-----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, Fh7VsTuksA2oh7qYxnKQ8XVlHI2qp3jPa7Jwqy8HjxIA1CVMraLmf26MyDv03ogZ eCLj1x6QLGF8SXJH2G0S0w== 0000891618-97-003407.txt : 19970814 0000891618-97-003407.hdr.sgml : 19970814 ACCESSION NUMBER: 0000891618-97-003407 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASPECT TELECOMMUNICATIONS CORP CENTRAL INDEX KEY: 0000779390 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 953962471 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18391 FILM NUMBER: 97658367 BUSINESS ADDRESS: STREET 1: 1730 FOX DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084412200 MAIL ADDRESS: STREET 1: 1730 FOX DRIVE CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1997 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 June 30, 1997 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 49,352,904 at July 31, 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 June 30, 1997 and December 31, 1996 3 Condensed Consolidated Statements of Income for the Three and Six Month Periods Ended June 30, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 1997 and 1996 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 4:Submission of Matters to a Vote of Security Holders 14 Item 6:Exhibits and Reports on Form 8-K 14 Signature 15
2 3 ASPECT TELECOMMUNICATIONS CORPORATION PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30, December 31, 1997 1996 ------------ ------------ (unaudited) ** ASSETS Current assets: Cash and cash equivalents $ 76,751 $ 47,996 Short-term investments 57,438 67,801 Accounts receivable, net 67,624 53,211 Inventories 11,403 15,485 Other current assets 13,848 14,731 ------------ ------------ Total current assets 227,064 199,224 Property and equipment, net 56,521 51,348 Intangible assets, net 26,970 28,888 Other assets 3,512 3,633 ------------ ------------ Total assets $ 314,067 $ 283,093 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,758 $ 10,027 Accrued compensation and related benefits 9,712 8,896 Other accrued liabilities 28,275 20,741 Customer deposits and deferred revenue 14,781 19,481 ------------ ------------ Total current liabilities 64,526 59,145 Note payable 4,500 4,500 Shareholders' equity: Preferred stock, $.01 par value: 2,000,000 shares authorized, none outstanding in 1997 and 1996 -- -- Common stock, $.01 par value: 100,000,000 shares authorized, shares outstanding: 49,264,783 in 1997 and 48,806,580 in 1996 132,546 128,186 Net unrealized gain on available-for-sale securities 1,086 2,534 Accumulated translation adjustments (1,166) (45) Retained earnings 112,575 88,773 ------------ ------------ Total shareholders' equity 245,041 219,448 ------------ ------------ Total liabilities and shareholders' equity $ 314,067 $ 283,093 ============ ============ ** 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 June 30, Six Months Ended June 30, ------------------------ ------------------------ 1997 1996 1997 1996 ======== ======== ======== ======== Net revenues: Product $ 65,932 $ 54,927 $133,484 $105,501 Customer support 27,610 17,978 51,676 34,429 -------- -------- -------- -------- Total net revenues 93,542 72,905 185,160 139,930 Cost of revenues: Cost of product revenues 20,479 18,097 43,684 34,634 Cost of customer support revenues 19,673 12,935 36,899 24,739 -------- -------- -------- -------- Total cost of revenues 40,152 31,032 80,583 59,373 -------- -------- -------- -------- Gross margin 53,390 41,873 104,577 80,557 Operating expenses: Research and development 11,550 8,181 22,512 15,665 Selling, general and administrative 24,820 19,580 48,204 37,622 -------- -------- -------- -------- Total operating expenses 36,370 27,761 70,716 53,287 -------- -------- -------- -------- Income from operations 17,020 14,112 33,861 27,270 Interest and other income, net 3,428 314 4,841 551 -------- -------- -------- -------- Income before income taxes 20,448 14,426 38,702 27,821 Provision for income taxes 7,872 5,352 14,900 10,322 -------- -------- -------- -------- Net income $ 12,576 $ 9,074 $ 23,802 $ 17,499 ======== ======== ======== ======== Primary earnings per share: Net income per share (a) $ 0.24 $ 0.19 $ 0.46 $ 0.38 ======== ======== ======== ======== Shares used in per share computations (a) 51,956 46,623 52,201 46,346 ======== ======== ======== ======== Fully diluted earnings per share: Net income per share (a) $ 0.24 $ 0.18 $ 0.46 $ 0.35 ======== ======== ======== ======== Shares used in per share computations (a) 52,063 52,282 52,201 52,143 ======== ======== ======== ======== (a) Share and per share data for all periods presented reflect a two-for-one stock split effective January 28, 1997.
See accompanying notes. 4 5 ASPECT TELECOMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)
Six Months Ended June 30, ------------------------- 1997 1996 -------- -------- Cash flows from operating activities: Net income $ 23,802 $ 17,499 Reconciliation of net income to cash provided by operating activities: Depreciation and amortization 9,567 6,771 Gain on the sale of equity securities (2,070) -- Changes in: Accounts receivable (15,083) (3,056) Inventories 3,826 (987) Other current assets and other assets 568 (1,974) Accounts payable 1,782 (3,882) Accrued compensation and related benefits 835 (146) Other accrued liabilities 8,911 6,768 Customer deposits and deferred revenue (4,518) 1,744 -------- -------- Cash provided by operating activities 27,620 22,737 Cash flows from financing activities: Common stock transactions 4,360 3,930 -------- -------- Cash provided by financing activities 4,360 3,930 Cash flows from investing activities: Short-term investment purchases (26,770) (51,719) Short-term investment sales and maturities 37,345 48,522 Property and equipment purchases (13,822) (10,419) -------- -------- Cash used in investing activities (3,247) (13,616) Effect of exchange rate changes on cash and cash equivalents 22 346 -------- -------- Increase in cash and cash equivalents 28,755 13,397 Cash and cash equivalents: Beginning of period 47,996 22,102 -------- -------- End of period $ 76,751 $ 35,499 ======== ========
See accompanying notes. 5 6 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The consolidated financial statements include the accounts of Aspect Telecommunications Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and 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 and six month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and notes thereto included in the Company's 1996 Annual Report to Shareholders. Certain prior year amounts have been reclassified to conform to the current year presentation. Per Share Information Per share information for the periods presented is computed using the weighted average number of common and common-equivalent shares outstanding. For primary earnings per share calculations, common-equivalent shares consist of the incremental shares issuable upon the assumed exercise of dilutive stock options using the treasury stock method. The fully diluted earnings per share calculations for both the three and six month periods ended June 30, 1997 are computed in a manner similar to the primary earnings per share calculations. For the fully diluted earnings per share calculations for both the three and six month periods ended June 30, 1996, common-equivalent shares also include the dilutive effect of incremental shares issuable upon the conversion of the 5% convertible subordinated debentures, and net income is adjusted for the interest expense, net of income taxes, related to the debentures. 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. Inventories Inventories, valued at the lower of cost (first-in, first-out) or market, consist of:
(in thousands) June 30, December 31, 1997 1996 ---------- ---------- Raw materials $ 9,239 $ 9,598 Work-in-progress 341 541 Finished goods 1,823 5,346 ---------- ---------- Total $ 11,403 $ 15,485 ========== ==========
6 7 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and will restate at that time earnings per share (EPS) data for prior periods to conform with SFAS 128. Earlier application is not permitted. SFAS 128 replaces current EPS reporting requirements and requires dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. If SFAS 128 had been in effect during the three month periods ended June 30, 1997 and 1996, basic EPS would have been $0.26 and $0.21, respectively. If the pronouncement had been in effect during the six month periods ended June 30, 1997 and 1996, basic EPS would have been $0.49 and $0.41, respectively. Diluted EPS under SFAS 128 would have been the same as the fully diluted EPS currently reported for all periods presented. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources, and 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, results of operations or cash flows. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. Contingencies Periodically, the Company negotiates with third parties to establish patent license or cross-license agreements, and the Company is currently in such negotiations. There can be no assurance that current or future negotiations will result in the Company obtaining licenses on satisfactory terms or at all. 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 infringes four of Lucent's U.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. On May 2, 1997, the Company filed an answer in response to the Lucent complaint, asserting that the Lucent Patents are invalid and denying the alleged patent infringement. The Company believes that it has meritorious defenses to the asserted claims and intends to defend the litigation vigorously. Although the Company does not believe that any of its products infringe any valid claims of the Lucent Patents, the outcome of litigation is inherently unpredictable, and there can be no assurance that the results of these proceedings will be favorable to the Company or that they will not have a material adverse effect on the Company's business, operating results or financial condition. Regardless of the ultimate outcome, the Lucent litigation could result in substantial expense to the Company and significant diversion of effort by the Company's technical and managerial personnel. If the court determines that the Company infringes the Lucent Patents and that the Lucent Patents are valid and enforceable, it could issue an injunction prohibiting the Company from making, using or selling certain products and it could assess significant damages against the Company. Accordingly, an adverse determination in the proceeding could subject the Company to significant 7 8 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS liabilities and require the Company to seek a license from Lucent. Although intellectual property disputes are often settled through licensing or similar arrangements, costs associated with such arrangements may be substantial, and there can be no assurance that a license from Lucent, if required, would be available to the Company on acceptable terms or at all. Jury selection for the trial of this lawsuit is scheduled to begin on April 13, 1998. 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 1996 Annual Report to Shareholders. 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, call center management information and reporting tools, call center planning and forecasting packages, and computer-telephony integration tools and software. 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 years prior to 1996 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 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 in this Form 10-Q 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. These risks and uncertainties include variability and uncertainty of revenues and operating results; volatility of stock price; 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. For a more detailed description of these risks and uncertainties, see the section titled "Management's Discussion and Analysis - Risk Factors" in the Company's 1996 Annual Report to Shareholders. 9 10 ASPECT TELECOMMUNICATIONS CORPORATION RESULTS OF OPERATIONS Net Revenues Total net revenues for the second quarter of 1997 were $94 million, representing an increase of 28% when compared with total net revenues of $73 million for the same period of 1996. Total net revenues for the first six months of 1997 were $185 million, representing an increase of 32% when compared with total net revenues of $140 million for the same period in 1996. Product revenues for the second quarter of 1997 were $66 million, representing an increase of 20% when compared with product revenues of $55 million for the same period of 1996. For the first six months of 1997, product revenues were $133 million, an increase of 27% compared with the same period in 1996. The increases in product revenues for both periods were primarily attributable to increased demand for the Company's products, as both the volume of new system sales and the volume of add-ons and upgrades increased from the same periods of 1996. Growth in product revenues for the second quarter and first six months of 1997, compared with the same periods of 1996, was significantly higher in International markets than in North America. Average selling prices on new systems remained relatively unchanged across the periods. Customer support revenues for the second quarter of 1997 were $28 million, an increase of 54% compared with the second quarter of 1996. For the first six months of 1997, customer support revenues were $52 million, an increase of 50% compared with the same period of 1996. The increases in customer support revenues for both periods resulted primarily from the growth in the Company's installed base. 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 many of the costs associated with providing customer support do not vary with customer support revenues, quarterly fluctuations in customer support revenues can have a significant impact on the related gross margin. Gross Margin on Product Revenues Product gross margin increased to 69% for the second quarter of 1997 from 67% for the same period of 1996. The increase in product gross margin primarily reflects higher add-on revenues, which generally carry higher margins. For the first six months of 1997, product gross margins remained essentially unchanged at 67% when compared to the same period of 1996. 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 Customer support gross margin was 29% for both the second quarter and the first six months of 1997, essentially unchanged from 28% for the same periods of 1996. 10 11 ASPECT TELECOMMUNICATIONS CORPORATION 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 many of the costs associated with providing customer support do not vary with customer support revenues, the expansion of its customer support infrastructure, and the Company's ability to build a successful C&SI business unit. Research and Development Expenses Research and development ("R&D") expenses were $12 million for the second quarter of 1997, representing an increase of 41% when compared with R&D expenses of $8 million for the same period of 1996. R&D expenses were $23 million for the first six months of 1997, representing an increase of 44% when compared with R&D expenses of $16 million for the same period of 1996. The increases in R&D for both periods primarily reflect increased personnel and other infrastructure costs. As a percentage of net revenues, R&D spending was 12% for both the second quarter and first six months of 1997 compared to 11% for the same periods of 1996. 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, when compared to 1996, although such expenses as a percentage of net revenues may fluctuate on a quarterly basis. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses were $25 million for the second quarter of 1997, representing an increase of 27% when compared with SG&A expenses of $20 million for the same period of 1996. SG&A expenses were $48 million for the first six months of 1997, representing an increase of 28% when compared with SG&A expenses of $38 million for the same period of 1996. The increases in SG&A for both periods were primarily related to increased personnel, infrastructure, and legal costs partially offset by the donation of appreciated equity securities in lieu of cash to fund the Company's corporate giving program. As a percentage of net revenues, SG&A was 27% for the second quarter of 1997 and 26% for the first six months of 1997 compared with 27% for both periods in 1996. The Company anticipates, on a forward-looking basis, that SG&A expenses will increase in terms of absolute dollars for 1997 as a whole, when compared to 1996, although such expenses as a percentage of net revenues may fluctuate on a quarterly basis. In addition, on a forward-looking basis, legal expenses are expected to increase in future periods due to the Lucent Technologies Inc. litigation (see Part II, Item 1. Legal Proceedings). Net Interest and Other Income Net interest and other income increased to $3.4 million for the second quarter of 1997 from $0.3 million for the same period of 1996. Net interest and other income increased to $4.8 million for the first six months of 1997 from $0.6 million for the same period of 1996. Included in the current year amounts is approximately $2 million from a gain on the sale of appreciated equity securities. The increases for both periods were due primarily to such gain on the sale of equity securities, higher interest earning balances, and the conversion of the Company's $55 million of convertible subordinated debentures in October 1996, partially offset by the increase in the relative mix of tax-advantaged securities in the Company's portfolio. Interest expense on the convertible subordinated debentures for the three month and six month periods ended June 30, 1996 was $0.7 million and $1.4 million, respectively. Income Taxes The Company's effective income tax rate was 38.5% for the second quarter and first six months of 1997, up from 37.1% for the same periods of 1996. The increase reflects expanding international operations and other factors. 11 12 ASPECT TELECOMMUNICATIONS CORPORATION LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the Company's principal source of liquidity consisted of cash, cash equivalents, and short-term investments totaling $134 million, which represented 43% of total assets. The primary sources of cash for the first six months of 1997 consisted of cash provided by operating activities of $28 million, net of a $15 million increase in accounts receivable, net sales and maturities of short-term investments of $11 million, and proceeds from the issuance of common stock under various stock plans of $4 million. The primary use of cash during the first six months of 1997 consisted of $14 million for purchases of property and equipment. As of June 30, 1997, 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 Company's 1996 Consolidated Financial Statements). The Company believes, on a forward-looking basis, that its cash, cash equivalents, and short-term investments and anticipated cash flow from operations will be sufficient to meet the Company's presently anticipated cash requirements during at least the next twelve months. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and will restate at that time earnings per share (EPS) data for prior periods to conform with SFAS 128. Earlier application is not permitted. The requirements of SFAS 128 and the pro forma effect of adopting SFAS 128 are disclosed in the Notes to Condensed Consolidated Financial Statements. In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources, and 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, results of operations or cash flows. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. 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. 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. There can be no assurance that current or future negotiations will result in the Company obtaining licenses 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 management personnel. An adverse determination in such litigation or proceeding, including without limitation the Lucent litigation discussed below, 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 Technologies Inc. ("Lucent") filed a lawsuit in the United States District Court for the Eastern District of Pennsylvania alleging that the Company infringes four of Lucent's U.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. On May 2, 1997, the Company filed an answer in response to the Lucent complaint, asserting that the Lucent Patents are invalid and denying the alleged patent infringement. The Company believes that it has meritorious defenses to the asserted claims and intends to defend the litigation vigorously. Although the Company does not believe that any of its products infringe any valid claims of the Lucent Patents, the outcome of litigation is inherently unpredictable, and there can be no assurance that the results of these proceedings will be favorable to the Company or that they will not have a material adverse effect on the Company's business, operating results or financial condition. Regardless of the ultimate outcome, the Lucent litigation could result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. If the court determines that the Company infringes the Lucent Patents and that the Lucent Patents are valid and enforceable, it could issue an injunction prohibiting the Company from making, using or selling certain products and it could assess significant damages against the Company. Accordingly, an adverse determination in the proceeding could subject the Company to significant liabilities and require the Company to seek a license from Lucent. Although intellectual property disputes are often settled through licensing or similar arrangements, costs associated with such arrangements may be substantial, and there can be no assurance that a license from Lucent, if required, would be available to the Company on acceptable terms or at all. Jury selection for the trial of this lawsuit is scheduled to begin on April 13, 1998. 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. An adverse outcome in such litigation could have a material adverse effect on the 13 14 ASPECT TELECOMMUNICATIONS CORPORATION Company's business, operating results or financial condition. Regardless of merit, source, or outcome of the litigation, it could result in substantial cost to and diversion of effort by the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 29, 1997, the Annual Meeting of Shareholders of Aspect Telecommunications Corporation was held in New York, New York. An election of directors was held with the following individuals being elected to the Board of Directors of the Company: James R. Carreker (44,867,040 votes for, 63,885 votes withheld) Debra J. Engel (44,865,113 votes for, 65,812 votes withheld) Norman A. Fogelsong (44,866,979 votes for, 63,946 votes withheld) James L. Patterson (44,867,079 votes for, 63,846 votes withheld) John W. Peth (44,866,279 votes for, 64,646 votes withheld) Other matters voted upon and approved at the meeting, and the number of affirmative and negative votes cast with respect to each such matter were as follows: To ratify the appointment of Deloitte & Touche LLP as the independent auditors of the Company for the year ending December 31, 1997 (44,843,248 votes in favor, 26,388 votes opposed, 61,289 abstaining, no votes withheld). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS Exhibit 11.1 Statement re: Computation of Earnings Per Share Exhibit 27 Financial Data Schedule B. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1997. 14 15 ASPECT TELECOMMUNICATIONS CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aspect Telecommunications Corporation (Registrant) Date: August 13, 1997 By /s/ Eric J. Keller -------------------------------------------- Eric J. Keller Vice President, Finance and Chief Financial Officer (Duly Authorized and Principal Financial and Accounting Officer) 15 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 11.1 Statement re: Computation of Earnings Per Share 27 Financial Data Schedule
EX-11.1 2 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 ASPECT TELECOMMUNICATIONS CORPORATION EXHIBIT 11.1: Statement re: Computation of Earnings Per Share (in thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ---------------------------- 1997 1996 1997 1996 ========== ========== ========== ========== Primary: Weighted average common shares outstanding during the period 49,056 42,687 48,975 42,569 Common share equivalents: Dilutive effect of stock options 2,900 3,936 3,226 3,777 ---------- ---------- ---------- ---------- Total 51,956 46,623 52,201 46,346 ========== ========== ========== ========== Net income $ 12,576 $ 9,074 $ 23,802 $ 17,499 ========== ========== ========== ========== Primary earnings per share $ 0.24 $ 0.19 $ 0.46 $ 0.38 ========== ========== ========== ==========
2 ASPECT TELECOMMUNICATIONS CORPORATION EXHIBIT 11.1 (CONTINUED): Statement re: Computation of Earnings Per Share (in thousands, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ---------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Fully Diluted: Weighted average common shares outstanding during the period 49,056 42,687 48,975 42,569 Common share equivalents: Dilutive effect of stock options 3,007 3,936 3,226 3,915 Weighted average shares issuable upon assumed conversion of debt -- 5,659 -- 5,659 ---------- ---------- ---------- ---------- Total 52,063 52,282 52,201 52,143 ========== ========== ========== ========== Net income $ 12,576 $ 9,074 $ 23,802 $ 17,499 Interest expense during the period on convertible subordinated debentures, net of tax -- 461 -- 922 ---------- ---------- ---------- ---------- Net income adjusted for fully diluted calculations $ 12,576 $ 9,535 $ 23,802 $ 18,421 ========== ========== ========== ========== Fully diluted earnings per share $ 0.24 $ 0.18 $ 0.46 $ 0.35 ========== ========== ========== ==========
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1000 USD 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 76,751 57,438 69,242 1,618 11,403 227,064 109,499 52,978 314,067 64,526 4,500 0 0 132,546 112,495 314,067 133,484 185,160 43,684 80,583 70,716 0 (4,841) 38,702 14,900 23,802 0 0 0 23,802 0.46 0.46
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