States. On a forward-looking basis, the Company anticipates that its customer support margins will vary from quarter to quarter due to fluctuations in customer support revenues, since most costs associated 11 12 ASPECT TELECOMMUNICATIONS CORPORATION with providing customer support are fixed, and the expansion of its customer support infrastructure. In the fourth quarter of 1996, the Company plans to establish an additional domestic customer operations support center that will further increase support costs. Research and Development Expenses Research and development ("R&D") expenses were $9 million for the third quarter of 1996, representing an increase of 49% over R&D expenses of $6 million for the same period in 1995. R&D expenses were $24 million for the first nine months of the year, representing an increase of 45% over R&D expenses of $17 million for the same period in 1995. The increases in R&D expenses for both periods were primarily attributable to increases in labor and infrastructure costs, as well as the inclusion of TCS's R&D expenses in 1996. As a percentage of net revenues, R&D spending was 11% for both the third quarter and first nine months of 1996 compared to 12% for the same periods in 1995. The Company continues to believe that significant investment in research and development is required to remain competitive and anticipates, on a forward-looking basis, that such expenses will increase in terms of absolute dollars for 1996 as a whole, when compared to 1995, although such expenses as a percentage of net revenues may fluctuate on a quarterly basis. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses were $21 million for the third quarter of 1996, representing an increase of 68% over SG&A expenses of $13 million for the same period in 1995. SG&A expenses were $59 million for the first nine months of 1996, representing an increase of 68% over SG&A expenses of $35 million for the same period in 1995. The increases in SG&A expenses for both periods were primarily related to increased labor costs, the expansion of the Company's operations, the inclusion of TCS's SG&A expenses in 1996, and the amortization of intangible assets related to the TCS acquisition. As a percentage of net revenues, SG&A was 27% for both the third quarter and first nine months of 1996 compared to 26% and 25% for the same periods in 1995, respectively. SG&A expenses for the third quarter of 1996 include approximately $600,000 for transaction related expenses associated with the Envoy acquisition. The Company is currently in the process of implementing a new internal integrated business application software program and, during the second quarter of 1996, began using such software as its principal business application software for its domestic operations. There can be no assurance that complications will not arise from the software system transition, resulting in substantial, unanticipated expenses. The Company anticipates, on a forward-looking basis, that SG&A expenses will increase in terms of absolute dollars for 1996 as a whole, when compared to 1995, although such expenses as a percentage of net revenues may fluctuate on a quarterly basis. Net Interest Income Net interest income (interest income, net of interest expense) was $0.5 million for the third quarter of 1996, representing a decrease of 55% over net interest income of $1.1 million for the same period in 1995. Net interest income was $1 million for the first nine months of 1996, representing a decrease of 49% over net interest income of $2 million for the same period in 1995. The decreases in net interest income for both periods were primarily due to lower interest earning balances and interest expense on the note payable incurred in connection with the TCS acquisition. On a forward-looking basis, the Company anticipates that net interest income will increase in the near term as a result of the redemption of the $55 million of convertible subordinated debentures on October 15, 1996 (see "Liquidity and Capital Resources"). 12 13 ASPECT TELECOMMUNICATIONS CORPORATION Income Taxes The Company's effective income tax rate was 37% for the third quarter and first nine months of 1996 and the comparable periods in 1995. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1996, the Company's principal source of liquidity consisted of cash, cash equivalents, and short-term investments totaling $107 million, which represented 41% of total assets. The primary sources of cash during the first nine months of 1996 consisted of cash provided by operating activities of $36 million and proceeds from the issuance of common stock under various stock plans of $5 million. The primary uses of cash during the first nine months of 1996 consisted of $5 million for net purchases of short-term investments and $27 million for purchases of property and equipment, including $10.5 million for the acquisition of a 98,000 square-foot building and approximately ten acres of land. As of September 30, 1996, the Company's outstanding borrowings consisted of $55 million of convertible subordinated debentures and a $4.5 million note payable incurred in connection with the acquisition of TCS (see Notes 7 and 2, respectively, to the Company's 1995 Consolidated Financial Statements). On October 15, 1996, the Company redeemed all $55 million of the convertible subordinated debentures in exchange for approximately 2.8 million shares of the Company's common stock. During 1992, the Board of Directors approved a program to repurchase up to 1,500,000 shares of the Company's common stock from the open market. Through July 31, 1994, 646,000 shares had been repurchased at an aggregate price of $4,934,000 and no shares have been repurchased subsequent to such date. On October 25, 1996, the Company terminated its share repurchase program. The Company believes, on a forward-looking basis, that its cash, cash equivalents, and short-term investments and anticipated cash flow from operations will be sufficient to meet the Company's presently anticipated cash requirements during at least the next twelve months. 13 14 ASPECT TELECOMMUNICATIONS CORPORATION Part II: Other Information ITEM 2. CHANGES IN SECURITIES On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy) by issuing 105,418 shares of the Company's common stock to the shareholders of Envoy in exchange for all of the outstanding capital stock of Envoy held by the shareholders of Envoy. On October 21, 1996, the Company acquired Prospect Software, Inc. (Prospect) by issuing 140,000 shares of the Company's common stock to the shareholders of Prospect following the merger of a wholly-owned subsidiary of the Company with and into Prospect. The sales of the above securities were deemed to be exempt from registration under the Securities Act of 1933, as amended (the Act), in reliance on Section 4(2) of the Act as transactions by an issuer not involving a public offering. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were attached to the share certificates issued in such transactions. All recipients had adequate access to information about the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS Exhibit 11.1 Statement re: Computation of Earnings Per Share Exhibit 27 Financial Data Schedule B. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1996. 14 15 ASPECT TELECOMMUNICATIONS CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aspect Telecommunications Corporation (Registrant) Date: November 13, 1996 By /s/ Eric J. Keller --------------------------------------------------- Eric J. Keller Vice President, Finance and Chief Financial Officer (Duly Authorized and Principal Financial and Accounting Officer) 15 16 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 11.1 Statement re: Computation of Earnings per Share 27 Financial Data Schedule EX-11.1 2 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 ASPECT TELECOMMUNICATIONS CORPORATION Exhibit 11.1: Statement Re: Computation of Earnings per Share (in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1996 1995 1996 1995 ------- ------- ------- ------- Primary: Weighted average common shares outstanding during the period 21,302 20,751 21,197 20,601 Common share equivalents: Dilutive effect of stock options 1,852 1,185 1,879 1,013 ------- ------- ------- ------- Total 23,154 21,936 23,076 21,614 ======= ======= ======= ======= Net income $ 9,232 $ 6,398 $26,429 $17,380 ======= ======= ======= ======= Primary earnings per share $ 0.40 $ 0.29 $ 1.15 $ 0.80 ======= ======= ======= =======
2 ASPECT TELECOMMUNICATIONS CORPORATION Exhibit 11.1 (continued): Statement Re: Computation of Earnings Per Share (in thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1996 1995 1996 1995 ------- ------- ------- ------- Fully Diluted: Weighted average common shares outstanding during the period 21,302 20,751 21,197 20,601 Common share equivalents: Dilutive effect of stock options 2,151 1,357 2,179 1,387 Weighted average shares issuable upon assumed conversion of debt 2,830 2,830 2,830 2,830 ------- ------- ------- ------- Total 26,283 24,938 26,206 24,818 ======= ======= ======= ======= Earnings: Net income $ 9,232 $ 6,398 $26,429 $17,380 Interest expense during the period on convertible subordinated debentures, net of tax 461 465 1,383 1,380 ------- ------- ------- ------- Net income adjusted for fully diluted calculation $ 9,693 $ 6,863 $27,812 $18,760 ======= ======= ======= ======= Fully diluted earnings per share $ 0.37 $ 0.28 $ 1.06 $ 0.76 ======= ======= ======= =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 31,165 76,027 48,274 825 15,541 179,512 88,947 40,930 260,545 57,394 59,500 0 0 67,468 76,183 260,545 163,669 218,251 54,665 94,277 83,050 0 2,576 41,950 15,521 26,429 0 0 0 26,429 1.15 1.06
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