-----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, UI0axBTXvme3ad5cd1gDPxyN6yXyC8NODt4RyQJn/4aZf4qns1jbM+I3QstE9h7J h4Z9U55aPZTkD2v4kK9WNw== 0000891618-98-002444.txt : 19980518 0000891618-98-002444.hdr.sgml : 19980518 ACCESSION NUMBER: 0000891618-98-002444 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASPECT TELECOMMUNICATIONS CORP CENTRAL INDEX KEY: 0000779390 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 953962471 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18391 FILM NUMBER: 98622258 BUSINESS ADDRESS: STREET 1: 1730 FOX DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084412200 MAIL ADDRESS: STREET 1: 1730 FOX DRIVE CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______to ______ Commission file number: 0-18391 ASPECT TELECOMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) California 94-2974062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1730 Fox Drive, San Jose, California 95131-2312 (Address of principal executive offices and zip code) Registrant's telephone number: (408) 325-2200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the Registrant's Common Stock, $.01 par value, was 50,390,902 at April 30, 1997. 2 ASPECT TELECOMMUNICATIONS CORPORATION INDEX
Description Page Number - -------------------------------------------------------------------------------- ----------- Cover Page 1 Index 2 Part I: Financial Information Item 1: Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Income for the Three Month Periods Ended March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II: Other Information Item 1: Legal Proceedings 13 Item 6: Exhibits and Reports on Form 8-K 14 Signature 15
2 3 ASPECT TELECOMMUNICATIONS CORPORATION PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS
March 31, December 31, 1998 1997 ---------- ----------- (unaudited) ** Current assets: Cash and cash equivalents $ 59,563 $ 106,046 Short-term investments 87,243 40,170 Accounts receivable, net 94,866 86,896 Inventories 13,265 12,306 Other current assets 16,152 20,413 ---------- ---------- Total current assets 271,089 265,831 Property and equipment, net 62,161 58,704 Intangible assets, net 41,022 42,654 Other assets 3,138 3,154 ---------- ---------- Total assets $ 377,410 $ 370,343 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,120 $ 9,401 Current portion of notes payable 6,149 6,399 Accrued compensation and related benefits 15,740 14,256 Accrued intellectual property settlement -- 14,000 Other accrued liabilities 29,966 36,335 Customer deposits and deferred revenue 22,637 15,626 ---------- ---------- Total current liabilities 86,612 96,017 Notes payable 6,607 6,531 Shareholders' equity: Preferred stock, $.01 par value: 2,000,000 shares authorized, none outstanding in 1998 and 1997 -- -- Common stock, $.01 par value: 100,000,000 shares authorized, shares outstanding: 50,250,440 in 1998 and 49,996,731 in 1997 147,897 144,524 Net unrealized gain on available-for-sale securities 148 1,267 Accumulated translation adjustments (1,706) (1,951) Retained earnings 137,852 123,955 ---------- ---------- Total shareholders' equity 284,191 267,795 ---------- ---------- Total liabilities and shareholders' equity $ 377,410 $ 370,343 ========== ==========
** Derived from audited financial statements. See accompanying notes. 3 4 ASPECT TELECOMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except per share amounts)
Three Months Ended March 31, ------------------------ 1998 1997 -------- -------- Net revenues: Product $ 77,332 $ 67,552 Customer support 36,125 24,066 -------- -------- Total net revenues 113,457 91,618 Cost of revenues: Cost of product revenues 24,372 23,205 Cost of customer support revenues 24,170 17,226 -------- -------- Total cost of revenues 48,542 40,431 -------- -------- Gross margin 64,915 51,187 Operating expenses: Research and development 12,830 10,962 Selling, general and administrative 31,084 23,384 -------- -------- Total operating expenses 43,914 34,346 -------- -------- Income from operations 21,001 16,841 Interest income, net 1,413 1,413 -------- -------- Income before income taxes 22,414 18,254 Provision for income taxes 8,517 7,028 -------- -------- Net income $ 13,897 $ 11,226 ======== ======== Basic earnings per share $ 0.28 $ 0.23 Weighted average shares outstanding 50,146 48,893 Diluted earnings per share $ 0.26 $ 0.21 Weighted average shares outstanding--assuming dilution 53,071 52,471
See accompanying notes. 4 5 ASPECT TELECOMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)
Three Months Ended March 31, ----------------------- 1998 1997 -------- -------- Cash flows from operating activities: Net income $ 13,897 $ 11,226 Reconciliation of net income to cash provided by operating activities: Depreciation and amortization 6,710 3,862 Changes in: Accounts receivable (7,928) (10,776) Inventories (978) 2,180 Other current assets and other assets 2,050 376 Accounts payable 2,714 3,229 Accrued compensation and related benefits 1,407 1,686 Accrued intellectual property settlement (14,000) - Other accrued liabilities (4,696) 4,896 Customer deposits and deferred revenue 7,310 (690) -------- -------- Cash provided by operating activities 6,486 15,989 Cash flows from financing activities: Common stock transactions 2,192 1,025 Payment on note payable (250) - -------- -------- Cash provided by financing activities 1,942 1,025 Cash flows from investing activities: Short-term investment purchases (75,988) (19,903) Short-term investment sales and maturities 28,915 19,790 Property and equipment purchases (9,006) (5,972) -------- -------- Cash provided by (used in) investing activities (56,079) (6,085) Effect of exchange rate changes on cash and cash equivalents 1,168 (105) -------- -------- Increase in cash and cash equivalents (46,483) 10,824 Cash and cash equivalents: Beginning of period 106,046 47,996 -------- -------- End of period $ 59,563 $ 58,820 ======== ========
See accompanying notes. 5 6 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The consolidated financial statements include the accounts of Aspect Telecommunications Corporation (Aspect or the Company) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and notes thereto included in the Company's 1997 Annual Report to Shareholders attached as an appendix to the Proxy Statement for the 1998 Annual Meeting of Shareholders. Certain prior year amounts have been reclassified to conform to the current year presentation. Business Combinations In September 1997, the Company acquired Commerce Soft Inc. (Commerce Soft), a developer of customer interaction technology, and its results of operations are included in the accompanying financial statements since the date of acquisition. The transaction was accounted for as a purchase that resulted in a one-time charge of $4.9 million in the third quarter of 1997 related to in-process technology. Inventories Inventories, valued at the lower of cost (first-in, first-out) or market, consist of:
(in thousands) March 31, December 31, 1998 1997 --------- ------------ Raw materials $ 6,617 $ 5,331 Work in progress 4,360 3,624 Finished goods 2,288 3,351 -------- -------- Total $ 13,265 $ 12,306 ======== ========
6 7 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Per Share Information Basic earnings per share (EPS) is computed by dividing net income by the weighted average common shares outstanding for the period while diluted EPS also includes the dilutive impact of stock options. Basic and diluted EPS for the three month periods ended March 31 are calculated as follows (in thousands, except per share data):
1998 1997 -------- -------- Basic EPS: Weighted average shares outstanding 50,146 48,893 Net income $ 13,897 $ 11,226 Basic EPS $ 0.28 $ 0.23 -------- -------- Diluted EPS: Weighted average shares outstanding 50,146 48,893 Dilutive effect of options 2,925 3,578 -------- -------- Total 53,071 52,471 Net income $ 13,897 $ 11,226 Diluted EPS $ 0.26 $ 0.21 -------- --------
Contingencies On March 5, 1997, Lucent Technologies Inc. (Lucent) filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania alleging that the Company infringed four of Lucent's U.S. patents (the Lucent Patents). In its complaint, Lucent sought to enjoin the Company from allegedly continuing to infringe the Lucent Patents and sought an unspecified amount of compensatory damages; treble damages for alleged willful infringement; and interest, expenses, and attorneys' fees. On February 4, 1998, the Company filed a complaint in the United States District Court, Northern District of California, asserting that Lucent infringed seven Aspect patents. Lucent responded by filing for a declaratory judgment regarding these Aspect patents in the United States District Court, Northern District of Texas. On February 27, 1998, the Company announced that it entered into a patent cross-license agreement with Lucent, under which each party agreed to dismiss their patent lawsuits against each other, released each other from claims of past infringement, and settled their patent disputes. Under the agreement, Aspect paid Lucent a one-time fee and, for the duration of the cross-license agreement, will pay royalties that are not expected to be material to Aspect's future results of operations. As part of the settlement, Aspect recorded a non-recurring charge of $14,000,000 (approximately 17 cents per diluted share) for the quarter and year ended December 31, 1997. In addition, the Company is from time to time involved in litigation or claims that arise in the normal course of business. The Company does not expect that any current litigation or claims will have a material adverse effect on the Company's business, operating results, and financial condition. 7 8 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Comprehensive Income In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which requires an enterprise to report the change in net assets during the period from nonowner sources ("comprehensive income"). For the three months ended March 31, 1998 and 1997, comprehensive income was $13,023,000 and $9,453,000, respectively, representing net income for these periods and changes in unrealized gains on available-for-sale securities and accumulated translation adjustments. New Accounting Pronouncements In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). This statement provides guidance for an enterprise on accounting for the costs of computer software developed or obtained for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. On a forward-looking basis, the Company anticipates that accounting for transactions under SOP 98-1 will not have a material impact on the Company's financial position or results of operations. In October 1997, the AICPA issued Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). This statement provides guidance for an enterprise on applying generally accepted accounting principles in recognizing revenue on software transactions. The Company adopted SOP 97-2 in the first quarter of 1998 with an insignificant impact on its consolidated financial position or results of operations. On a forward-looking basis, the Company anticipates that accounting for transactions under SOP 97-2 will not have a material impact on the Company's financial position or results of operations. Also, in June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. This statement is effective for fiscal years beginning after December 15, 1997. Adoption of this statement will not impact the Company's consolidated financial position or results of operations. Subsequent Event On May 11, 1998, the Company acquired Voicetek Corporation (Voicetek), a leading provider of software platforms and application solutions including interactive voice response (IVR) and network-deployed enhanced services solutions. The acquisition will be accounted for as a purchase. The aggregate purchase price consisted of approximately $72 million in cash for all of Voicetek's common and preferred shares outstanding, conversion of all outstanding options to purchase Voicetek common stock into options to purchase approximately 450,000 shares of the Company's common stock with a fair value of approximately $11 million, plus transaction costs of approximately $3.5 million. The Company expects to record a one-time charge in the second quarter of 1998 of between $65 to $70 million ($1.20 to $1.30 per share) for purchased in-process technology that had not reached technological feasibility and had no alternative future use. 8 9 ASPECT TELECOMMUNICATIONS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I - -- Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis in the Company's 1997 Annual Report to Shareholders. Aspect Telecommunications Corporation (Aspect or the Company) is a worldwide provider of comprehensive business solutions for companies that generate revenue, serve customers, and handle inquiries. The Company's solutions include automatic call distributor (ACD) systems and software; computer-telephony integration (CTI) application software and tools; interactive voice response (IVR) systems; Web response systems; management information and reporting tools; and planning and forecasting packages. The Company also delivers consulting, training, and systems integration services that help companies plan, integrate, staff, and manage call centers effectively. On May 11, 1998, the Company acquired Voicetek Corporation (Voicetek), a leading provider of software platforms and application solutions including interactive voice response (IVR) and network-deployed enhanced services solutions. The acquisition will be accounted for as a purchase. The aggregate purchase price consisted of approximately $72 million in cash for all of Voicetek's common and preferred shares outstanding, conversion of all outstanding options to purchase Voicetek common stock into options to purchase approximately 450,000 shares of the Company's common stock with a fair value of approximately $11 million, plus transaction costs of approximately $3.5 million. The Company expects to record a one-time charge in the second quarter of 1998 of between $65 to $70 million ($1.20 to $1.30 per share) for purchased in-process technology that had not reached technological feasibility and had no alternative future use. In February 1998, Aspect and Lucent announced that they had agreed to dismiss their patent lawsuits against each other, released each other from claims of past infringement, and settled their patent disputes by entering into a cross-license agreement. Under the terms of the agreement, Aspect agreed to pay Lucent a one-time fee and future royalties. As a result of this subsequent event affecting the 1997 consolidated financial statements, the Company recorded a non-recurring charge of $14 million in its fourth fiscal quarter ended December 31, 1997. In September 1997, the Company acquired Commerce Soft Inc. (Commerce Soft), a developer of customer interaction technology, and its results of operations are included in the accompanying financial statements since the date of acquisition. The transaction was accounted for as a purchase which resulted in a one-time charge of $4.9 million in 1997 related to in-process technology. Except for historical information contained herein, the matters discussed in this report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended; Section 32E of the Securities and Exchange Act of 1934, as amended; and the Private Securities Litigation Reform Act of 1995; and are made under the safe-harbor provisions thereof. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include variability and uncertainty of revenues and operating results; volatility of stock price; product concentration, technological change, and new products; potential software defects; competition; intellectual property/litigation; management of growth; dependence on key personnel; limited sources of component supply; licenses from third parties; geographic concentration; acquisitions and investments; international operations; regulatory requirements; expansion of distribution channels; and year 2000 compliance issues. For a more detailed description of these risks and uncertainties, see the section titled "Management's Discussion and Analysis - Business Environment and Risk Factors" in the Company's 1997 Annual Report to Shareholders. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the 9 10 ASPECT TELECOMMUNICATIONS CORPORATION date hereof. Aspect undertakes no obligation to publicly release any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof. RESULTS OF OPERATIONS Net Revenues Total net revenues for the first quarter of 1998 were $113 million, representing an increase of 24% compared with total net revenues of $92 million for the same period of 1997. Product revenues for the first quarter of 1998 were $77 million, representing an increase of 14% when compared with product revenues of $68 million for the same period of 1997. The increase in product revenues was primarily attributable to increased demand for add-ons and new systems. Growth in product revenues was higher in international markets than in North America as compared to the same period of 1997. Average selling prices on new systems remained relatively unchanged across the periods. In October 1997, the AICPA issued Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). This statement provides guidance for an enterprise on applying generally accepted accounting principles in recognizing revenue on software transactions. The Company adopted SOP 97-2 in the first quarter of 1998 with an insignificant impact on its consolidated financial position or results of operations. On a forward-looking basis, the Company anticipates that accounting for transactions under SOP 97-2 will not have a material impact on the Company's financial position or results of operations. Customer support revenues for the first quarter of 1998 were $36 million, representing an increase of 50% when compared to the first quarter of 1997. The increase in customer support revenues resulted primarily from increases in the Company's maintenance revenue as a result of the growth in its installed base, and consulting and system integration (C&SI) revenue. Customer support revenues include charges for providing contractually agreed-upon system service and maintenance (which are primarily affected by growth in the installed base); charges to install products; consulting and systems integration revenue; and other support services. Gross Margin on Product Revenues Product gross margin increased to 68% for the first quarter of 1998 from 66% for the same period of 1997. The increase in product gross margin reflects increased add-on margins, and the higher mix of add-on revenues, which generally carry higher margins. On a forward-looking basis, the Company expects that the following factors, among others, could have a material impact on product gross margins: the mix of products sold; the channel of distribution; the portion of systems revenues related to accounts purchasing multiple systems; the mix and level of third-party product included as part of systems integration projects; the results of recently acquired subsidiaries and newly established business units; and cross-licensing or royalty arrangements with third parties. Gross Margin on Customer Support Revenues Customer support gross margin increased to 33% for the first quarter of 1998 from 28% for the same period of 1997. The increase in customer support gross margin was primarily attributable to growth in maintenance and C&SI revenues at a rate greater than related costs. On a forward-looking basis, the Company anticipates that customer support margins will fluctuate from period to period due to fluctuations in customer support revenues (since many of the costs of providing customer support do not vary 10 11 ASPECT TELECOMMUNICATIONS CORPORATION proportionately with customer support revenues), ongoing efforts to expand the Company's customer support infrastructure, and the ongoing results of the Company's C&SI business unit. Research and Development Expenses Research and development (R&D) expenses were $13 million for the first quarter of 1998, a $2 million, or 17% increase from the same period of 1997. R&D increases were primarily attributable to increased personnel and labor costs, as well as other infrastructure costs. As a percentage of net revenues, R&D spending was 11% for the first quarter 1998 compared to 12% for the same period of 1997. The Company continues to believe that significant investment in R&D is required to remain competitive and anticipates, on a forward-looking basis, that such expenses will increase in terms of absolute dollars for 1998 as a whole, when compared to 1997, although such expenses as a percentage of net revenues may fluctuate between periods. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses were $31 million for the first quarter of 1998, representing an increase of 33% when compared with SG&A expenses of $23 million for the same period of 1997. The increase in SG&A was primarily related to increased personnel, infrastructure, and legal costs. As a percentage of net revenues, SG&A was 27% for the first quarter of 1998 compared with 26% for the same period in 1997. The Company anticipates, on a forward-looking basis, that SG&A expenses will continue to increase in terms of absolute dollars for 1998 as a whole, when compared to 1997, although such expenses as a percentage of net revenues may fluctuate between periods. Net Interest Income Net interest income was $1.4 million for both first quarter 1998 and 1997. Net interest income in 1998 remained flat compared to the same period in 1997, reflecting higher interest earning balances, offset by a higher proportion of tax advantaged securities, which yield a lower interest before taxes, and increased interest expense related to notes payable. On a forward looking basis, net interest income is expected to decline significantly as a result of the acquisition of Voicetek. Income Taxes The Company's effective income tax rate was 38.0% for the first quarter 1998, down from 38.5% for the comparable period in 1997. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1998, the Company's principal source of liquidity consisted of cash, cash equivalents, and short-term investments totaling $147 million, which represented 39% of total assets. The primary sources of cash for the first three months of 1998 consisted of cash provided by operating activities of $6 million, net of payments related to an intellectual property settlement, and proceeds from the issuance of common stock under various stock plans of $2 million. The primary use of cash for the three month period of 1998 was for net purchases of short-term investments of $47 million and property and equipment purchases of approximately $9 million. As of March 31, 1998, the Company's outstanding borrowings, including current and non-current portions of notes payable, totaled $12.8 million. Borrowings consisted of a $4.5 million note payable incurred in connection with the acquisition of TCS Management Group, Inc. (TCS), and $8.3 million related to acquisitions of intellectual property during 1997. 11 12 ASPECT TELECOMMUNICATIONS CORPORATION On May 11, 1998, the Company paid approximately $72 million in connection with the acquisition of Voicetek. The Company believes, on a forward-looking basis, that its cash, cash equivalents, and short-term investments and anticipated cash flow from operations, potentially supplemented by additional financing, will be sufficient to meet the Company's presently anticipated cash requirements during at least the next twelve months. NEW ACCOUNTING PRONOUNCEMENTS In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). This statement provides guidance for an enterprise on accounting for the costs of computer software developed or obtained for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. On a forward-looking basis, the Company anticipates that accounting for transactions under SOP 98-1 will not have a material impact on the Company's financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not impact the Company's consolidated financial position or results of operations. This statement is effective for fiscal years beginning after December 15, 1997. 12 13 ASPECT TELECOMMUNICATIONS CORPORATION PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The segment of the telecommunications market that includes the Company's products has been characterized by extensive litigation regarding patents and other intellectual property rights. As is common in the telecommunications industry, the Company has been in the past and may in the future be notified of claims that its products or services are subject to patents or other proprietary rights of third parties. While the Company is not aware that its products or processes infringe any valid third-party patents or proprietary rights, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company. Periodically, the Company negotiates with third parties to establish patent license or cross-license agreements. There can be no assurance that such negotiations will result in the Company obtaining a license on satisfactory terms or at all. Moreover, license agreements with third parties may not include all intellectual property rights that may be issued to or owned by the licensors, and thus future disputes with these companies are possible. In the event an intellectual property dispute is not settled through a license, litigation could ensue. Any litigation, or interference proceedings that may be declared by the United States Patent and Trademark Office to determine the priority of inventions, could result in substantial expense to the Company and significant diversion of effort by the Company's technical and managerial personnel. An adverse determination in such litigation or proceeding, could prevent the Company from making, using, or selling certain of its products, and subject the Company to damage assessments, all of which could have a material adverse effect on the Company's business, operating results, or financial condition. On March 5, 1997, Lucent filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania alleging that the Company infringed four of Lucent's U.S. patents (the Lucent Patents). In its complaint, Lucent sought to enjoin the Company from allegedly continuing to infringe the Lucent Patents and sought an unspecified amount of compensatory damages; treble damages for alleged willful infringement; and interest, expenses, and attorneys' fees. On February 4, 1998, the Company filed a complaint in the United States District Court, Northern District of California, asserting that Lucent infringed seven Aspect patents. Lucent responded by filing for a declaratory judgment regarding these Aspect patents in the United States District Court, Northern District of Texas. On February 27, 1998, the Company announced that it entered into a patent cross-license agreement with Lucent, under which each party agreed to dismiss their patent lawsuits against each other, released each other from claims of past infringement, and settled their patent disputes. Under the agreement, Aspect paid Lucent a one-time fee and, for the duration of the cross-license agreement, will pay royalties that are not expected to be material to Aspect's future results of operations. As part of the settlement, Aspect recorded a non-recurring charge of $14,000,000 (approximately 17 cents per diluted share) for the quarter and year ended December 31, 1997. In addition, the Company is from time to time involved in litigation or claims that arise in the normal course of business. The Company does not expect that any current litigation or claims will have a material adverse effect on the Company's business, operating results, and financial condition. 13 14 ASPECT TELECOMMUNICATIONS CORPORATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS Exhibit 27 Financial Data Schedule B. REPORTS ON FORM 8-K Reports on Form 8-K filed during the quarter ended March 31, 1998: Form 8-K dated February 27, 1998 Item 5. Other Events - Announcement of settlement of Lucent Technology Inc. lawsuit and patent cross-licensing agreement. Item 7. Financial Statements, Pro forma Financial Information and Exhibits. Exhibit 99.1 Aspect Telecommunications Corporation and Lucent Technologies Inc. press release dated February 27, 1998. Exhibit 99.2 Aspect Telecommunications Corporations press release dated February 27, 1998. 14 15 ASPECT TELECOMMUNICATIONS CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aspect Telecommunications Corporation (Registrant) Date: May 15, 1998 By /s/ Eric J. Keller ---------------------------------------- Eric J. Keller Vice President, Finance and Chief Financial Officer (Duly Authorized and Principal Financial and Accounting Officer) 15 16 INDEX TO EXHIBITS
Exhibit Number Description - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 59,563 87,243 96,777 1,911 13,265 271,089 128,702 66,541 377,410 86,612 6,607 0 0 147,897 136,294 377,410 77,332 113,457 24,372 48,542 43,914 0 30 22,414 8,517 0 0 0 0 13,897 0.28 0.26
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