-----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, AWx6y4eTH5CfW++ZOk22uDvjfxo3KighRWJXnq0/AySO8Khlq6khj6ggfbc5IeDZ 5I5fdLg02BrLRUSPctoNXw== 0000891618-97-001476.txt : 19970329 0000891618-97-001476.hdr.sgml : 19970329 ACCESSION NUMBER: 0000891618-97-001476 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18391 FILM NUMBER: 97567982 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-K405 1 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (Mark One) [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] 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 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 3, 1997, was $912,344,136 based upon the last sale price reported for such date on the Nasdaq Stock Market. For purposes of this disclosure, shares of Common Stock held by persons known to the Registrant (based on information provided by such persons and/or the most recent schedule 13G's filed by such persons) to beneficially own more than 5% of the Registrant's Common Stock and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily a conclusive determination for other purposes. The number of shares of the Registrant's Common Stock outstanding as of March 3, 1997 was 48,943,475. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1996 Annual Report to Shareholders and Proxy Statement for the Annual Meeting of Shareholders of Aspect Telecommunications Corporation ("the Proxy Statement") scheduled to be held on April 29, 1997, are incorporated by reference in Parts I, II, III, and IV of the Report on Form 10-K. 2 ASPECT TELECOMMUNICATIONS CORPORATION PART I ITEM 1. BUSINESS Aspect Telecommunications Corporation (the Company) is a global provider of comprehensive business solutions for companies with mission-critical call centers that exist to generate revenue, service customers, and handle inquiries. The Company's products include automatic call distributors, interactive response systems, management information and reporting tools, computer-telephony integration (CTI) technology, and call center planning and forecasting packages. The Company also provides services vital to call center environments, including business applications consulting, systems integration, and training. In 1996, the Company completed two acquisitions: Envoy Holdings Limited (Envoy) on September 30, 1996 and Prospect Software, Inc. (Prospect) on October 21, 1996. Envoy provides call center and telebusiness solutions designed to improve customer service through consulting services, software, and systems integration. Prospect is a provider of application development tools for building connectivity to a variety of call center systems and network-based computer applications. Both acquisitions were accounted for as pooling of interests and all financial results for 1996 reflect the acquisitions. As the historical operations of Envoy and Prospect were not significant to any year presented, the Company's financial statements for prior years have not been restated and the financial effects of the prior years' results of operations for both acquired companies have been accounted for as increases to retained earnings in 1996. 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. The acquisition was accounted for as a purchase and the operating results of TCS have been included in the consolidated statements of income since the date of acquisition. On December 20, 1996, the Company announced that its Board of Directors approved a two-for-one stock split effective January 28, 1997 for shareholders of record as of January 6, 1997. All share and per share amounts and share prices in this Annual Report on Form 10-K reflect the stock split. 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 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding the Company's expectations, beliefs, intentions, or future strategies, which 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 and in the section titled "Risk Factors" in the 1996 Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. As noted above, the Company has acquired three companies since October 1995: TCS, Envoy, and Prospect. During the same period, the Company made minority equity investments in companies with products, services, or technologies that potentially complement Aspect's business. In the future, the Company may make further strategic acquisitions and investments or enter into joint ventures or strategic alliances with other companies. Such transactions entail numerous risks, including the following: inability to successfully integrate such companies' personnel and businesses; inability to realize anticipated synergies, economies of scale, or other value associated with such transactions; diversion of management's attention and disruption of the Company's ongoing business; inability to retain key technical and managerial personnel; inability to establish and maintain uniform standards, controls, procedures, and policies; and impairment of relationships with employees and customers as a result of the integration of new personnel. In addition, future acquisitions or investments by the Company may result in the issuance of additional equity or debt securities, significant one-time write-offs, and the creation of goodwill or other 1 3 ASPECT TELECOMMUNICATIONS CORPORATION intangible assets. Failure to avoid these or other risks associated with such business combinations, investments, joint ventures, or strategic alliances could have a material adverse effect on the Company's business, operating results, and financial condition. The Company has experienced a period of rapid growth that has placed a significant strain on the Company's managerial and operational resources. To manage its growth, the Company must continue to implement and improve its operational and financial systems and to expand, train, and manage its employee base. For example, the Company recently implemented, and in the future may implement additional versions of, a new internal integrated business application software system. There can be no assurance that complications will not arise from this software system transition, resulting in substantial unanticipated expenses. An additional challenge created by the Company's rapid growth is in hiring, assimilating, training, and retaining a large number of employees in a labor market characterized by a high demand for and limited supply of qualified people. In addition, the Company must carefully maintain inventories at levels consistent with product demand and the requirements of new product introductions. Inaccuracies in demand forecasts could quickly result in either insufficient or excessive inventories and obsolescence expense. INDUSTRY BACKGROUND Many companies recognize that excellent customer service can be employed as a competitive advantage to differentiate their firms from competitors and gain market share. As a result, customer service has received greater prominence and resources in a wide variety of manufacturing and service industries. In addition to seeking improved overall responsiveness to customer needs, certain companies have recognized the benefits of market segmentation by introducing premium service marketing programs, which provide a prioritized level of service for their most valued customers. In many cases, companies attempt to differentiate themselves from their competitors by providing superior customer service by telephone. The opportunity for conducting business over the telephone has risen in recent years, reflecting telecommunications deregulation which has reduced the cost of using the telephone as a business tool. Many companies have established telephone sales and support centers staffed with employees who handle the thousands of calls that may be received each day. This demand for handling customer transactions by telephone has created a market for intelligent call control and management systems that process large volumes of transactions. Aspect has coined the term "call transaction processing" to describe the market for these application-specific telecommunications systems and to distinguish it from the more established markets of general connectivity (such as private branch exchange, or PBX, and key systems) and office automation telecommunications products (such as facsimile machines and voice messaging systems). The Company believes that the call transaction processing market is characterized by mission-critical applications and value-oriented relationships between vendors and customers. Increased emphasis on customer service by a wide variety of manufacturing and service companies has led to a growing number of call transaction processing applications in such diverse industries as computer software and systems, financial services, insurance, travel and entertainment, retail catalog sales, office products, consumer products, public utilities, publishing and health care. The Company's primary product, the Aspect CallCenter(R) system, is an automatic call distributor, or ACD, designed specifically for call transaction processing applications. The Aspect CallCenter system is designed to provide benefits in four key areas: intelligent call management, staff productivity, management information, and system availability. INTELLIGENT CALL MANAGEMENT 2 4 ASPECT TELECOMMUNICATIONS CORPORATION Aspect's approach offers intelligent call management designed to allow system managers to attain desired service levels by utilizing advanced system features rather than by adding telephone lines and staff. This is accomplished through the application of call processing, voice processing, and data processing capabilities of the Aspect CallCenter system. The Company has implemented an advanced software approach to process incoming calls according to a predetermined set of procedures. The Aspect CallCenter can support a peak call rate of 100,000 call completions per hour and a sustained rate of 50,000 call completions per hour. The Company believes that the Aspect CallCenter offers highly flexible call processing and voice processing capabilities. The ability to dynamically change the routing of calls based on current conditions (for example, longest call waiting) or the combining of agent groups into supergroups are designed to ensure that calls are handled efficiently. In addition, the Company believes that its implementation of voice processing capabilities such as recording and queuing call-back requests from callers are superior to those of competitors. The Aspect CallCenter delivers these integrated capabilities while continuing to provide detailed records and management information. An important element in the Company's delivery of call transaction processing is the optional Application Bridge(R). This capability allows the Aspect CallCenter system to communicate in real time directly with any of a variety of customer data processing systems using CTI technology so that these customers can use their existing databases to control the handling of telephone calls in inbound call centers. Synchronized screen management is designed to improve the coordination of an agent's call handling, reduce holding time, and thus provide cost savings. Approximately two-thirds of Aspect CallCenter systems shipped include the Application Bridge option for CTI applications. In addition, Prospect develops and markets CTI software designed to enable rapid development of CTI applications, including screen synchronization ("screen pop"), coordinated voice and data transfer, and intelligent routing. In typical call centers, such applications are designed to provide enhanced agent productivity and improved customer service. STAFF PRODUCTIVITY In addition to intelligent call management, the Aspect CallCenter system offers features designed to assist employees and increase productivity at the customer's telephone sales or support center. These features are implemented in part through the Aspect TeleSet(R), a special-purpose telephone set used by staff members to answer or place calls, and through the Aspect TeleCaster(R), a wall-mounted visual display providing at-a-glance system or group status information. In addition, the Aspect WinSet(TM) for Windows brings the power of the Aspect TeleSet into the PC and allows call centers to utilize agents in remote locations. In addition, TCS develops and markets software designed to enhance agent productivity and resource allocation through forecasting, scheduling, and tracking modules. MANAGEMENT INFORMATION The Aspect CallCenter system offers several management information features, including summary and detailed views of calling volumes, call handling efficiencies, trends and other information about each business application. Such information is also available through a graphical custom reporting capability that allows customers to manipulate call center data in a spreadsheet environment. In addition, the CustomView(R) family of desktop applications provides real-time views for call center operations management and strategic reports for call center and enterprise business decisions. SYSTEM AVAILABILITY The Aspect CallCenter system contains a number of features designed to achieve high system availability or uptime, such as common control redundancy, which reduces the risk of downtime due to component failure. Available with 3 5 ASPECT TELECOMMUNICATIONS CORPORATION all redundant Aspect CallCenter systems is Continuous Performance Manager, which is designed to ensure that no connected calls are dropped when either the backup controller assumes system operation or when the system operation is returned to the primary controller. Each Aspect CallCenter system is equipped with a modem and software that enable the Company's support center to connect directly with a customer site, designed to result in the early detection of potential problems and reduction of repair time. In addition, trunk bypass capabilities support direct connection of incoming trunks to the Aspect TeleSet. PRODUCTS The Company's primary product, the Aspect CallCenter system, is an automatic call distributor, or ACD, designed specifically for call transaction processing applications. The specific needs of each of the Company's customers are met by selecting a basic system from one of nine standard models and then adding the appropriate interface cards and related equipment. If the customer's application requires a data connection to its data processing system, the Application Bridge option may be added. Other options may be added, such as the hardware and software to receive calling number Automatic Number Identification, or ANI, from the public telephone network or software packages to forecast staffing needs or to customize reports. Other products include a variety of interface cards, the Aspect TeleSet, the Aspect TeleCaster, Remote StaffCenter(TM), Application Bridge, EnterpriseAccess, Agility(TM), Network InterQueue(TM), Aspect WinSet for Windows, and a family of PC client applications - CustomView Producer, CustomView Director, CustomView Editor, CustomView ReportWriter and CustomView ReportRunner. Interface cards are employed to enhance the general connectivity for both analog and digital connections to Aspect TeleSets. Integrated Services Digital Network, or ISDN, and the international equivalents, handle the signaling, control, and transmission of telephone calls and data over a single telephone line, and offer other features, including ANI, that can enhance the efficiency and effectiveness with which data is collected and used. The Aspect TeleSet, a high-performance telephone instrument, allows an individual staff person to handle hundreds of telephone calls per day. Supervisory workstations and system management consoles are available. The Aspect TeleCaster wall-mounted visual display broadcasts current performance information to telephone support staff. The Remote StaffCenter extends the physical connection to Aspect TeleSets and supports remote clusters of agents and supervisors, providing customers with greater organizational flexibility. The Application Bridge combines communications hardware and software to allow the Aspect CallCenter system to communicate in real time directly with a company's data processing systems. Optional packages are available to allow Application Bridge to interface with industry-standard minicomputer and mainframe computing environments. EnterpriseAccess uses an SQL-based client/server model for real-time and historical data access. The server technologies are RealTime Bridge and DataBase Bridge. RealTime Bridge provides enterprise-wide access to information about events in progress in the Aspect CallCenter. DataBase Bridge provides enterprise-wide access to historical information stored in the relational database of the Aspect CallCenter. Agility automates call center transactions and processes by complementing call center agents with software agent technology. Agility is designed to broaden the role call centers play inside the corporation and expand the ways in which companies may interact with their customers by giving customers broader options for accessing a variety of company resources and easier access to information that resides on corporate networks. By integrating within the Aspect CallCenter, Agility leverages the call center and data infrastructure that is already in place with software agents called ActionAgents(TM). ActionAgents are software resources that automatically execute a variety of tasks and interface intelligently with a wide range of devices, including telephones, fax machines, electronic mail, Aspect TeleSets, computer applications, databases, and other telecommunications systems. 4 6 ASPECT TELECOMMUNICATIONS CORPORATION Network InterQueue is designed to allow multiple Aspect CallCenters in different geographic locations to be networked and operated as a single site. This system is designed for companies who have distributed their call centers to take advantage of the benefits different locations offer. With Network InterQueue, customers can simultaneously queue a single incoming call on a number of Aspect CallCenters, agent groups, and supergroups, as well as at the originating call center. Because callers can be routed to the first available agent across multiple sites and agent groups, geographically dispersed resources can be applied to meet sales and customer service goals. Aspect WinSet for Windows is a telephony-empowered personal computer application designed to increase agent productivity and to deliver Anywhere Agent capabilities. Aspect WinSet merges telephony and PC functions onto a single platform, eliminating the need for agents to move between their telephone and PC to take calls, handle business transactions, view information, communicate with their supervisors, and work with other business applications. Aspect WinSet is also designed to enable companies to tap into previously inaccessible labor pools, including part-time workers, disabled workers, and telecommuters by locating agents and supervisors at remote sites. This Anywhere Agent capability provides a powerful solution for linking small branch offices and dispersed sites within campus environments to the Aspect CallCenter. The CustomView PC family of client applications, based on Microsoft Windows, lets users access call data collected on the Aspect CallCenter to create customized, full-color graphical and tabular reports of real-time and historical information. TCS products include the TeleCenter system, which is designed to enhance agent resource allocation and productivity. The TeleCenter system includes modules for forecasting, scheduling, and tracking agent resources. It also includes agent productivity, real-time adherence, and networking modules which connect to call centers. In 1996, the Company established the Aspect Consulting and Systems Integration (C&SI) business unit and acquired a leading London-based C&SI operation, Envoy Holdings Limited. Aspect's C&SI revenues are dependent on the Company's ability to obtain contracts for suitable projects and successfully complete these projects. During 1996, the Company also established a new software business unit in the rapidly expanding field of call center CTI technology and acquired Prospect Software, Inc., a leading supplier of CTI middleware. For further information on the Envoy Holdings Limited and Prospect Software, Inc. acquisitions and the related acquisition risks, see Part I, Item 1. "Business." Prospect products include CTI Server software and CTI Application Development Tools. CTI Server software delivers the CTI/ACD connectivity and message routing necessary to support a variety of LAN- or WAN-based CTI applications. It supports multiple ACD types within a multiplatform client/server environment. The CTI Application Development Tools include tools used to develop CTI client applications. SALES AND MARKETING The Company sells its systems on a direct basis in major metropolitan markets in the United States and through its subsidiaries in the United Kingdom, the Netherlands, Germany and Belgium. In addition, the Company has an agreement under which PTT Telecom sells, installs, and supports Aspect CallCenter systems throughout the Netherlands. Siemens AG Private Communication Systems ("Siemens") has a non-exclusive agreement with the Company for distribution in Germany and certain other locations. Norstan, Inc., distributes the Company's products in 11 midwestern and western states in the United States and throughout Canada. The Company is currently investing, and plans to continue to invest, significant resources to expand its domestic and international direct sales force and develop distribution relationships with certain third-party distributors. Any failure by the Company to maintain or expand its direct sales force or other distribution channels would materially adversely affect the Company's business, operating results, and financial condition. 5 7 ASPECT TELECOMMUNICATIONS CORPORATION The Company currently operates in several international markets and anticipates entering additional markets in the future. The financial resources required to enter a new international market may vary substantially among markets based upon, among other factors, the market's regulatory environment, the Company's expansion strategy in the market, and the level of acceptance of the Company's products in that market. Many countries require multiple governmental approvals prior to allowing a new entrant into the market. The cost and timing of these approvals, which may require the Company to modify its products, are often subject to considerable uncertainty and could result in longer lead times than initially anticipated. The Company's international operations are subject to additional risks, including exchange rate fluctuations; delays in telecommunications deregulation; difficulties in staffing and managing foreign subsidiary operations; political and economic instability; potentially negative tax consequences; and foreign and domestic trade legislation, which could result in the creation of trade barriers such as tariffs, duties, quotas, and other restrictions. Failure to successfully enter certain international markets on a timely basis could impair the Company's competitive position in such markets and prevent the Company from obtaining the scale advantages of global competitors. The Company's customers generally purchase the Aspect CallCenter system outright or place the system on a third-party full-payout lease. Aspect's standard terms of payment, regardless of whether the customer is using a third-party lease, include a deposit at the time of placing the order, a progress payment at delivery, and a final payment after installation. 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. The Company's revenues, gross margins, and operating results may fluctuate significantly from quarter to quarter for many reasons including, without limitation, the following: (1) 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 significant portion of product revenues in any particular quarter; (2) a significant percentage of product revenues continues to be derived from new customers; (3) the portion of product revenues related to accounts purchasing multiple systems may fluctuate; (4) the mix of products and services sold and channels of distribution may fluctuate; (5) operating results of newly acquired subsidiaries may fluctuate; and (6) the Company's newly established business units (e.g., C&SI and CTI) may require substantial investments, while revenues from such business units may be difficult to predict. The Company's products typically represent substantial capital commitments by Aspect's customers involving a long sales cycle and, as a result, customer purchase decisions have been, and in the future may be, significantly affected by a variety of factors including, without limitation, the following: general economic conditions; world political events; trends in capital spending, particularly for telecommunications products; market competition and the availability or announcement of alternative technologies; and the degree to which call transaction processing is mission critical for customers. Reduced demand for the Company's products could have a material adverse effect on the Company's business, operating results, and financial condition. The average selling price for the Aspect CallCenter system is approximately $400,000, and prices range from approximately $100,000 to approximately $2.5 million for fully configured systems, depending on system size and optional features. PRODUCT SUPPORT The Company installs, maintains and supports systems sold directly in the United States with the Company's own full-time employees or qualified third parties in selected cities. Although the Company anticipates that some customers may elect to maintain their own systems in the future, substantially all direct U.S. customers currently have support contracts with the Company. The Company subcontracts some field support for certain of the 6 8 ASPECT TELECOMMUNICATIONS CORPORATION Company's customers to Norstan and other third parties in several U.S. cities. The Company expects to expand support coverage to additional cities, primarily through the addition of direct field support employees. In international markets, customers receive support directly from Aspect, from distributors or from certain third parties. The Company has established Customer Operations Support Centers based in San Jose, California; Atlanta, Georgia; London, England; and Amsterdam, The Netherlands. The purchase price of a system typically includes an initial 12-month support and warranty period (warranty only in international markets), which begins at the installation date. Subsequent support (initial support in international markets) is provided to the Company's direct customers under a contractual support agreement, and pricing for such support is typically defined in a support schedule signed at the time the purchase order is executed. PRODUCT DEVELOPMENT The Company has a continuing program of product development directed toward the enhancement of existing products based upon current and anticipated customer needs. The Company's research and product development efforts also emphasize introduction of new products to broaden the Company's product line and to reach a larger segment of the call transaction processing market. During 1996, 1995, and 1994 the Company invested approximately $34,600,000, $25,300,000, and $15,800,000, respectively, in research and development. The Company believes that a significant commitment of financial resources and talent will be necessary to maintain and increase its competitive position in the years ahead, and expects to increase its total spending for research and development in 1997. The Company employed approximately 220 persons in various product development capacities as of December 31, 1996. The Company believes that a significant competitive benefit in its current and future products is provided through applications software. In addition, the Company has adopted a policy of licensing general purpose software, such as operating systems, relational databases, application-specific software, and electronic workforce technology, and therefore is able to focus its own software development on call transaction processing applications. The Company works closely with its vendors to achieve functional integration between purchased subsystems and internally developed software and hardware. Due to the complexity and sophistication of the Company's software products, the Company's products from time to time contain defects that can be difficult to correct. There can be no assurance that software defects will not cause delays in product introductions and shipments, result in increased costs, require design modifications, or impair customer satisfaction with the Company's products. Any such event could materially adversely affect the Company's business, operating results, and financial condition. The Company's products are subject to various regulations that require, among other things, that the Company's products meet certain radio frequency emission standards, be compatible with the public telephone networks, and conform to certain safety and other standards. Sales of products that fail to comply with these regulations may be prohibited by regulatory authorities until appropriate modifications are made. There can be no assurance that the Company will be successful in obtaining or maintaining the necessary regulatory approvals for its products, and its failure to do so could have a material adverse effect on the Company's business, operating results, and financial condition. MANUFACTURING The Company's manufacturing operations consist primarily of final assembly and test of materials, components, subassemblies and systems, together with related quality management processes. The Company presently uses third parties to perform various levels of product assembly. The Company believes that its approach to system design has allowed flexibility in the manufacturing process and has allowed the Company to satisfy a wide variety of customer configuration requirements, while achieving high quality and reasonable lead times. To date, customer returns of the Company's products have not been material. 7 9 ASPECT TELECOMMUNICATIONS CORPORATION The Company orders materials with differing lead times, generally 30 to 120 days ahead of required date of delivery to the Company. Because this is a longer timeframe than the average customer order to shipment cycle, the Company acquires materials and builds standard assemblies based on forecasted production requirements. Upon receipt of firm orders from customers, the Company assembles fully-configured systems and subjects them to a number of tests before shipment. The Company's manufacturing procedures are designed to assure rapid response to customer orders, but create a risk of excess or inadequate inventory when orders do not match forecasts. Although the Company primarily uses standard parts and components in its products, certain components, including certain central processing units, other integrated circuits, and circuit cards, are presently available only from a single source or from limited sources of supply. The inability of the Company to develop alternative sources if and as required in the future, or to obtain sufficient sole or limited source components as required, could have a material adverse effect on the Company's business, operating results, and financial condition. In addition, there can be no assurance that manufacturers of component parts used by the Company will not modify their products in a manner incompatible with the Company's use of such products. The Company currently manufactures certain components incorporated into its products pursuant to engineering and manufacturing licenses from third parties. The Company depends upon the licensors' abilities to provide certain technical support and cooperation in optimizing the Company's use of the licensed technologies. Should any of the licensors become unable to provide such technical support, the Company would have to develop internal capabilities or otherwise locate alternative technical support. This in turn could adversely affect the Company's ability to complete timely shipments during the transition. If, due to a breach of a license agreement or otherwise, the Company becomes unable to continue to utilize the applicable licensed technology, the Company's business, operating results, and financial condition could be materially adversely affected. COMPETITION The Company believes the market for its products is highly competitive and that competition is likely to intensify. The Company's principal competitors currently include companies that market automatic call distributor (ACD) systems and companies that market private branch exchange systems that include ACD features. The Company's current competitors include, but are not limited to, Lucent Technologies Inc. (previously a unit of AT&T Corp.); Northern Telecom Limited (Nortel); Siemens Business Communication Systems, Inc.; Rockwell International Corporation; Alcatel Alsthom; L.M. Ericsson; and N.V. Philips. The Company anticipates that the regional Bell operating companies and other telephone operating companies could market ACD functionality through equipment located in the telephone operating company's central office rather than on customers' premises. Additional potential competitors include companies with technologies capable of providing mission-critical call transaction processing capabilities, including participants in the problem tracking and resolution client/server software market, pre-network routing companies, and a wide variety of CTI software companies. As the hardware requirements for a traditional call center diminish due to the emergence of the Internet, local area networks, and other factors, other companies may obtain a significant position in the call transaction processing market. Many of Aspect's current competitors have longer operating histories; considerably greater financial, technical, sales, and marketing resources; and larger installed customer bases than Aspect. Moreover, Lucent Technologies, the largest provider of call center products and services, may emerge as a more focused, aggressive competitor following its recent divestiture from AT&T. Consequently, the Company expects to encounter substantial competition from these and other companies, as well as from new market entrants and emerging technologies. Intensified price-based competition or changes in the Company's price structure could result in lower prices and lower margins for Aspect's products, which could materially adversely affect the Company's business, operating results, and financial condition. Sales and installations of new Aspect CallCenter systems, the Company's principal product, account for a substantial portion of net revenues. Any factor adversely affecting the market for the Aspect CallCenter system or 8 10 ASPECT TELECOMMUNICATIONS CORPORATION the failure of any Aspect product to meet customer requirements, including system performance, system availability, or other requirements, could have a material adverse effect on the Company's business, operating results, and financial condition. The market for Aspect's products is subject to rapid technological change and new product introductions. Current competitors or new market entrants may develop new, proprietary products with features that could adversely affect the competitive position of the Company's products. There can be no assurance that the Company will be successful in accurately anticipating market demand for products being developed; in developing, manufacturing, and marketing new products; or in enhancing its existing products. INTELLECTUAL PROPERTY; LITIGATION The Company's success depends in part upon its internally developed technology. While the Company relies on patent, trademark, trade secret, and copyright law to protect its technology, the Company believes that the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition, and product reliability are more essential to establishing and maintaining a technology leadership position. The Company generally enters into confidentiality or license agreements with its employees, consultants, and vendors, and generally controls access to and distribution of its software, documentation, and other proprietary information. Despite these precautions, unauthorized third parties may attempt to copy or otherwise obtain and use the Company's technology. In addition, third parties may develop similar technology independently. The Company maintains as proprietary the software that is delivered to its customers. Under certain circumstances, a limited number of the Company's customers have been granted licenses to use certain of the Company's proprietary rights, primarily to ensure the continued maintenance and supply of certain of the Company's products. The Company holds licenses from multiple third parties regarding engineering and manufacturing rights to certain technology that the Company incorporates in its products. Certain of these technology license rights expire at various dates through 2007. The Company has also entered into standard commercial license agreements with several suppliers of operating systems, data bases and other software used for development and implementation of the Company's products. These licenses are ongoing and generally involve the payment of royalties based on the volume of systems the Company ships over periods of time. The segment of the telecommunications market that includes the Company's products has been characterized by extensive litigation regarding patents and other intellectual property rights. As is common in the telecommunications industry, the Company has been in the past and may in the future be notified of claims that its products or services are subject to patents or other proprietary rights of other parties. Although the Company attempts to ensure that its products and processes do not infringe such third-party patents or proprietary rights, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company. Periodically, the Company negotiates with third parties to establish patent license or cross-license agreements, and the Company is currently in such negotiations. While the Company cannot predict the outcome of the current negotiations, and to date such negotiations have not resulted in any license or cross-license agreements, based on discussions to date the Company does not expect that any such agreement would have a material adverse effect on the Company's financial condition. The Company intends to resolve intellectual property disputes through licensing arrangements, when appropriate and on terms it believes to be commercially reasonable. There can, however, be no assurance that necessary licenses would be available to the Company on satisfactory terms or at all. Moreover, license agreements with third parties may not include all intellectual property rights that may be issued to or owned by the licensors, and thus future disputes with these companies are possible. Furthermore, litigation, regardless of outcome, could result in substantial cost to and diversion of effort by the Company. Any future litigation, as well as any future interference proceedings that may be declared by the United States Patent and Trademark Office to determine the priority of inventions, could result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. Accordingly, an adverse determination in a judicial or administrative proceeding, or failure to obtain necessary licenses, could prevent the Company from manufacturing and selling certain of its products, which would have a material adverse effect on the Company's business, operating results, and financial condition. On March 5, 1997, Lucent Technologies, Inc. ("Lucent") brought a patent infringement action against the Company in the United States District Court for the Eastern District of Pennsylvania, alleging infringement by the Company of four of Lucent's patents (the "Lucent Patents"). In its complaint, Lucent is seeking to enjoin the Company from 9 11 ASPECT TELECOMMUNICATIONS CORPORATION allegedly continuing to infringe the Lucent Patents and is seeking an unspecified amount of compensatory damages, treble damages for alleged willful infringement, and interest, expenses and attorneys' fees. The Company will file a response in the near future and intends to vigorously contest the action. The Company believes, based on its investigations to date, that it does not infringe any valid claims of the Lucent Patents. While litigation is inherently uncertain, the Company believes that the ultimate resolution of this action will not have a material adverse effect on the Company's financial condition. In the future, the Company could become involved in other types of litigation, such as shareholder lawsuits for alleged violations of securities laws, claims asserted by current or former employees, and product liability claims. Any litigation in which the Company is involved, regardless of merit, source, or outcome, could result in substantial cost to and diversion of effort by the Company, which could have a material adverse effect on the Company's business, operating results, and financial condition. In addition, the Company is subject to legal proceedings and claims that arise in the normal course of business. The Company does not expect that any such proceedings or claims would have a material adverse effect on the Company's business, operating results, and financial condition. EMPLOYEES As of December 31, 1996, the Company employed approximately 1,330 full-time employees. None of the Company's employees is represented by a collective bargaining unit. The Company believes that its employee relations are good, and has never experienced any work stoppages. Most of the Company's full-time employees have to date been offered the opportunity to participate in the Company's 1989 and/or 1996 stock option plans and 1990 Employee Stock Purchase Plan. The Company depends upon certain key management and technical personnel, the loss of whom could have a material adverse effect on the Company's business, operating results, and financial condition. The Company's future success will depend in part upon its ability to attract and retain highly qualified personnel, broaden and diversify its management team, and ensure successful management transition. EXECUTIVE OFFICERS OF THE COMPANY The following sets forth certain information with respect to the executive officers of the Company, and their ages as of March 3, 1997:
Name Age Position ---- --- -------- James R. Carreker 50 Chairman and Chief Executive Officer Dennis L. Haar 41 President and Chief Operating Officer Robert A. Blatt 36 Vice President, Worldwide Products Shelley C. Brown 44 Vice President, People Programs and Services Kathleen M. Cruz 47 Vice President, Information Technology and Chief Information Officer Robert D. Drescher 39 Vice President, Worldwide Marketing Eric J. Keller 44 Vice President, Finance and Chief Financial Officer John D. Meyers 51 Principal Engineer, Product Technology and Chief Technical Officer Larry S. Miller 38 Vice President, North America
10 12 ASPECT TELECOMMUNICATIONS CORPORATION R. Dixon Speas, Jr. 50 Vice President, International David M. Yoffie 37 Vice President, Worldwide Operations
Executive officers serve at the election of the Board of Directors of the Company. There are no family relationships among any directors or executive officers of the Company. Mr. Carreker, a founder of the Company, has served as Chief Executive Officer and as a director of the Company since its inception in August 1985. He has served as Chairman of the Company's Board of Directors since October 1995 and was President of the Company between August 1985 and October 1995. Since January 1997, Mr. Carreker has also served as a director of Herman Miller, Inc., a company that manufactures and sells office systems products and services. Mr. Haar has been employed by the Company since 1987 and has served as an executive officer since 1989. Mr. Haar currently holds the position of President and Chief Operating Officer and has previously served as the executive leading the functions of North America, Product Development, Marketing and Sales Development. Mr. Blatt has been employed by the Company since 1986, and has served as an executive officer of the Company since 1994. He currently holds the position of Vice President, Worldwide Products. Prior to becoming an executive of the Company, Mr. Blatt was a Product Development manager. Prior to joining the Company, Mr. Blatt was an engineer for New York Telephone. Ms. Brown has been employed by the Company since 1989, and has served as an executive officer since 1990. Ms. Brown currently holds the position of Vice President, People Programs and Services. Prior to joining the Company, Ms. Brown was a Personnel Manager with Hewlett-Packard Company. Ms. Cruz has been employed by the Company since June 1996, and has served as an executive officer since that time. Ms. Cruz currently holds the position of Vice President, Information Technology and Chief Information Officer. Prior to joining the Company, Ms. Cruz served as Vice President, MIS and Chief Information Officer at Verifone, Inc., a global provider of secure payment solutions, from January 1994 to May 1996, and Director, Information Services at Textainer, Inc., a container leasing company, from January 1992 to December 1993. Mr. Drescher has been employed by the Company since 1994, and has served as an executive officer since that time. Mr. Drescher currently holds the position of Vice President, Worldwide Marketing. Prior to joining the Company, Mr. Drescher worked as Director of Marketing for VeriFone, Inc., a global provider of secure payment solutions, from January 1993 to December 1994, and Vice President of Marketing for Microlog Corporation, a provider of voice-response systems, from January 1990 to January 1993. Mr. Keller has been employed by the Company since January 1996, and has served as an executive officer since that time. Mr. Keller currently holds the position of Vice President, Finance and Chief Financial Officer. Prior to joining the Company, Mr. Keller served as Vice President and Chief Financial Officer of Ventritex, Inc., a manufacturer of implantable devices, from June 1993 to January 1996, and previously held a similar position with Dionex Corporation, a manufacturer of scientific instruments, from December 1985 to June 1993. Mr. Meyers, a founder of the Company, has been employed by the Company since 1985, and has served as an executive officer since that time. Mr. Meyers currently holds the position of Principal Engineer, Product Technology and Chief Technical Officer. Mr. Miller has been employed by the Company since January 1995, and has served as an executive officer since July 1995. Mr. Miller currently holds the position of Vice President, North America and has previously served as Vice President, Worldwide Operations and Director of Channel Support. Prior to joining the Company, Mr. Miller 11 13 ASPECT TELECOMMUNICATIONS CORPORATION served in various positions at IBM from September 1977 to January 1995, most recently as a business unit executive for IBM's Marketing and Services Organization. Mr. Speas has been employed by the Company since 1989, and has served as an executive officer since that time. Mr. Speas currently holds the position of Vice President, International and has previously served as the executive leading the functions of Customer Operations, Manufacturing and Product Development. Prior to joining the Company, Mr. Speas was Director of Field Operations at ROLM Corporation. Mr. Yoffie has been employed by the Company since March 1996, and has served as an executive officer since that time. Mr. Yoffie currently holds the position of Vice President, Worldwide Operations. Prior to joining the Company, Mr. Yoffie served as Sr. Vice President, Operations at AG Associates, Inc., a semiconductor equipment manufacturer, from July 1993 to May 1996, and Vice President, Operations at Global Village Communications, Inc., a provider of communications products for personal computers, from August 1991 to December 1992. ITEM 2. PROPERTIES Aspect's headquarters facility is comprised of four office and manufacturing buildings, totaling approximately 290,000 square feet, in San Jose, California. The Company owns one of the buildings which is approximately 100,000 square feet on 10 acres of land and occupies the remaining buildings totaling approximately 190,000 square feet under coterminous leases expiring in 2001, with options for five-year extensions. Aspect also has several facilities to support its European operations. The main UK operation is located near London in a facility totaling approximately 24,000 square feet which is leased under a long-term agreement. In addition, other European facilities are located in Amsterdam, The Netherlands and Frankfurt, Germany. Aspect also occupies several U.S. regional centers for sales and support totaling approximately 48,000 square feet under leases expiring through 2001. TCS occupies approximately 55,000 square feet in a facility located near Nashville, Tennessee that is leased through 2006. Other North America and international sales and support functions operate from various leased multi-tenant offices nationwide. The Company believes its existing facilities are adequate to meet current requirements and that suitable additional or alternative space will be available as needed on commercially reasonable terms. See Note 10 of "Notes to Consolidated Financial Statements," incorporated by reference from the 1996 Annual Report to Shareholders. As noted above, Aspect's headquarters facility is located in San Jose, California. In the event of a natural disaster, such as an earthquake or flood, the Company could experience a business interruption that would have a material adverse effect on the Company's business, operating results, and financial condition. ITEM 3. LEGAL PROCEEDINGS The segment of the telecommunications market that includes the Company's products has been characterized by extensive litigation regarding patents and other intellectual property rights. As is common in the telecommunications industry, the Company has been in the past and may in the future be notified of claims that its products or services are subject to patents or other proprietary rights of other parties. Although the Company attempts to ensure that its products and processes do not infringe such third-party patents or proprietary rights, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company. Periodically, the Company negotiates with third parties to establish patent license or cross-license agreements, and the Company is currently in such negotiations. While the Company cannot predict the outcome of the current negotiations, and to date such negotiations have not resulted in any license or cross-license agreements, based on discussions to date the Company does not expect that any such agreement would have a material adverse effect on the Company's financial condition. The Company intends to resolve intellectual property disputes through licensing arrangements, when appropriate and on terms it believes to be commercially reasonable. There can, however, be no assurance that necessary licenses would be available to the Company on satisfactory terms or at all. Moreover, license agreements with third parties may not include all intellectual property rights that may be issued to or owned by the licensors, and thus future disputes with these companies are possible. Furthermore, litigation, regardless of outcome, could result in substantial cost to and diversion of effort by the Company. Any future litigation, as well as any future interference proceedings that may be declared by the United States Patent and Trademark Office to determine the priority of inventions, could result in substantial expense to the Company and significant diversion of effort by the Company's technical and management 12 14 ASPECT TELECOMMUNICATIONS CORPORATION personnel. Accordingly, an adverse determination in a judicial or administrative proceeding, or failure to obtain necessary licenses, could prevent the Company from manufacturing and selling certain of its products, which would have a material adverse effect on the Company's business, operating results, and financial condition. On March 5, 1997, Lucent Technologies, Inc. ("Lucent") brought a patent infringement action against the Company in the United States District Court for the Eastern District of Pennsylvania, alleging infringement by the Company of four of Lucent's patents (the "Lucent Patents"). In its complaint, Lucent is seeking to enjoin the Company from allegedly continuing to infringe the Lucent Patents and is seeking an unspecified amount of compensatory damages, treble damages for alleged willful infringement, and interest, expenses and attorneys' fees. The Company will file a response in the near future and intends to vigorously contest the action. The Company believes, based on its investigations to date, that it does not infringe any valid claims of the Lucent Patents. While litigation is inherently uncertain, the Company believes that the ultimate resolution of this action will not have a material adverse effect on the Company's financial condition. In the future, the Company could become involved in other types of litigation, such as shareholder lawsuits for alleged violations of securities laws, claims asserted by current or former employees, and product liability claims. Any litigation in which the Company is involved, regardless of merit, source, or outcome, could result in substantial cost to and diversion of effort by the Company, which could have a material adverse effect on the Company's business, operating results, and financial condition. In addition, the Company is subject to legal proceedings and claims that arise in the normal course of business. The Company does not expect that any such proceedings or claims would have a material adverse effect on the Company's business, operating results, and financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the quarter ended December 31, 1996. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Reference is made to the information regarding market, market price range and dividend information appearing under the captions "Stock Listing", "Stock Price" and "Dividend Policy" on page 46 of the Registrant's 1996 Annual Report to Shareholders, which information is hereby incorporated by reference. (b) Reference is made to the information regarding holders of common stock appearing under the caption "Stock Listing" on page 46 of the Registrant's 1996 Annual Report to Shareholders, which information is hereby incorporated by reference. (c) On October 21, 1996, the Company acquired Prospect Software, Inc. (Prospect) by issuing 280,000 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 sale of the above securities was 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 a transaction by an issuer not involving a public offering. The recipients of the securities in 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 transaction. All recipients had adequate access to information about the Company. ITEM 6. SELECTED FINANCIAL DATA 13 15 ASPECT TELECOMMUNICATIONS CORPORATION Reference is made to the Consolidated Statement of Income Data and Consolidated Balance Sheet Data for fiscal years 1992 through 1996, appearing under the caption "Selected Consolidated Financial Data" on page 23 of the Registrant's 1996 Annual Report to Shareholders, which information is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the information appearing under the caption "Management's Discussion and Analysis" on pages 24 through 31 of the Registrant's 1996 Annual Report to Shareholders, which information is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the following information appearing in the Registrant's 1996 Annual Report to Shareholders, which information is hereby incorporated by reference:
Description Page(s) ----------- ------- Consolidated Financial Statements 32-44 Independent Auditors' Report 45 Consolidated Statement of Income Data for the 1996 and 1995 Quarters (unaudited) 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III Certain information required by Part III is omitted from this report because the Registrant filed a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement") for its annual meeting of shareholders to be held April 29, 1997, and the information included therein is incorporated herein by reference to the extent detailed below. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to directors of the Registrant is incorporated by reference to the information under the caption "Election of Directors - Nominees" in the Registrant's Proxy Statement. Information with respect to executive officers of the Registrant is set forth in "Item 1. Business - Executive Officers of the Company" of this Annual Report on Form 10-K. Information required by Item 405 of Regulation S-K is incorporated by reference to the information under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Registrant's Proxy Statement. 14 16 ASPECT TELECOMMUNICATIONS CORPORATION ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the information under the caption "Other Information - Executive Compensation" contained in the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the information under the caption "Other Information - Security Ownership of Principal Shareholders and Management" contained in the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K. (a) 1. Financial Statements The financial statements listed in the accompanying index to financial statements and financial statement schedule are incorporated by reference as part of this Annual Report on Form 10-K. 2. Financial Statement Schedule The financial statement schedule listed in the accompanying index to financial statements and financial statement schedule is filed as part of this Annual Report on Form 10-K. 3. Exhibits The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1996. 15 17 ASPECT TELECOMMUNICATIONS CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE (ITEM 14 (A))
Reference Page(s) --------------------------- 1996 Annual Form Report to 10-K Shareholders ---- ------------ Consolidated Balance Sheets as of December 31, 1996 and 1995 - 32 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 - 33 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 - 34 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 - 35 Notes to Consolidated Financial Statements - 36-44 Independent Auditors' Report - 45 Selected Consolidated Financial Data - 23 Consolidated Statement of Income Data for the 1996 and 1995 Quarters (unaudited) - 45 Consolidated Financial Statements Schedule for the years ended December 31, 1996, 1995 and 1994: II - Valuation and Qualifying Accounts and Reserves 18 -
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or notes thereto. 16 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASPECT TELECOMMUNICATIONS CORPORATION By: /s/ James R. Carreker --------------------------------------- James R. Carreker, Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally James R. Carreker and Eric J. Keller, and each one of them, his or her attorneys in fact, each with the power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Report on Form 10-K and to file the same, with exhibits thereunto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ James R. Carreker Chairman, Chief Executive March 21, 1997 - ------------------------- Officer and Director (Principal James R. Carreker Executive Officer) /s/ Eric J. Keller Vice President, Finance and March 21, 1997 - ------------------------- Chief Financial Officer Eric J. Keller (Principal Financial and Accounting Officer) /s/ Norman A. Fogelsong Director March 21, 1997 - ------------------------- Norman A. Fogelsong /s/ James L. Patterson Director March 21, 1997 - ------------------------- James L. Patterson /s/ John W. Peth Director March 21, 1997 - ------------------------- John W. Peth /s/ Debra J. Engel Director March 21, 1997 - ------------------------- Debra J. Engel
17 19 ASPECT TELECOMMUNICATIONS CORPORATION SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END OF PERIOD EXPENSES DEDUCTIONS (1)(2) OF PERIOD --------- -------- ----------- --------- 1996 Allowance for doubtful accounts $ 825 $ 938 $ 561 $ 1,202 Warranty reserve $ 2,397 $ 5,797 $ 4,416 $ 3,778 1995 Allowance for doubtful accounts $ 401 $ 436 $ 12 $ 825 Warranty reserve $ 1,738 $ 3,851 $ 3,192 $ 2,397 1994 Allowance for doubtful accounts $ 718 $ 391 $ 708 $ 401 Warranty reserve $ 1,607 $ 2,871 $ 2,740 $ 1,738
- ---------------- (1) Warranty costs incurred. (2) Accounts written off. 18 20 ASPECT TELECOMMUNICATIONS CORPORATION INDEX TO EXHIBITS (Item 14 (a))
Exhibit Number Description - ------ ----------- 3.3 Amended and Restated Articles of Incorporation of the Registrant, as amended to date. (1) 3.4 Bylaws of the Registrant, as amended to date. (1) 10.2a 1989 Stock Option Plan and forms of option agreements thereunder, as amended effective January 22, 1991. (3) 10.2b 1989 Stock Option Plan and forms of option agreements thereunder, as amended effective May 20, 1993. (3) 10.3 1989 Directors' Stock Option Plan and forms of option agreements thereunder. (1) 10.4a 1990 Employee Stock Purchase Plan and form of subscription agreement thereunder, as amended effective July 1, 1991. (3) 10.6 Form of Stock Bonus Agreement for the Registrant's Newborn Stock Bonus Program. (1) 10.7 Form of Indemnification Agreement. (1) 10.31 Original Equipment Manufacturers Purchase Agreement between the Registrant and Motorola, Inc. dated May 22, 1989, and form of amendment thereto. (1), (2) 10.39 Lease Agreement between the Registrant and Spieker Partners dated October 1, 1990, as amended. (3) 10.39a Amendment Number One to the Lease Agreement between the Registrant and Spieker Partners dated October 1, 1990. (3) 10.39b Amendment to the Lease Agreement between the Registrant and Spieker Partners dated August 1, 1993. (3) 10.39c Amendment to the Lease Agreement between the Registrant and Spieker Partners dated October 1, 1993. (3) 10.39d Amendment to the Lease Agreement between the Registrant and Spieker Properties, L.P. dated July 12, 1995. (3) 10.39e Amendment to the Lease Agreement between the Registrant and Spieker Properties, L.P. dated July 12, 1995. (3) 10.42 Distributor Agreement between the Registrant and Norstan, Inc. dated September 9, 1991. (2), (3) 10.42a Amendment to Distributor Agreement between the Registrant and Norstan, Inc. dated September 9, 1991. (2), (3) 10.42b Amendment to Distributor Agreement between the Registrant and Norstan, Inc. dated January 1, 1993. (2), (3) 10.45 Office Lease Agreement between the Registrant and Cheshire County Council, dated February 1, 1993. (3) 10.46 Distributor Agreement between the Registrant and PTT Telecom B.V., dated July 16, 1993. (2), (3)
21 10.47 Indenture for 5% Convertible Subordinated Debentures due 2003 between the Registrant and The First National Bank of Boston, Trustee, dated as of September 21, 1993, with Forms of Definitive Global Debentures. (3) 10.47a Satisfaction and Discharge of Indenture between the Registrant and State Street Bank and Trust Company of CA, N.A., as Trustee, dated as of January 27, 1997. 10.53 Distribution Agreement between the Registrant and Siemens AG, dated June 23, 1995. (2),(3) 10.54 Acquisition Agreement by and among the Registrant, Next plc, Callscan, Inc. and TCS Management Group, Inc., dated October 5, 1995. (4) 10.55 Agreement of Purchase and Sale between the Registrant and Arrow Electronics, Inc., dated April 22, 1996. (3) 11.1 Statement Regarding Computation of Shares Used in Earnings per Share Computations. 13.1 Excerpts from the 1996 Annual Report to Shareholders. 21.1 Subsidiaries of the Registrant. 23.1 Independent Auditors' Consent and Report on Schedule. 24.1 Power of Attorney (see page 17). 27 Financial Data Schedule.
- ------------------ (1) Incorporated by reference to identically numbered exhibits to the Registrant's Registration Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto (File No. 33-33994) which became effective on April 30, 1990. (2) Confidential treatment has previously been granted with respect to this exhibit. (3) Incorporated by reference to identically numbered exhibits to the Registrant's previously filed Form 10-K's or Form 10-Q's. (4) Incorporated by reference to the Registrant's Current Report on Form 8-K dated October 19, 1995. EX-10.47A 2 SATISFACTION AND DISCHARGE OF INDENTURE 1 EXHIBIT 10.47a SATISFACTION AND DISCHARGE OF INDENTURE This Satisfaction and Discharge of Indenture is dated as of January 27, 1997 between Aspect Telecommunications Corporation, corporation duly organized and existing under the laws of the State of California (the "Company"), having its principal place of business at 1730 Fox Drive, San Jose, CA 95131-2312, and State Street Bank and Trust Company of CA, N.A., as Trustee (the "Trustee"), having its principal corporate trust office at 725 South Figueroa Street, Suite 3100, Los Angeles, California 90017. WHEREAS, the Company and the Trustee are parties to an Indenture dated as of September 21, 1993 (the "Indenture") with respect to the issuance by the Company of $55,000,000 aggregate principal amount of 5% Convertible Subordinated Debentures due 2003 (the "Debentures"); and WHEREAS, all Debentures heretofore authenticated and delivered (other than (i) Debentures which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.6 of the Indenture and (ii) Debentures for whose payment money has heretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 5.4 of the Indenture) have been delivered to the Trustee for cancellation; and WHEREAS, the Company has paid or caused to be paid all other sums payable by the Company pursuant to the Indenture; and WHEREAS, the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel in compliance with Section 16.5 of the Indenture; and WHEREAS, Section 13.1 of the Indenture provides that the Trustee shall, on demand of and at the cost and expense of the Company, execute proper instruments acknowledging satisfaction of and discharge of the Indenture; NOW, THEREFORE, in consideration of the mutual promises herein contained, the receipt and adequacy of which are hereby acknowledged, it is mutually covenanted and agreed, for the equal and proportionate benefit of all holders of Debentures as follows: ARTICLE I SATISFACTION AND DISCHARGE 1.1 The Indenture shall cease to be of further effect; provided, however, that notwithstanding the satisfaction and discharge of the Indenture, the obligations of the Company under Sections 2.6, 2.8, 8.6, 8.10 and Article XIII of the Indenture and the obligations of the Trustee under Sections 2.5(g), 2.6, 2.8, 16.11 and Articles VIII and XIII of the Indenture shall survive. 1.2 The Company hereby orders the Trustee to destroy all canceled Debentures held by the Trustee in a manner customarily used to destroy such debentures. Promptly upon completion of such 2 destruction, the Trustee shall furnish to the Company a certificate stating that such Debentures have been destroyed. ARTICLE II MISCELLANEOUS PROVISIONS 2.1 Terms not otherwise defined in this agreement shall have the meanings assigned to them in the Indenture. 2.2 This agreement shall be governed by, and construed in accordance with, the laws of the State of California. 2.3 This agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of which shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Satisfaction and Discharge of Indenture to be duly executed as of the date written above. ASPECT TELECOMMUNICATIONS CORPORATION A California Corporation /s/ Eric J .Keller - --------------------------------------------------- Eric J. Keller, Vice President, Finance and Chief Financial Officer STATE STREET BANK AND TRUST COMPANY OF CA, N.A. By: /s/ John T. Deleray ------------------------------------ Name: John T. Deleray ---------------------------------- Title: Assistant Vice President --------------------------------- EX-11.1 3 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 ASPECT TELECOMMUNICATIONS CORPORATION EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF SHARES USED IN EARNINGS PER SHARE COMPUTATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31, ------------------------------------------------------ 1996 1995 1994 ---------------- ---------------- ---------------- Primary: Weighted average common shares outstanding during the period 43,917 41,314 40,708 Common share equivalents: Dilutive effect of stock options 3,781 2,378 2,005 ---------------- ---------------- ---------------- Total 47,698 43,692 42,713 ================ ================ ================ Net income $37,633 $23,991 $17,573 ================ ================ ================ Primary earnings per share $0.79 $0.55 $0.41 ================ ================ ================ Fully Diluted: Weighted average common shares outstanding during the period 43,917 41,314 40,708 Common share equivalents: Dilutive effect of stock options 4,357 3,231 2,015 Weighted average shares issuable upon assumed conversion of debt 4,466 5,660 5,660 ---------------- ---------------- ---------------- Total 52,740 50,205 48,383 ================ ================ ================ Net income $37,633 $23,991 $17,573 Interest expense during the period on convertible subordinated debentures, net of tax 1,460 1,857 1,815 ---------------- ---------------- ---------------- Net income adjusted for fully diluted calculations $39,093 $25,848 $19,388 ================ ================ ================ Fully diluted earnings per share $0.74 $0.51 $0.40 ================ ================ ================
EX-13.1 4 EXCERPTS FROM THE ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13.1 Excerpt from page 23 of the 1996 Annual Report to Shareholders. Selected Consolidated Financial Data
YEARS ENDED DECEMBER 31, 1996(a) 1995(b) 1994 1993 1992(c) - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands, except per share and employee data) Net revenues $308,703 $198,972 $147,239 $106,473 $71,021 Gross margin 174,781 111,596 81,561 58,812 37,104 (% of net revenues) 57% 56% 55% 55% 52% Research and development 34,585 25,250 15,774 11,491 8,807 (% of net revenues) 11% 13% 11% 11% 12% Selling, general and administrative 82,478 50,726 37,662 29,273 23,037 (% of net revenues) 27% 25% 26% 27% 32% Income from operations 57,718 35,620 28,125 18,048 5,260 (% of net revenues) 19% 18% 19% 17% 7% Net income $ 37,633 $ 23,991 $ 17,573 $ 11,475 $ 5,812 (% of net revenues) 12% 12% 12% 11% 8% Primary earnings per share(d): Net income per share $ 0.79 $ 0.55 $ 0.41 $ 0.27 $ 0.14 Shares used in per share computations 47,698(e) 43,692 42,713 42,107 40,935 Fully diluted earnings per share(d): Net income per share $ 0.74 $ 0.51 $ 0.40 $ 0.27 $ 0.14 Shares used in per share computations 52,740 50,205 48,383 44,258 40,935 ................................................................................................................................... As of December 31: Cash, cash equivalents, and short-term investments $115,797 $ 93,633 $102,597 $ 93,105 $36,163 Working capital 140,079 108,588 113,128 103,632 41,229 Total assets 283,093 215,871 166,035 138,326 64,569 Long-term debt 4,500(e) 59,500 55,000 55,000 -- Shareholders' equity $219,448(e) $112,285 $ 80,813 $ 64,333 $50,166 Shares outstanding(d) 48,807(e) 41,753 40,652 40,642 39,848 ................................................................................................................................... Capital spending $ 33,210 $ 16,627 $ 13,112 $ 8,853 $ 4,451 Regular full-time employees 1,330 950 640 500 380
- ---------- (a) During 1996, the Company acquired Envoy Holdings Limited and Prospect Software, Inc., in transactions accounted for as pooling of interests. Results for prior years have not been restated since the adjustments would not be material (see Note 2 to the Consolidated Financial Statements). (b) In October 1995, the Company acquired TCS Management Group, Inc., in a transaction accounted for as a purchase. In connection with the transaction, a charge of $1.8 million, or $0.02 per share on a fully diluted basis, was recorded for purchased in-process technology and is included in 1995 research and development expenses (see Note 2 to the Consolidated Financial Statements). (c) Results for the year ended December 31, 1992, include an extraordinary tax credit of $1.7 million, or $0.04 per share, related to the use of net operating loss carryforwards. (d) Share and per share data reflect a two-for-one stock split effective January 28, 1997. (e) Amount reflects the October 1996 conversion of $55 million of 5% convertible subordinated debentures into approximately 5.7 million shares of common stock (see Note 7 to the Consolidated Financial Statements). 2 Excerpts from pages 24 - 31 of the 1996 Annual Report to Shareholders. Management's Discussion and Analysis BACKGROUND Aspect Telecommunications Corporation (the Company) is a global provider of comprehensive business solutions for companies with mission-critical call centers that exist to generate revenue, service customers, and handle inquiries. The Company's products include automatic call distributors, interactive response systems, management information and reporting tools, computer-telephony integration technology, and call center planning and forecasting packages. The Company also provides services vital to call center environments, including business applications consulting, systems integration, and training. In 1996, the Company completed two acquisitions: Envoy Holdings Limited (Envoy) on September 30, 1996, and Prospect Software, Inc. (Prospect), on October 21, 1996. Envoy provides call center and telebusiness solutions designed to improve customer service through consulting services, software, and systems integration. Prospect is a provider of application development tools for building connectivity to a variety of call center systems and network-based computer applications. Both acquisitions were accounted for as pooling of interests and all financial results for 1996 reflect the acquisitions. As the historical operations of Envoy and Prospect were not significant to any year presented, the Company's financial statements for prior years have not been restated and the financial effects of the prior years' results of operations for both acquired companies have been accounted for as increases to retained earnings in 1996. 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. The acquisition was accounted for as a purchase and the operating results of TCS have been included in the consolidated statements of income since the date of acquisition. On December 20, 1996, the Company announced that its Board of Directors approved a two-for-one stock split effective January 28, 1997, for shareholders of record as of January 6, 1997. All share and per share amounts and share prices in this annual report reflect the stock split. 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 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding the Company's expectations, beliefs, intentions, or future strategies, which are dependent on certain risks and uncertainties that 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 in the section titled "Risk Factors." RESULTS OF OPERATIONS Net revenues for the Company increased by 55% to $309 million in 1996 from $199 million in 1995, and 1995 revenues increased by 35% from $147 million in 1994. Net revenues for 1995 include results for TCS for the two-month period ending December 31, 1995, and net revenues for 1996 include a full year of results for Envoy and Prospect (see Note 2 to the Consolidated Financial Statements). Excluding revenues associated with TCS, Envoy, and Prospect, 1996 net revenues increased by 42% over 1995. Product revenues grew by 55% to $231 million in 1996 from $148 million in 1995, and 1995 product revenues increased by 29% from $115 million in 1994. The increases in product revenues were primarily attributable to increased market demand for the Company's products, as the volume of new systems and add-ons increased from year to year, and the inclusion of TCS's product revenues in 1996. There were no significant changes in average selling prices for new systems across the periods presented. 3 Customer support revenues increased by 55% to $78 million in 1996 from $51 million in 1995, and 1995 customer support revenues also increased by 55% from $33 million in 1994, due primarily to the growth in the Company's installed base and the inclusion of TCS's customer support revenues in 1996. Customer support revenues include charges for providing contractually agreed-upon ongoing system service and maintenance, which typically commences twelve months from the date a system is first installed; charges to install products at customer sites; consulting and systems integration revenue; and other support services provided to the Company's customers. Contract support revenues are largely dependent on renewable customer support contracts and will be primarily affected by the general growth in the installed base. Installation revenue will generally follow product revenue fluctuations, although no installation revenue is ordinarily received for product sales to the Company's distributors. In 1996, the Company established the Aspect Consulting and Systems Integration (C&SI) business unit. C&SI revenues are dependent on the Company's ability to obtain contracts for suitable projects and successfully complete these projects. Since most of the costs associated with providing customer support are fixed, quarterly fluctuations in customer support revenues can have a significant impact on the related gross margin. No single customer accounted for 10% or more of net revenues in 1996 or 1995, and one customer accounted for approximately 11% of net revenues in 1994. Net revenues to customers outside of North America have continued to increase in total dollars. As a percentage of net revenues, such revenues were 25% in 1996, 24% in 1995, and 23% in 1994. The revenues generated from international operations are generally denominated in foreign currencies. The Company enters into forward exchange contracts to reduce the impact of foreign currency fluctuations on the results of operations. Gross margin on product revenues increased to 66% in 1996 from 65% in 1995 and 64% in 1994. The increase between 1996 and 1995 primarily reflects the inclusion of TCS's product revenues, which typically carry higher margins than the Company's other product revenues. The increase in gross margin between 1995 and 1994 was primarily related to increased sales through direct channels (which typically generate higher margins than sales through distributors) and higher margins on TCS product revenues. On a forward-looking basis, the Company expects that the following factors, among others, could have a material impact on product gross margins: the mix of products sold; the channel of distribution; the portion of systems revenues related to accounts purchasing multiple systems; the mix and level of third-party product included as part of systems integration projects; and the results of newly acquired subsidiaries and newly established business units. Gross margin on customer support revenues was 28% in 1996, 30% in 1995, and 26% in 1994. The decrease in customer support margins in 1996 reflects customer support revenues not growing proportionately with the costs associated with providing the related services, and ongoing efforts to expand the Company's customer support infrastructure, particularly in the United States. In the fourth quarter of 1996, the Company established an additional domestic customer operations support center that will further increase support costs. The improvement in customer support gross margins from 1994 to 1995 was primarily attributable to the increase in the Company's installed base with a proportionately lower increase in fixed costs associated with providing customer support. On a forward-looking basis, the Company anticipates that customer support margins will vary from quarter to quarter due to fluctuations in customer support revenues (since most of the costs associated with providing customer support are fixed), the expansion of its customer support infrastructure, and the Company's ability to build a successful C&SI business unit. 4 Research and development (R&D) expense increased by 37% to $35 million in 1996 from $25 million in 1995, and 1995 R&D expenses increased by 60% from $16 million in 1994, reflecting the Company's ongoing efforts to remain competitive through both new product development and expanding features for existing products. The increases across the periods presented reflect increased R&D personnel and external consultants and the associated costs for facilities and other infrastructure costs, and the inclusion of TCS's R&D expenses in 1996. As a percentage of net revenues, R&D expenses were 11% in 1996, 13% in 1995, and 11% in 1994. The 1995 R&D expenses include a $1.8 million charge for purchased in-process technology associated with the October 1995 acquisition of TCS. The Company continues to believe that significant investment in R&D is required to remain competitive and anticipates, on a forward-looking basis, that such expenses will increase in terms of absolute dollars for 1997 as a whole, although such expenses as a percentage of net revenues may fluctuate on a quarterly basis. Selling, general and administrative (SG&A) expenses increased by 63% to $82 million in 1996 from $51 million in 1995, and 1995 SG&A expenses increased by 35% from $38 million in 1994. The increases across the periods presented were primarily caused by increased personnel; increased commissions and travel costs related to higher revenues; the inclusion of TCS's SG&A expenses in 1996 and amortization of intangibles related to the acquisition of TCS; costs related to the expansion of the Company's foreign and domestic operations; increased infrastructure costs, including costs associated with a new internal integrated business application software program; and expenses related to acquisitions. SG&A expenses as a percentage of net revenues were 27% in 1996, 25% in 1995, and 26% in 1994. The Company anticipates, on a forward-looking basis, that SG&A expenses will continue to increase in absolute dollars throughout 1997, although as a percentage of net revenues such expenses may fluctuate on a quarterly basis. Net interest income decreased by 14% to $2.1 million in 1996 from $2.5 million in 1995, and 1995 net interest income increased from $0.2 million in 1994. The decrease from 1995 to 1996 was primarily attributable to lower interest earning balances and lower interest rates. The increase from 1994 to 1995 was due to higher interest earning balances and higher interest rates. Through October 15, 1996, the Company incurred interest expense related to $55 million of convertible subordinated debentures issued in September 1993. The interest expense related to the debentures was $2.3 million in 1996 and $2.9 million in 1995 and 1994. On a forward-looking basis, the Company anticipates that net interest income will increase in the near term as a result of the conversion of the convertible subordinated debentures in October 1996 (see "Liquidity and Capital Resources"). Income taxes for the Company reflect an effective income tax rate of 37% in both 1996 and 1995, and 38% in 1994. On a forward-looking basis, the Company anticipates that expanding international operations, the anticipated expiration of the R&D tax credit, and other factors will place modest upward pressure on the Company's effective tax rate in the future. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1996, the Company's principal source of liquidity consisted of cash, cash equivalents, and short-term investments totaling $116 million, which represented 41% of total assets. The primary sources of cash during 1996 consisted of cash provided by operating activities of $49 million, proceeds from the issuance of common stock under various stock plans of $8 million, and net sales and maturities of short-term investments of $3 million. The primary uses of cash during 1996 consisted of $33 million for the purchase of property and equipment, including $10.5 million for the acquisition of a 98,000-square-foot building and approximately ten acres of land adjacent to the Company's headquarters facility in San Jose, California. 5 As of December 31, 1996, the Company's outstanding borrowings consisted of a $4.5 million note payable incurred in connection with the acquisition of TCS (see Note 2 to the Consolidated Financial Statements). On October 15, 1996, the Company converted all $55 million of its convertible subordinated debentures into approximately 5.7 million shares of the Company's common stock. 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. RISK FACTORS The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of these risk factors. Variability and Uncertainty of Revenues and Operating Results The Company's revenues, gross margins, and operating results may fluctuate significantly from quarter to quarter for many reasons including, without limitation, the following: (1) 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 significant portion of product revenues in any particular quarter; (2) a significant percentage of product revenues continues to be derived from new customers; (3) the portion of product revenues related to accounts purchasing multiple systems may fluctuate; (4) the mix of products and services sold and channels of distribution may fluctuate; (5) operating results of newly acquired subsidiaries may fluctuate; and (6) the Company's newly established business units (e.g., consulting and systems integration and computer-telephony integration) may require substantial investments, while revenues from such business units may be difficult to predict. The Company's products typically represent substantial capital commitments by Aspect's customers involving a long sales cycle and, as a result, customer purchase decisions have been, and in the future may be, significantly affected by a variety of factors including, without limitation, the following: general economic conditions; world political events; trends in capital spending, particularly for telecommunications products; market competition and the availability or announcement of alternative technologies; and the degree to which call transaction processing is mission critical for customers. Reduced demand for the Company's products could have a material adverse effect on the Company's business, operating results, and financial condition. Volatility of Stock Price 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 achieved revenue or earnings from the levels expected by securities analysts or others could have an immediate and adverse effect on the 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 Company's common stock price. Such volatility may be exacerbated further by the relatively low trading volume of the Company's common stock. Further, the Company participates in a rapidly changing high-technology industry, which has in the past exhibited significant stock market volatility. Often, when a high-technology company's stock price declines rapidly, the company may become subject to class action securities litigation. Were the Company to become involved in such litigation, it could expend significant financial and management resources, which could have a material adverse effect on the Company's business, operating results, and financial condition. 6 Product Concentration, Technological Change, and New Products Sales and installations of new Aspect CallCenter systems, the Company's principal product, account for a substantial portion of net revenues. Any factor adversely affecting the market for the Aspect CallCenter system or the failure of any Aspect product to meet customer requirements, including system performance, system availability, or other requirements, could have a material adverse effect on the Company's business, operating results, and financial condition. The market for Aspect's products is subject to rapid technological change and new product introductions. Current competitors or new market entrants may develop new, proprietary products with features that could adversely affect the competitive position of the Company's products. There can be no assurance that the Company will be successful in accurately anticipating market demand for products being developed; in developing, manufacturing, and marketing new products; or in enhancing its existing products. Due to the complexity and sophistication of the Company's software products, the Company's products from time to time contain defects that can be difficult to correct. There can be no assurance that software defects will not cause delays in product introductions and shipments, result in increased costs, require design modifications, or impair customer satisfaction with the Company's products. Any such event could materially adversely affect the Company's business, operating results, and financial condition. Competition The Company believes the market for its products is highly competitive and that competition is likely to intensify. The Company's principal competitors currently include companies that market automatic call distributor (ACD) systems and companies that market private branch exchange systems that include ACD features. The Company's current competitors include, but are not limited to, Lucent Technologies Inc. (previously a unit of AT&T Corp.); Northern Telecom Limited (Nortel); Siemens Business Communication Systems, Inc.; Rockwell International Corporation; Alcatel Alsthom; L.M. Ericsson; and N.V. Philips. The Company anticipates that the regional Bell operating companies and other telephone operating companies could market ACD functionality through equipment located in the telephone operating company's central office rather than on customers' premises. Additional potential competitors include companies with technologies capable of providing mission-critical call transaction processing capabilities, including participants in the problem tracking and resolution client/server software market, pre-network routing companies, and a wide variety of computer-telephony integration software companies. As the hardware requirements for a traditional call center diminish due to the emergence of the Internet, local area networks, and other factors, other companies may obtain a significant position in the call transaction processing market. Many of Aspect's current competitors have longer operating histories; considerably greater financial, technical, sales, and marketing resources; and larger installed customer bases than Aspect. Moreover, Lucent Technologies, the largest provider of call center products and services, may emerge as a more focused, aggressive competitor following its recent divestiture from AT&T. Consequently, the Company expects to encounter substantial competition from these and other companies, as well as from new market entrants and emerging technologies. Intensified price-based competition or changes in the Company's price structure could result in lower prices and lower margins for Aspect's products, which could materially adversely affect the Company's business, operating results, and financial condition. 7 Intellectual Property; Litigation The Company's success depends in part upon its internally developed technology. While the Company relies on patent, trademark, trade secret, and copyright law to protect its technology, the Company believes that the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition, and product reliability are more essential to establishing and maintaining a technology leadership position. The Company generally enters into confidentiality or license agreements with its employees, consultants, and vendors, and generally controls access to and distribution of its software, documentation, and other proprietary information. Despite these precautions, unauthorized third parties may attempt to copy or otherwise obtain and use the Company's technology. In addition, third parties may develop similar technology independently. As is common in the telecommunications industry, the Company has been and may in the future be notified of claims that it may be infringing other parties' patents or other proprietary rights. Although the Company attempts to ensure that its products and processes do not infringe such third-party patents or proprietary rights, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company. Periodically, the Company negotiates with third parties to establish patent license or cross-license agreements, and the Company is currently in such negotiations. While the Company cannot predict the outcome of the current negotiations, and to date such negotiations have not resulted in any license or cross-license agreements, based on discussions to date the Company does not expect that any such agreement would have a material adverse effect on the Company's financial condition. Although the Company intends to resolve intellectual property disputes through licensing arrangements, when appropriate, and on terms it believes to be commercially reasonable, there can be no assurance that the Company would be able to license valid and infringed patents (if any) on commercially reasonable terms or that it would prevail in any litigation over third-party claims. In the future, Aspect could become involved in other types of litigation, such as shareholder lawsuits for alleged violations of securities laws, claims asserted by current or former employees, and product liability claims. Any litigation in which the Company is involved, regardless of merit, source, or outcome, could result in substantial cost to and diversion of effort by the Company, which could have a material adverse effect on the Company's business, operating results, and financial condition. Management of Growth The Company has experienced a period of rapid growth that has placed a significant strain on the Company's managerial and operational resources. To manage its growth, the Company must continue to implement and improve its operational and financial systems and to expand, train, and manage its employee base. For example, the Company recently implemented, and in the future may implement, additional versions of a new internal integrated business application software system. There can be no assurance that complications will not arise from this software system transition, resulting in substantial unanticipated expenses. An additional challenge created by the Company's rapid growth is in hiring, assimilating, training, and retaining a large number of employees in a labor market characterized by a high demand for and limited supply of qualified people. In addition, the Company must carefully maintain inventories at levels consistent with product demand and the requirements of new product introductions. Inaccuracies in demand forecasts could quickly result in either insufficient or excessive inventories and obsolescence expense. Dependence on Key Personnel The Company depends upon certain key management and technical personnel, the loss of whom could have a material adverse effect on the Company's business, operating results, and financial condition. The Company's future success will depend in part upon its ability to attract and retain highly qualified personnel, broaden and diversify its management team, and ensure successful management transition. 8 Limited Sources of Component Supply Although the Company primarily uses standard parts and components in its products, certain components, including certain central processing units, other integrated circuits, and circuit cards, are presently available only from a single source or from limited sources of supply. The inability of the Company to develop alternative sources if and as required in the future, or to obtain sufficient sole or limited source components as required, could have a material adverse effect on the Company's business, operating results, and financial condition. In addition, there can be no assurance that manufacturers of component parts used by the Company will not modify their products in a manner incompatible with the Company's use of such products. Licenses from Third Parties The Company currently manufactures certain components incorporated into its products pursuant to engineering and manufacturing licenses from third parties. The Company depends upon the licensors' abilities to provide certain technical support and cooperation in optimizing the Company's use of the licensed technologies. Should any of the licensors become unable to provide such technical support, the Company would have to develop internal capabilities or otherwise locate alternative technical support. This in turn could adversely affect the Company's ability to complete timely shipments during the transition. If, due to a breach of a license agreement or otherwise, the Company becomes unable to continue to utilize the applicable licensed technology, the Company's business, operating results, and financial condition could be materially adversely affected. Geographic Concentration Aspect's product development, manufacturing, information technology systems, corporate offices, and support functions are concentrated in the Silicon Valley area of California. In the event of a natural disaster, such as an earthquake or flood, the Company could experience a business interruption that would have a material adverse effect on the Company's business, operating results, and financial condition. Acquisitions and Investments Since October 1995, Aspect has acquired three companies: TCS, Envoy, and Prospect. During the same period, the Company made minority equity investments in companies with products, services, or technologies that potentially complement Aspect's business. In the future, the Company may make further strategic acquisitions and investments or enter into joint ventures or strategic alliances with other companies. Such transactions entail numerous risks, including the following: inability to successfully integrate such companies' personnel and businesses; inability to realize anticipated synergies, economies of scale, or other value associated with such transactions; diversion of management's attention and disruption of the Company's ongoing business; inability to retain key technical and managerial personnel; inability to establish and maintain uniform standards, controls, procedures, and policies; and impairment of relationships with employees and customers as a result of the integration of new personnel. In addition, future acquisitions or investments by the Company may result in the issuance of additional equity or debt securities, significant one-time write-offs, and the creation of goodwill or other intangible assets. Failure to avoid these or other risks associated with such business combinations, investments, joint ventures, or strategic alliances could have a material adverse effect on the Company's business, operating results, and financial condition. 9 International Operations The Company currently operates in several international markets and anticipates entering additional markets in the future. The financial resources required to enter a new international market may vary substantially among markets based upon, among other factors, the market's regulatory environment, the Company's expansion strategy in the market, and the level of acceptance of the Company's products in that market. Many countries require multiple governmental approvals prior to allowing a new entrant into the market. The cost and timing of these approvals, which may require the Company to modify its products, are often subject to considerable uncertainty and could result in longer lead times than initially anticipated. The Company's international operations are subject to additional risks, including exchange rate fluctuations; delays in telecommunications deregulation; difficulties in staffing and managing foreign subsidiary operations; political and economic instability; potentially negative tax consequences; and foreign and domestic trade legislation, which could result in the creation of trade barriers such as tariffs, duties, quotas, and other restrictions. Failure to successfully enter certain international markets on a timely basis could impair the Company's competitive position in such markets and prevent the Company from obtaining the scale advantages of global competitors. Regulatory Requirements The Company's products are subject to various regulations that require, among other things, that the Company's products meet certain radio frequency emission standards, be compatible with the public telephone networks, and conform to certain safety and other standards. Sales of products that fail to comply with these regulations may be prohibited by regulatory authorities until appropriate modifications are made. There can be no assurance that the Company will be successful in obtaining or maintaining the necessary regulatory approvals for its products, and its failure to do so could have a material adverse effect on the Company's business, operating results, and financial condition. Expansion of Distribution Channels The Company has historically sold its products through its direct sales force and a limited number of distributors. The Company is currently investing, and plans to continue to invest, significant resources to expand its domestic and international direct sales force and develop distribution relationships with certain third-party distributors. Any failure by the Company to maintain or expand its direct sales force or other distribution channels would materially adversely affect the Company's business, operating results, and financial condition. 10 Excerpts from pages 32-44 of the 1996 Annual Report to Shareholders, "Consolidated Financial Statements." Consolidated Balance Sheets
DECEMBER 31, 1996 1995 - ------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 47,996 $ 22,102 Short-term investments 67,801 71,531 Accounts receivable (net of allowance for doubtful accounts: $1,202 in 1996 and $825 in 1995) 53,211 39,291 Inventories 15,485 11,051 Other current assets 14,731 8,699 - ------------------------------------------------------------------------------------------------------- Total current assets 199,224 152,674 Property and equipment--net 51,348 28,418 Intangible assets--net 28,888 31,405 Other assets 3,633 3,374 - ------------------------------------------------------------------------------------------------------- Total assets $ 283,093 $ 215,871 - ------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,187 $ 11,142 Accrued compensation and related benefits 8,896 8,427 Other accrued liabilities 22,581 15,242 Customer deposits and deferred revenue 19,481 9,275 - ------------------------------------------------------------------------------------------------------- Total current liabilities 59,145 44,086 Convertible subordinated debentures -- 55,000 Note payable 4,500 4,500 Commitments and contingencies 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, shares outstanding: 48,806,580 in 1996 and 41,752,922 in 1995 128,186 62,082 Net unrealized gain on securities 2,534 102 Accumulated translation adjustments (45) (437) Retained earnings 88,773 50,538 - ------------------------------------------------------------------------------------------------------- Total shareholders' equity 219,448 112,285 - ------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 283,093 $ 215,871 - -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 11 Consolidated Statements of Income
YEARS ENDED DECEMBER 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) Net revenues: Product $ 230,539 $ 148,436 $ 114,632 Customer support 78,164 50,536 32,607 - ------------------------------------------------------------------------------------------------------------ Total net revenues 308,703 198,972 147,239 ............................................................................................................ Cost of revenues: Cost of product revenues 77,374 52,007 41,406 Cost of customer support revenues 56,548 35,369 24,272 - ------------------------------------------------------------------------------------------------------------ Total cost of revenues 133,922 87,376 65,678 ............................................................................................................ Gross margin 174,781 111,596 81,561 Operating expenses: Research and development 34,585 25,250 15,774 Selling, general and administrative 82,478 50,726 37,662 - ------------------------------------------------------------------------------------------------------------ Total operating expenses 117,063 75,976 53,436 - ------------------------------------------------------------------------------------------------------------ Income from operations 57,718 35,620 28,125 ............................................................................................................ Interest income 4,884 5,649 3,390 Interest expense (2,774) (3,188) (3,172) - ------------------------------------------------------------------------------------------------------------ Income before income taxes 59,828 38,081 28,343 Provision for income taxes 22,195 14,090 10,770 - ------------------------------------------------------------------------------------------------------------ Net income $ 37,633 $ 23,991 $ 17,573 ............................................................................................................ Primary earnings per share: Net income per share $ 0.79 $ 0.55 $ 0.41 Shares used in per share computations 47,698 43,692 42,713 Fully diluted earnings per share: Net income per share $ 0.74 $ 0.51 $ 0.40 Shares used in per share computations 52,740 50,205 48,383
See notes to consolidated financial statements. 12 Consolidated Statements of Shareholders' Equity
Notes Net Receivable Unrealized Common Stock from Sale Gain Accumulated -------------------------- of Common (Loss) on Translation Retained Shares Amount Stock Securities Adjustments Earnings Total - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) BALANCES, DECEMBER 31, 1993 40,642,376 $ 54,554 $(23) $ -- $(704) $ 10,506 $ 64,333 Issuance of common stock under stock purchase plans 115,816 683 -- -- -- -- 683 Issuance of common stock under other stock plans 354,008 949 -- -- -- -- 949 Stock repurchases (460,000) (1,661) -- -- -- (1,532) (3,193) Collection of notes receivable -- -- 13 -- -- -- 13 Income tax benefit for employee stock option transactions -- 701 -- -- -- -- 701 Net unrealized loss on securities -- -- -- (606) -- -- (606) Accumulated translation adjustments -- -- -- -- 360 -- 360 Net income -- -- -- -- -- 17,573 17,573 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1994 40,652,200 55,226 (10) (606) (344) 26,547 80,813 Issuance of common stock under stock purchase plans 344,800 2,524 -- -- -- -- 2,524 Issuance of common stock under other stock plans 755,922 2,911 -- -- -- -- 2,911 Collection of notes receivable -- -- 10 -- -- -- 10 Income tax benefit for employee stock option transactions -- 1,421 -- -- -- -- 1,421 Net unrealized gain on securities -- -- -- 708 -- -- 708 Accumulated translation adjustments -- -- -- -- (93) -- (93) Net income -- -- -- -- -- 23,991 23,991 .................................................................................................................................. BALANCES, DECEMBER 31, 1995 41,752,922 62,082 -- 102 (437) 50,538 112,285 Adjustment in connection with pooling of interests 490,836 378 -- -- -- 602 980 Issuance of common stock under stock purchase plans 178,426 3,149 -- -- -- -- 3,149 Issuance of common stock under other stock plans 725,232 4,633 -- -- -- -- 4,633 Income tax benefit for employee stock option transactions -- 4,177 -- -- -- -- 4,177 Issuance of common stock related to the conversion of the convertible subordinated debentures, net of unamortized debt issuance costs of $1,233 5,659,164 53,767 -- -- -- -- 53,767 Net unrealized gain on securities -- -- -- 2,432 -- -- 2,432 Accumulated translation adjustments -- -- -- -- 392 -- 392 Net income -- -- -- -- -- 37,633 37,633 - ----------------------------------------------------------------------------------------------------------------------------------- BALANCES, DECEMBER 31, 1996 48,806,580 $ 128,186 $ -- $ 2,534 $ (45) $ 88,773 $ 219,448 - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 13 Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 37,633 $ 23,991 $ 17,573 Reconciliation of net income to cash provided by operating activities: Depreciation and amortization 16,296 8,687 7,075 Purchased in-process technology -- 1,800 -- Changes in assets and liabilities, net of effects from company acquired in 1995: Accounts receivable (12,024) (9,764) (7,993) Inventories (4,265) (2,297) (2,000) Other current assets and other assets (4,191) (1,351) (546) Accounts payable (3,966) 3,520 2,579 Accrued compensation and related benefits 67 464 2,129 Other accrued liabilities 9,147 5,593 3,923 Customer deposits and deferred revenue 10,078 (810) 2,432 ................................................................................................................................. Cash provided by operating activities 48,775 29,833 25,172 Cash flows from financing activities: Repurchase of common stock -- -- (3,193) Repayment of capital lease obligations -- -- (91) Other common stock transactions--net 7,782 5,445 1,645 - ---------------------------------------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities 7,782 5,445 (1,639) Cash flows from investing activities: Short-term investment purchases (93,174) (85,794) (87,810) Short-term investment sales and maturities 96,531 89,597 62,525 Property and equipment purchases (33,210) (16,627) (13,112) Purchase of company, net of cash acquired -- (28,408) -- ................................................................................................................................. Cash used in investing activities (29,853) (41,232) (38,397) Effect of exchange rate changes on cash and cash equivalents (810) 85 334 ................................................................................................................................. Increase (decrease) in cash and cash equivalents 25,894 (5,869) (14,530) Cash and cash equivalents: Beginning of year 22,102 27,971 42,501 - ---------------------------------------------------------------------------------------------------------------------------------- End of year $ 47,996 $ 22,102 $ 27,971 ................................................................................................................................. Supplemental disclosure of cash flow information: Cash paid for interest $ 3,127 $ 2,750 $ 3,172 Cash paid for income taxes $ 18,852 $ 11,329 $ 9,019 Supplemental schedule of noncash investing and financing activities: Income tax benefit from employee stock transactions $ 4,177 $ 1,421 $ 701 Conversion of convertible subordinated debentures into shares of common stock, net of unamortized debt issuance costs of $1,233 $ 53,767 $ -- $ -- .................................................................................................................................
See notes to consolidated financial statements. 14 Notes to Consolidated Financial Statements NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Aspect Telecommunications Corporation (the Company) is a global provider of comprehensive business solutions for companies with mission-critical call centers that exist to generate revenue, service customers, and handle inquiries. The Company's products include automatic call distributors, interactive response systems, management information and reporting tools, computer-telephony integration technology, and call center planning and forecasting packages. The Company also provides services vital to call center environments, including business applications consulting, systems integration, and training. Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Investments The Company has classified all of its investments as available-for-sale securities. While the Company's practice is to hold debt securities to maturity, the Company has classified all debt securities as available-for-sale securities, as the sale of such securities may be required prior to maturity to implement management strategies. The carrying value of all securities is adjusted to fair market value, with unrealized gains and losses, net of deferred taxes, being excluded from earnings and reported as a separate component of shareholders' equity. Cost is based on the specific identification method for purposes of computing realized gains or losses. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over estimated useful lives of three to thirty years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. Intangible Assets Intangible assets at December 31, 1996, consist of $28,888,000 (net of accumulated amortization of $4,475,000) of purchased existing technology, goodwill, a covenant not to compete, and a trademark acquired in the acquisition of TCS Management Group, Inc. (see Note 2). These intangible assets are amortized on a straight-line basis over periods of five to ten years. Software Development Costs The costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Software to be Sold, Leased or Otherwise Marketed." Because the Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date. Customer Deposits and Deferred Revenue Customer deposits primarily represent payments received from customers upon product order. Deferred revenue represents payments received from customers for maintenance support or products prior to revenue recognition. 15 Revenue Recognition The Company generally recognizes revenue from the sale of systems upon installation at the customer site; revenues from add-ons, upgrades, software licenses, and systems sales to distributors are generally recognized upon shipment to the customer or distributor. Customer support revenues primarily consist of revenues from new system installations, which are recognized when the service is provided, and ongoing customer support revenues, which are recognized ratably over the support period. Revenues are recorded net of sales returns and allowances. Product warranty costs and costs related to insignificant vendor obligations for post-contract customer support are accrued when revenue is recognized. Stock-Based Compensation The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, "Accounting for Stock Issued to Employees." Per Share Information Per share information is computed using the weighted average number of common and common equivalent shares outstanding. For primary earnings per share, common equivalent shares consist of the incremental shares issuable upon the assumed exercise of dilutive stock options (using the treasury stock method). For fully diluted earnings per share, common equivalent shares also include the dilutive effect of incremental shares issuable upon the conversion of the 5% convertible subordinated debentures (see Note 7, "Convertible Subordinated Debentures"), and net income is adjusted for the interest expense (net of income taxes) related to the debentures. Foreign Currency Translation and Foreign Exchange Contracts Operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency for each subsidiary. Assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect as of the balance sheet dates, and results of operations for each subsidiary are translated using average rates in effect for the periods presented. Foreign currency transaction gains and losses, which are included in the consolidated statements of income, have not been material in any of the three years presented. The Company enters into foreign exchange contracts as a hedge against intercompany account balances. Market value gains and losses on these contracts offset foreign exchange gains or losses on the balances being hedged. Certain Significant 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, the 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. Such management estimates include the allowance for doubtful accounts receivable, the recoverability of intangible assets, and warranty reserves. Actual results could differ from those estimates. The Company sells its products primarily to large organizations in diversified industries in North America and Europe, and generally does not require its customers to provide collateral or other security to support accounts receivable. However, the Company's intention is to mitigate its credit risk on system sales by receiving a portion of the sales price prior to shipping the product. While the Company maintains allowances for potential bad debt losses, such losses to date have not been material. 16 The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control, that could have a material adverse effect on the Company's future financial position or results of operations. These risks include variability and uncertainty of revenues and operating results; product concentration, technological change, and new products; competition; intellectual property/litigation; management of growth; dependence on key personnel; limited sources of component supply; licenses from third parties; geographic concentration; acquisitions and investments; international operations; regulatory requirements; and expansion of distribution channels. Reclassifications Certain prior-year amounts have been reclassified to conform to the current-year presentation. NOTE 2: BUSINESS COMBINATIONS On October 21, 1996, the Company acquired Prospect Software, Inc. (Prospect), by issuing 280,000 shares of common stock for all of the outstanding stock of Prospect. Prospect is a provider of application development tools for building connectivity to a variety of call center systems and network-based computer applications. The acquisition was accounted for as a pooling of interests. On September 30, 1996, the Company acquired Envoy Holdings Limited (Envoy) by issuing approximately 211,000 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 reflects the acquisitions of Envoy and Prospect, and all material intercompany transactions during such period have been eliminated. As the historical operations of Envoy and Prospect 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 and Prospect has been accounted for as a $602,000 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 Net Income - -------------------------------------------------------------------------------- Aspect $215,613 $26,646 Envoy 2,638 157 Envoy acquisition costs -- (374) Prospect 2,378 883 Eliminations (475) (123) - -------------------------------------------------------------------------------- $220,154 $27,189 ................................................................................
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 aggregate purchase price of $37,500,000, consisting of $33,000,000 in cash and a promissory note of $4,500,000, plus costs of approximately $250,000 directly attributable to the acquisition, have been allocated to the assets acquired and liabilities assumed. The promissory note is due October 31, 1998, and bears interest at the prime rate (8.25% at December 31, 1996). Approximately $1,800,000 of the total purchase price represented the value of in-process technology that had not reached technological feasibility and that had no alternative future use and was charged to research and development expense in the fourth quarter of 1995. The fair value of assets acquired, excluding the $1,800,000 of purchased in-process technology charged to operations, was $42,214,000 and liabilities of $6,514,000 were assumed. 17 The operating results of TCS have been included in the consolidated statements of income since the date of acquisition. Had the acquisition taken place at the beginning of 1994, unaudited pro forma results of operations would have been as follows for the years ended December 31 (in thousands, except per share data):
1995 1994 - -------------------------------------------------------------------------------- Net revenues $211,852 $162,045 Net income 24,204 15,974 Fully diluted earnings per share 0.52 0.37
The pro forma results of operations give effect to certain adjustments, including amortization of purchased intangibles and goodwill, interest expense on the promissory note, the elimination of certain non-recurring expenses, and interest income associated with funding the acquisition. The $1,800,000 charge for purchased in-process technology has been excluded from the pro forma results as it is a non-recurring charge. NOTE 3: INVESTMENTS Short-term investments at December 31 consist of the following (in thousands):
1996 - -------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Market Value - -------------------------------------------------------------------------------- Municipal obligations $ 34,680 $ 105 $ (320) $ 34,465 Corporate notes and bonds 26,804 63 (38) 26,829 Treasury bills 3,506 -- (7) 3,499 Foreign debt issues 3,009 -- (1) 3,008 - -------------------------------------------------------------------------------- Total $67,999 $ 168 $ (366) $ 67,801 - --------------------------------------------------------------------------------
1995 - -------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Market Value - -------------------------------------------------------------------------------- Municipal obligations $24,776 $ 70 $ (7) $ 24,839 Corporate notes and bonds 24,441 138 (46) 24,533 Treasury bills 19,094 31 (23) 19,102 Foreign debt issues 3,050 7 -- 3,057 - -------------------------------------------------------------------------------- Total $71,361 $ 246 $ (76) $ 71,531 - --------------------------------------------------------------------------------
The maturity of short-term investments at December 31, 1996, was as follows (in thousands):
Market Value - -------------------------------------------------------------------------------- Within One to One Year Two Years - -------------------------------------------------------------------------------- Municipal obligations $ 20,274 $14,191 Corporate notes and bonds 24,483 2,346 Treasury bills 1,997 1,502 Foreign debt issues 3,008 -- - -------------------------------------------------------------------------------- Total $ 49,762 $18,039 - --------------------------------------------------------------------------------
Included in other current assets at December 31, 1996, is an investment in an equity security with a market value of $4,736,000 (cost of $450,000). Realized gains and losses were not significant in 1996, 1995, or 1994. 18 NOTE 4: INVENTORIES Inventories at December 31 consist of (in thousands):
1996 1995 - -------------------------------------------------------------------------------- Raw materials $ 9,598 $ 7,556 Work in progress 541 660 Finished goods 5,346 2,835 - -------------------------------------------------------------------------------- Total $ 15,485 $11,051 - --------------------------------------------------------------------------------
NOTE 5: PROPERTY AND EQUIPMENT Property and equipment at December 31 consist of (in thousands):
1996 1995 - -------------------------------------------------------------------------------- Land $ 3,505 $ -- Building and improvements 7,195 -- Computer and development equipment 48,107 32,781 Field spares 13,633 11,034 Office equipment 15,393 10,808 Leasehold improvements 8,844 6,431 - -------------------------------------------------------------------------------- Total 96,677 61,054 Accumulated depreciation and amortization (45,329) (32,636) - -------------------------------------------------------------------------------- Property and equipment--net $ 51,348 $28,418 - --------------------------------------------------------------------------------
NOTE 6: OTHER ACCRUED LIABILITIES Other accrued liabilities at December 31 consist of (in thousands):
1996 1995 - -------------------------------------------------------------------------------- Income taxes payable $ 6,263 $ 5,115 Product warranty 3,778 2,397 Other 12,540 7,730 - -------------------------------------------------------------------------------- Total $ 22,581 $15,242 - --------------------------------------------------------------------------------
NOTE 7: CONVERTIBLE SUBORDINATED DEBENTURES During September 1993, the Company issued convertible subordinated debentures ("the debentures") with a face value totaling $55,000,000 in a Rule 144A private placement transaction. In October 1996, the Company converted the debentures, net of unamortized debt issuance costs of $1,233,000, into 5,659,164 shares of common stock. NOTE 8: SHAREHOLDERS' EQUITY Stock Split On December 20, 1996, the Company announced that its Board of Directors approved a two-for-one stock split of the Company's common stock effective January 28, 1997 for holders of record on January 6, 1997. All references in the consolidated financial statements with regard to shares, per share amounts, and share prices have been adjusted for the stock split. 19 Stock Option Plans Under the Company's stock option plans, incentive and nonqualified stock options may be granted to employees, officers, and directors. All options must be granted at fair market value. Options granted to nondirectors become exercisable as determined by the Board of Directors (generally over four or five years) and typically expire ten years after the date of grant. Options granted to outside directors become exercisable over four years and expire five years after the date of grant. A summary of stock option activity follows:
Number of Weighted-Average Shares Exercise Price - -------------------------------------------------------------------------------- Outstanding, December 31, 1993 4,417,044 $ 4.11 Granted 1,830,900 $ 8.92 Canceled (395,700) $ 5.52 Exercised (352,488) $ 2.68 - -------------------------------------------------------------------------------- Outstanding, December 31, 1994 5,499,756 $ 5.70 Granted 2,788,100 $ 13.03 Canceled (690,412) $ 7.09 Exercised (754,682) $ 3.86 - -------------------------------------------------------------------------------- Outstanding, December 31, 1995 6,842,762 $ 8.75 Granted 2,554,000 $ 25.84 Canceled (525,089) $ 13.05 Exercised (723,724) $ 6.16 - -------------------------------------------------------------------------------- Outstanding, December 31, 1996 8,147,949 $ 14.06 - --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ------------------------------------------------- ------------------------------- Weighted-Average Weighted- Weighted- Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ----------------------------------------------------------------------------------------------------------- $ 0.50 - $ 9.50 2,806,740 5.73 years $ 5.09 1,846,101 $ 4.16 $ 9.88 - $17.19 2,820,783 8.17 $ 12.31 919,307 $ 11.84 $ 18.25 - $31.50 2,520,426 9.11 $ 26.00 48,596 $ 18.25 - ----------------------------------------------------------------------------------------------------------- $ 0.50 - $31.50 8,147,949 7.62 $ 14.06 2,814,004 $ 6.91 - -----------------------------------------------------------------------------------------------------------
At December 31, 1996, 4,658,185 shares were available for future grant under the Company's stock option plans. At December 31, 1995 and 1994, options to purchase 1,967,694 and 1,681,780 shares, respectively, were exercisable at weighted-average exercise prices of $4.43 and $3.18, respectively. Employee Stock Purchase Plan In April 1990, the Board of Directors established the 1990 Employee Stock Purchase Plan, under which 2,100,000 common shares are authorized for sale to qualified employees through payroll withholdings at a price equal to 85% of the lower of the fair market value as of the beginning or end of each six-month offering period. At December 31, 1996, 1,621,894 shares had been issued under this plan. 20 Stock-Based Compensation The Company utilizes stock options to attract new employees and retain existing employees. Such options provide the grantee an opportunity to purchase the Company's common stock at the fair market value of such shares as of the date of grant, pursuant to a vesting period ranging from four to five years from the grant date. The options expire based on the earlier of the employee's termination date or typically ten years from the grant date. In 1996, the Company was required to adopt Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123 requires that the fair value of stock-based awards to employees be calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from the Company's stock-based awards. These models also require highly subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated values. Accordingly, management believes that the pro forma amounts below, which are based on the methodology required under SFAS 123, do not necessarily provide a reliable single measure of the fair value of the Company's stock-based awards. SFAS 123 encourages, but does not require, companies to record compensation cost for stock-based awards at fair value. Under this method, compensation cost is measured based on the fair value of the stock award when granted and is recognized as an expense over the service period, which is usually the vesting period. As discussed in Note 1, the Company has chosen to continue to account for stock-based awards using the intrinsic value method prescribed in APB No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for its stock option plans and its stock purchase plan. Had the compensation cost for the Company's stock-based awards been determined based on the fair value at the grant dates for awards under those plans in 1996 and 1995 consistent with the method of SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
1996 1995 - -------------------------------------------------------------------------------- Net income As reported $ 37,633 $23,991 Pro forma $ 27,849 $21,812 - -------------------------------------------------------------------------------- Primary earnings As reported $ 0.79 $ 0.55 per share Pro forma $ 0.58 $ 0.50 - -------------------------------------------------------------------------------- Fully diluted earnings As reported $ 0.74 $ 0.51 per share Pro forma $ 0.56 $ 0.47
The initial impact of adopting SFAS 123 disclosures may not be representative of the effect on pro forma net income and earnings per share in future years because of the following: the impact of outstanding nonvested stock options granted prior to 1995 has been excluded from the pro forma calculations; options vest over several years; and additional option grants may be made each year. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected life, six months following vesting; stock volatility, 50%; risk-free interest rate, approximately 6%; and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. The weighted-average fair value of options granted during 1996 and 1995 was approximately $10.00 and $5.00, respectively. The fair value of the employees' purchase rights under the Employee Stock Purchase Plan was estimated using the Black-Scholes model with the following weighted-average assumptions: expected life, six months; expected volatility, 54% in 1996 and 39% in 1995; risk-free interest rate, approximately 6%; and no dividends during the expected term. The weighted-average fair value of purchase rights granted in 1996 and 1995 was approximately $6.00 and $2.50, respectively. 21 Shares Reserved for Issuance At December 31, 1996, the Company had reserved shares of common stock for issuance as follows:
Stock option plans 12,806,134 Stock purchase plan 478,106 Other stock plans 8,820 - -------------------------------------------------------------------------------- Total 13,293,060 - --------------------------------------------------------------------------------
Repurchase Program During 1992, the Board of Directors approved a program to repurchase up to 3,000,000 shares of the Company's common stock from the open market. Through July 31, 1994, 1,292,000 shares had been repurchased at an aggregate price of $4,934,000 and no shares have been repurchased subsequent to such date. During 1996, the Company terminated its share repurchase program. NOTE 9: INCOME TAXES Tax provisions for the years ended December 31 consist of (in thousands):
1996 1995 1994 - -------------------------------------------------------------------------------- Current: Federal $14,842 $ 10,140 $ 8,257 State 2,371 2,300 1,985 Foreign--net 6,245 3,487 1,346 Deferred: Federal (1,294) (1,730) (753) State 31 (107) (65) - -------------------------------------------------------------------------------- Total $22,195 $ 14,090 $10,770 - --------------------------------------------------------------------------------
Income before income taxes for the years ended December 31 consists of (in thousands):
1996 1995 1994 - -------------------------------------------------------------------------------- Domestic $42,315 $ 27,740 $23,658 Foreign--net 17,513 10,341 4,685 - -------------------------------------------------------------------------------- Total $59,828 $ 38,081 $28,343 - --------------------------------------------------------------------------------
22 A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of income before income taxes for the years ended December 31 is as follows:
1996 1995 1994 - -------------------------------------------------------------------------------- Tax at statutory rate 35.0% 35.0% 35.0% State income taxes-- net of federal effect 2.7 3.8 4.3 Research and develop- ment tax credits (0.5) (0.6) (0.9) Tax exempt investment income (0.7) (1.3) (0.6) Other 0.6 0.1 0.2 ................................................................................ Total 37.1% 37.0% 38.0% ................................................................................
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss carryforwards. Significant components of the Company's deferred income tax assets and liabilities as of December 31 are as follows (in thousands):
1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets: Accruals deductible in different periods $ 4,976 $ 3,557 Depreciation and amortization 1,495 1,752 Revenue recognized in different periods 224 1,291 Net operating loss of foreign subsidiaries 520 404 Overhead in inventory 514 415 ................................................................................ 7,729 7,419 Deferred tax liabilities: Unrealized gains on investments (1,554) -- Tax expenses recognized in different periods -- (97) Valuation allowance for net operating loss of foreign subsidiaries (520) (404) ................................................................................ Net deferred tax asset $ 5,655 $ 6,918 ................................................................................
23 The Company has net operating loss carryforwards of approximately $1,486,000 related to its German and UK subsidiaries that may be utilized to offset future taxable income of those entities. The valuation allowance increased by $116,000 and $40,000 in 1996 and 1995, respectively, and decreased by $250,000 in 1994. NOTE 10: COMMITMENTS AND CONTINGENCIES Manufacturing and administrative facilities are leased under operating leases through 2006. Certain leases provide for escalating rental payments over the lease period, and rent expense for such leases is recognized on a straight-line basis over the terms of the leases. Rent expense was $5,613,000, $3,720,000, and $2,631,000 in 1996, 1995, and 1994, respectively. Future minimum payments under the Company's operating leases at December 31, 1996, are (in thousands):
1997 $ 6,109 1998 5,033 1999 4,592 2000 4,267 2001 2,802 2002 and thereafter 7,405 ................................................................................ Total $30,208 ................................................................................
Periodically, the Company negotiates with third parties to establish patent license or cross-license agreements, and the Company is currently in such negotiations. While the Company cannot predict the outcome of the current negotiations, and to date such negotiations have not resulted in any license or cross-license agreements, based on discussions to date the Company does not expect that any such agreement would have a material adverse effect on the Company's financial condition. In addition, the Company is subject to legal proceedings and claims that arise in the normal course of business. The Company does not expect that any such proceedings or claims would have a material adverse effect on the Company's financial condition or results of operations. NOTE 11: EMPLOYEE BENEFIT PLAN Qualified employees are eligible to participate in the Company's 401(k) tax-deferred savings plan. Participants may contribute up to 17% of their eligible earnings to this plan, for which the Company, at the discretion of the Board of Directors and within certain limitations, may make matching contributions, in addition to discretionary contributions to cover the administrative costs of the plan. Contributions made by the Company to the plan were $1,811,000, $799,000, and $338,000 in 1996, 1995, and 1994, respectively. NOTE 12: OPERATIONS BY GEOGRAPHIC AREA AND MAJOR CUSTOMER The Company operates in the telecommunications industry primarily in North America and Europe. The following represents a summary of operations by geographic area for the years ended December 31 (in thousands): 24
1996 1995 1994 - -------------------------------------------------------------------------------- Net revenues: North America $239,412 $152,731 $112,863 Europe 69,291 46,241 34,376 ................................................................................ Consolidated $308,703 $198,972 $147,239 ................................................................................ North American transfers to other geographic areas $ 19,747 $ 13,076 $ 11,171 ................................................................................ Income from operations: North America $ 41,356 $ 25,256 $ 23,705 Europe 17,360 10,165 4,579 Eliminations (998) 199 (159) ................................................................................ Consolidated $ 57,718 $ 35,620 $ 28,125 ................................................................................ Identifiable assets: North America $247,199 $199,690 $157,682 Europe 40,421 28,746 22,115 Eliminations (4,527) (12,565) (13,762) ................................................................................ Consolidated $283,093 $215,871 $166,035 ................................................................................
Intercompany sales between geographic areas are recorded on the basis of intercompany prices established by the Company. No single customer accounted for 10% or more of net revenues in 1996 or 1995, and one customer accounted for 11% of net revenues in 1994. NOTE 13: FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE The following summary disclosures are made in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About Fair Value of Financial Instruments," which requires the disclosure of fair value information about both on- and off-balance sheet financial instruments where it is practicable to estimate the value. Fair value is defined in SFAS No. 107 as the amount at which an instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale which is not the Company's intent. Because SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Company. Amounts at December 31 consist of (in thousands): 25
1996 1995 ------------------------ -------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - -------------------------------------------------------------------------------- Assets: Cash and cash equivalents $ 47,996 $ 47,996 $ 22,102 $ 22,102 Short-term investments 67,801 67,801 71,531 71,531 Investment in equity security 4,736 4,736 -- -- Liabilities: Convertible subordinated debentures $ -- $ -- $ 55,000 $ 96,456 Commitments: Foreign exchange contracts $ 14,004 $ 14,070 $ 4,170 $ 4,169
At December 31, 1996 and 1995, the Company had $7,848,000 and $1,026,000, respectively, of outstanding foreign exchange contracts in which foreign currencies (primarily German mark and British pound) were sold; and $6,156,000 and $3,144,000, respectively, of outstanding foreign exchange contracts in which British pounds were purchased. Unrealized gains or losses on forward exchange contracts were not significant at December 31, 1996 or 1995. Other than the items disclosed in the previous table, the Company has not entered into any other material financial derivative instruments. The following methods and assumptions were used in estimating the fair values of financial instruments. Cash and Cash Equivalents The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their estimated fair values. Other Financial Instruments The fair value of short-term investments, investment in equity security, convertible subordinated debentures, and foreign exchange contracts is based on quoted market prices. 26 Excerpts from page 45 of the 1996 Annual Report to Shareholders. Independent Auditors' Report. To the Shareholders and Board of Directors of Aspect Telecommunications Corporation: We have audited the accompanying consolidated balance sheets of Aspect Telecommunications Corporation and its subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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, such consolidated financial statements present fairly, in all material aspects, the financial position of Aspect Telecommunications Corporation and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP San Jose, California January 14, 1997 27 Quarterly Financial Data
QUARTER ENDED MARCH 31(a) JUNE 30(a) SEPT. 30(a) DEC. 31(b) - --------------------------------------------------------------------------------------------------------- (Unaudited; in thousands, except per share data) Consolidated statement of income data: 1996 Net revenues $ 67,025 $ 72,905 $ 80,224 $ 88,549 Gross margin 38,684 41,873 45,138 49,086 Income from operations 13,158 14,112 14,948 15,500 Net income 8,425 9,074 9,690 10,444 Net income per share(c): Primary 0.18 0.19 0.21 0.20 Fully diluted 0.17 0.18 0.19 0.20 1995 Net revenues $ 42,726 $ 46,229 $ 49,299 $ 60,718 Gross margin 23,525 26,119 27,614 34,338 Income from operations 7,823 8,665 9,087 10,045 Net income 5,149 5,833 6,398 6,611 Net income per share(c): Primary 0.12 0.14 0.15 0.15 Fully diluted 0.12 0.13 0.14 0.14
- ---------- (a) The financial results for 1996 have been restated to reflect the acquisitions of Envoy Holdings Limited on September 30, 1996, and Prospect Software, Inc., on October 21, 1996. Both acquisitions were accounted for as pooling of interests. Results for 1995 have not been restated since the adjustments would not be material (see Note 2 to the Consolidated Financial Statements). (b) In October 1995, the Company acquired TCS Management Group, Inc., in a transaction accounted for as a purchase. In connection with the transaction, a charge of $1.8 million, or $0.02 per share on a fully diluted basis, was recorded for purchased in-process technology (see Note 2 to the Consolidated Financial Statements). (c) Per share data reflects a two-for-one stock split effective January 28, 1997. 28 Excerpts from page 46 of the 1996 Annual Report to Shareholders. Corporate Information CORPORATE OFFICERS James R. Carreker Chairman and Chief Executive Officer Dennis L. Haar President and Chief Operating Officer Robert A. Blatt Vice President, Worldwide Products Shelley C. Brown Vice President, People Programs and Services Kathleen M. Cruz Vice President, Information Technology and Chief Information Officer Robert D. Drescher Vice President, Worldwide Marketing Eric J. Keller Vice President, Finance and Chief Financial Officer John D. Meyers Principal Engineer, Product Technology and Chief Technical Officer Larry S. Miller Vice President, North America R. Dixon (Dirk) Speas, Jr. Vice President, International David M. Yoffie Vice President, Worldwide Operations BOARD OF DIRECTORS James R. Carreker Chairman and Chief Executive Officer Aspect Telecommunications Corporation Debra J. Engel Senior Vice President of Corporate Services 3Com Corporation Norman A. Fogelsong General Partner Institutional Venture Partners James L. Patterson Chairman of the Board Clarify Inc. John W. Peth Executive Vice President TAB Products Company SECRETARY Craig W. Johnson Director, Venture Law Group INDEPENDENT AUDITORS Deloitte & Touche LLP San Jose, California 29 LEGAL COUNSEL Venture Law Group Menlo Park, California TRANSFER AGENT Boston EquiServe, L.P. Boston, Massachusetts INVESTOR RELATIONS Additional copies of this Annual Report and other financial information are available without charge upon written request to: Investor Relations Department Aspect Telecommunications 1730 Fox Drive San Jose, California 95131-2312 Telephone: +1 (408) 325-2629 E-mail: invest@aspect.com STOCK LISTING Aspect Telecommunications Corporation's common stock is traded on the Nasdaq Stock Market under the symbol "ASPT." As of December 31, 1996, there were approximately 650 shareholders of record of the Company's common stock. STOCK PRICE
Quarter High Low - -------------------------------------------------------------------------------- Q1 1995 9 5/8 7 11/16 Q2 1995 11 7/16 8 7/8 Q3 1995 13 7/8 10 9/16 Q4 1995 19 5/8 12 1/8 Q1 1996 26 1/4 14 7/8 Q2 1996 29 1/2 22 1/16 Q3 1996 32 3/4 14 5/8 Q4 1996 32 3/8 22 3/8
All prices have been adjusted for the January 1997 and September 1995 two-for-one stock splits. DIVIDEND POLICY The Company has never paid cash dividends on its capital stock. The Company currently anticipates that it will retain all available funds for use in its business. ANNUAL MEETING Aspect Telecommunications Corporation's annual meeting of shareholders will be held at 3:30 p.m. on April 29, 1997, at: The Four Seasons Hotel 57 East 57th Street New York, New York Telephone: +1 (212) 758-5700 EX-21.1 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Aspect Telecommunications Ltd. The Harlequin Centre Southall Lane Southall, Middlesex UB2 5NH United Kingdom 011-44-181-574-6969 011-44-181-571-6126 (fax) Aspect Telecommunications B.V. Antareslaan 35-37 Postbus 3014 2130 KA Hoofddorp The Netherlands 011-31-23-567-5678 011-31-23-562-3408 (fax) Aspect Telecommunications GmbH Monza Park Monza Strasse 2 B 63225 Langen Germany 011-49-61-039-070 011-49-61-039-07100 (fax) Aspect Telecommunications N.V. Bessenveldstraat 25a 1832 Diegem Belgium 011-32-2-716-4010 011-32-2-716-4105 (fax) Envoy Holdings Limited Sovereign Gate 18-20 Kew Road Richmond, Surrey TW9 2NA United Kingdom 011-44-181-948-6000 011-44-181-948-6712 (fax) Prospect Software, Inc. 1737 N. First Street Suite 240 San Jose, California 95112 (408) 451-2451 (408) 451-2454 (fax) TCS Management Group, Inc. 5410 Maryland Way Brentwood, Tennessee 37027 (615) 221-6800 (615) 221-6810 (fax) EX-23.1 6 INDEPENDENT AUDITORS' CONSENT AND REPORT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE ASPECT TELECOMMUNICATIONS CORPORATION: We consent to the incorporation by reference in Registration Statement Nos. 33-36437, 33-36438, 33-39243, 33-69010, 33-50048, 33-94810 and 333-07407 of Aspect Telecommunications Corporation on Form S-8 and Registration Statement No. 333-19893 of Aspect Telecommunications Corporation on Form S-3 of our report dated January 14, 1997, incorporated by reference in this Annual Report on Form 10-K of Aspect Telecommunications Corporation for the year ended December 31, 1996. Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of Aspect Telecommunications Corporation, listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP San Jose, California March 26, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCORPORATED BY REFERENCE, IN THE COMPANY'S FORM 10-K AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 47,996 67,801 54,413 1,202 15,485 199,224 96,677 45,329 283,093 59,145 4,500 0 0 128,186 91,262 283,093 230,539 308,703 77,374 133,922 117,063 0 2,774 59,828 22,195 37,633 0 0 0 37,633 0.79 0.74
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