-----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, Rk+9cpdYps4tKMgGpwaajx+6aSAEkSdeiLRQQ0VSPIipkkvz0dpLrrr9opm+tsKW PJF1Z7GoFpAeqE16dByUeQ== 0001012870-99-000146.txt : 19990120 0001012870-99-000146.hdr.sgml : 19990120 ACCESSION NUMBER: 0001012870-99-000146 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980511 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990119 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-18391 FILM NUMBER: 99508245 BUSINESS ADDRESS: STREET 1: 1730 FOX DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4083252200 MAIL ADDRESS: STREET 1: 1730 FOX DRIVE CITY: SAN JOSE STATE: CA ZIP: 95131 8-K/A 1 AMENDMENT #2 TO FORM 8-K, PERIOD DATED 05/11/1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ AMENDMENT NO. 2 TO FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report: May 11, 1998 ASPECT TELECOMMUNICATIONS CORPORATION (Exact name of Registrant as specified in its charter) CALIFORNIA 95-3962471 (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) (Zip code) (408) 325-2200 (Registrant's telephone number, including area code) -1- This Current Report on Form 8-K/A is being filed to amend the Current Report on Form 8-K/A as filed by the Registrant on July 24, 1998 to reflect the restatement of the Registrant's condensed consolidated financial statements for the quarters ended June 30, 1998 and September 30, 1998. See Item 7. (b) in this Current Report on Form 8-K/A for a discussion of the basis for such restatement. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On May 11, 1998, pursuant to an Agreement and Plan of Merger dated April 1, 1998 (the "Merger Agreement") among the Registrant, Venus Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Registrant ("Sub"), and Voicetek Corporation, a Massachusetts corporation ("Voicetek"), related Articles of Merger dated May 11, 1998 between Sub and Voicetek filed with the Secretary of State of the Commonwealth of Massachusetts, and a related Certificate of Merger dated May 11, 1998 filed with the Secretary of State of the State of Delaware, Sub was merged with and into Voicetek and Voicetek, as the surviving corporation, became a wholly-owned subsidiary of the Registrant ("The Merger"). Pursuant to the Merger Agreement, the Registrant paid approximately $72 million in cash for all Voicetek common and preferred shares outstanding, converted all outstanding Voicetek options into options to purchase approximately 450,000 shares of Registrant's common stock, and assumed certain operating assets and liabilities of Voicetek. The Registrant has recorded a one-time charge against after-tax earnings of $9.9 million for purchased in- process technology and development expense in the quarter ended June 30, 1998. The source of the funds paid by the Company under the Merger Agreement was the Company's cash and cash equivalents and short-term investments. The purchase price was agreed upon in arms' length negotiation of the terms of the Merger. The Registrant received an opinion from its financial advisor that the Merger was fair to the Registrant's shareholders from a financial point of view. The Merger was treated by the Registrant as a purchase for accounting purposes. Voicetek is a leading provider of software platforms and application solutions, including highly scalable, mission-critical interactive voice response (IVR) and network-deployed enhanced services solutions. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Business Acquired. Audited financial statements of Voicetek Corporation as of December 31, 1997 and 1996 and for the two years ended December 31, 1997 as well as unaudited condensed financial statements as of March 31, 1998 and for the three months ended March 31, 1998 and 1997 are attached hereto and filed herewith. (b) Pro Forma Financial Information. Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated financial statements, the Securities and Exchange Commission (the SEC) issued new guidance on its views regarding the valuation methodology used in determining purchased in-process technology expensed on the date of acquisition. The Company has had discussions with the SEC staff concerning the valuation of purchased in-process technology and other intangible assets acquired in connection with the acquisition of Voicetek Corporation in May 1998 (see "Business Combinations" note). As a result of these discussions, the Company has modified its methods used to value the purchased in-process technology and other intangible assets. The revised valuation is based on management estimates of the after-tax net cash flows and gives explicit consideration to the SEC's views on purchased in-process technology as set forth in its September 9, 1998 letter to the American Institute of Certified Public Accountants. As a result of the revised valuation, the amount of purchase price allocated to in-process technology decreased from $68.2 million to $9.9 million and the amount ascribed to other intangible assets increased from $17.8 million to $89.8 million, including the impact of deferred taxes of $1.4 million and $15.2 million respectively. The Registrant's condensed consolidated financial statements included in its Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 1998 and September 30, 1998 have been restated to reflect the revised valuation. The attached -2- unaudited pro forma condensed combining financial statements have also been similarly restated to reflect the revised valuation amounts. The attached unaudited pro forma condensed combining financial statements for the year ended December 31, 1997 and as of and for the three months ended March 31, 1998 give effect to the purchase of Voicetek as of the beginning of the periods presented, whereby Aspect Telecommunications ("Aspect") paid approximately $72 million in cash for all Voicetek common and preferred shares outstanding, converted all outstanding Voicetek options into options to purchase approximately 450,000 shares of Registrant's common stock, and assumed certain operating assets and liabilities of Voicetek. Accordingly, the acquired assets and liabilities were recorded at their estimated fair market value at the date of acquisition. The pro forma condensed combining statements of operations assume that the acquisition took place at the beginning of the earliest period presented and combine Aspect's and Voicetek's results of operations for the year ended December 31, 1997 and the three months ended March 31, 1998. The unaudited pro forma condensed combining balance sheet combines Aspect's balance sheet as of March 31, 1998 with the Voicetek balance sheet as of March 31, 1998, giving effect to the acquisition as if it had occurred on March 31, 1998. The pro forma condensed combining financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred had the acquisition been consummated at the beginning of the periods presented, nor is it necessarily indicative of future operating results or financial position. The pro forma condensed combining financial information should be read in conjunction with the audited historical consolidated financial statements and the related notes thereto of Aspect Telecommunications Corporation previously filed and the historical financial statements and related notes thereto of Voicetek Corporation included herein. The following financial statements are attached hereto and filed herewith: Audited financial statements of Voicetek Corporation as of December 31, 1997 and 1996 and for the two years in the period ended December 31, 1997. Unaudited condensed balance sheet of Voicetek Corporation as of March 31, 1998 and unaudited statements of operations and cash flows for the three months ended March 31, 1998 and 1997. Unaudited pro forma condensed combining financial statements of Aspect Telecommunications Corporation as of March 31, 1998 and for the year and three months ended December 31, 1997 and March 31, 1998,respectively. (c) Exhibits. 2.1 * Agreement and Plan of Merger dated April 1, 1998, among the Registrant, Venus Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Registrant, and Voicetek Corporation, a Massachusetts corporation. 20.2 * Press release of the Company dated May 11, 1998. 23.1 * Independent Auditors' Consent. * Previously filed. -3- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASPECT TELECOMMUNICATIONS CORPORATION (Registrant) Date: January 18, 1999 By: /s/ Eric J. Keller --------------------------------- Eric J. Keller Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) -4- INDEX TO FINANCIAL STATEMENTS
PAGE ---- Voicetek Corporation - -------------------- Report of Independent Auditors.................................................................... F-3 Balance Sheets at December 31, 1997 and 1996...................................................... F-4 Statements of Operations for the Years Ended December 31, 1997 and 1996........................... F-5 Statements of Stockholders' Deficit for the Years Ended December 31, 1997 and 1996................ F-6 Statement of Cash Flows for the Years Ended December 31, 1997 and 1996............................ F-7 Notes to Financial Statements..................................................................... F-8 Unaudited Condensed Balance Sheets at March 31, 1998 and December 31, 1997........................ F-22 Unaudited Condensed Statements of Operations for the Three Months Ended March 31, 1998 and 1997... F-23 Unaudited Condensed Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997... F-24 Notes to Condensed Financial Statements........................................................... F-25 Aspect Telecommunications Corporation - ------------------------------------- Pro Forma Condensed Combining Balance Sheet as of March 31, 1998.................................. F-26 Pro Forma Condensed Combining Statement of Operations for the year ended December 31, 1997........ F-27 Pro Forma Condensed Combining Statement of Operations for the Three Month Period Ended March 31, 1998............................................................................. F-28 Notes to Pro Forma Condensed Combining Financial Statements....................................... F-29
F-1 VOICETEK CORPORATION FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Voicetek Corporation: We have audited the accompanying balance sheets of Voicetek Corporation as of December 31, 1997 and 1996, and the related statements of operations, stockholders' deficit and cash flows for the years then ended. 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, the financial statements referred to above present fairly, in all material respects, the financial position of Voicetek Corporation as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the financial statements, the Company has limited available financing to fund operations, and has preferred stock which becomes redeemable in July 1998, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts March 25, 1998 F-3 VOICETEK CORPORATION BALANCE SHEETS as of December 31, 1997 and 1996 (in thousands)
ASSETS 1997 1996 -------- -------- Current assets: Cash and cash equivalents $ 96 $ -- Accounts receivable, less allowances of $591 and $70 in 1997 and 1996, respectively 6,826 7,460 Unbilled accounts receivable 866 440 Inventories 2,177 1,188 Deferred taxes -- 2,728 Other current assets 751 388 -------- -------- Total current assets 10,716 12,204 Property and equipment, net 3,445 1,900 Intangible assets, net 44 25 Deferred taxes -- 1,886 -------- -------- Total assets $ 14,205 $ 16,015 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 2,808 $ 1,705 Current portion of debt 3,654 2,841 Accrued expenses 2,205 2,300 Deferred revenues 685 762 -------- -------- Total current liabilities 9,352 7,608 Long-term debt, less current portion 3,360 236 Redeemable convertible preferred stock, at liquidation preference 12,502 11,297 Commitments and contingencies (Note 8) Stockholders' deficit: Common stock, $.01 par value; 20,000,000 shares authorized, 483,989, and 450,916 shares issued and outstanding at December 31, 1997 and 1996, respectively 5 5 Additional paid-in capital 6,210 7,087 Accumulated deficit (17,224) (10,218) -------- -------- Total stockholders' deficit (11,009) (3,126) -------- -------- Total liabilities and stockholders' deficit $ 14,205 $ 16,015 ======== ========
The accompanying notes are an integral part of the financial statements. F-4 VOICETEK CORPORATION STATEMENTS OF OPERATIONS for the years ended December 31, 1997 and 1996 (in thousands)
1997 1996 -------- -------- Revenues: Systems $ 21,314 $ 16,239 Services 7,503 5,862 -------- -------- Total revenues 28,817 22,101 Cost of revenues: Systems 6,850 5,183 Services 4,937 3,161 -------- -------- Total cost of revenues 11,787 8,344 -------- -------- Gross profit 17,030 13,757 Operating expenses: Research and development 7,596 5,771 Sales and marketing 8,161 5,435 General and administrative 2,773 1,629 -------- -------- Total operating expenses 18,530 12,835 -------- -------- Income (loss) from operations (1,500) 922 Interest expense (546) (229) Other income (expense), net (342) 11 -------- -------- Income (loss) before (benefit from) provision for income taxes (2,388) 704 (Benefit from) provision for income taxes 4,618 (3,359) -------- -------- Net income (loss) (7,006) 4,063 Accretion of redeemable convertible preferred stock to redemption value 1,205 1,096 -------- -------- Net income (loss) available to common stockholders $ (8,211) $ 2,967 ======== ========
The accompanying notes are an integral part of the financial statements. F-5 STATEMENTS OF STOCKHOLDERS' DEFICIT for the years ended December 31, 1997 and 1996 (in thousands)
ADDITIONAL TOTAL COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT DEFICIT ------ ------ ------- ------- ------- Balance at December 31, 1995 381 $ 4 $ 8,024 $ (14,281) $ (6,253) Stock options exercised 50 1 5 6 Conversion of stockholder note payable 20 -- 154 154 Accretion of redeemable convertible preferred stock to redemption value (1,096) (1,096) Net income 4,063 4,063 ------ ------ ------- --------- --------- Balance at December 31, 1996 451 5 7,087 (10,218) (3,126) Stock options exercised 33 -- 33 33 Issuance of warrants pursuant to debt agreement 295 295 Accretion of redeemable convertible preferred stock to redemption value (1,205) (1,205) Net loss (7,006) (7,006) ------ ------ ------- --------- --------- Balance at December 31, 1997 484 $ 5 $ 6,210 $ (17,224) $ (11,009) ====== ====== ======= ========= =========
The accompanying notes are an integral part of the financial statements. F-6 VOICETEK CORPORATION STATEMENTS OF CASH FLOWS for the years ended December 31, 1997 and 1996 (in thousands)
1997 1996 -------- -------- Cash flows from operating activities: Net income (loss) $ (7,006) $ 4,063 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 1,121 716 Provision for doubtful accounts 521 25 Accrued interest converted into common stock -- 19 Deferred taxes 4,614 (3,414) Changes in operating assets and liabilities: Accounts receivable 113 (3,967) Unbilled accounts receivable (426) 68 Inventories (989) (314) Other current assets (363) (224) Accounts payable 1,103 659 Accrued expenses (95) 1,503 Deferred revenues (77) 342 -------- -------- Net cash used in operating activities (1,484) (524) -------- -------- Cash flows from investing activities: Additions to property and equipment (2,666) (1,771) Acquisition of intangible assets (19) (25) -------- -------- Net cash used in investing activities (2,685) (1,796) -------- -------- Cash flows from financing activities: Net increase (decrease) in revolving line of credit 510 -- Proceeds from long-term debt and warrants 3,923 2,152 Proceeds from exercise of stock options 33 6 Payments on long-term debt (201) -- -------- -------- Net cash provided by financing activities 4,265 2,158 -------- -------- Net change in cash and cash equivalents 96 (162) Cash and cash equivalents, beginning of year -- 162 -------- -------- Cash and cash equivalents, end of year $ 96 $ -- ======== ======== Supplemental disclosure of cash flow information: Interest paid $ 546 $ 217 Taxes paid $ 18 $ 50 Supplemental disclosure of noncash financing transactions: Conversion of related party note payable to common stock $ -- $ 154
The accompanying notes are an integral part of the financial statements. F-7 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND OPERATIONS: Voicetek Corporation, a Massachusetts corporation, (the "Company") was incorporated in 1981 and operates in one business segment. The Company develops, markets and supports interactive communications systems. The Company's principal market and its operations are located in the United States. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 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 and 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. Actual results could differ from those estimates. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Concentrations of credit risk with respect to trade receivables include receivables from significant customers. The Company's customers are concentrated in one industry segment, the telecommunications industry, and, historically, a significant portion of the Company's revenues have been to a limited number of customers within this industry. The Company does not require collateral or other security to support customer receivables. The Company maintains reserves for credit losses and such losses have been within management's expectations. The Company's allowances amounted to $591,000 and $70,000 at December 31, 1997 and 1996, respectively. The provision charged to the Statement of Operations was $521,000 and $39,000 in 1997 and 1996, respectively, and write-offs against the allowances were $0 and $14,000 in 1997 and 1996, respectively. CASH AND CASH EQUIVALENTS The Company's policy is to include amounts as cash and cash equivalents that are short-term, highly liquid investments purchased with a remaining maturity of three months or less. INVENTORIES Inventories, consisting primarily of purchased components, including materials, labor and overhead, are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Continued F-8 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method based on the following estimated useful lives: Equipment 3 to 7 years Furniture and fixtures 3 to 5 years Leasehold improvements The shorter of the lease term or the life of the asset Expenditures for major improvements which substantially increase the useful lives of assets are capitalized. Repair and maintenance costs are expensed as incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in results of operations. RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Based on the Company's product development process, technological feasibility is established upon completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility and for significant product enhancements are capitalized until the product is available for general release to customers, and amortized to cost of revenues. Amortization of capitalized software costs is recognized on the greater of the straight-line basis over the estimated economic lives of the related products, and the ratio of current gross revenues to total current and expected future gross revenues of the related products. The Company did not capitalize any software development costs during 1997 and 1996 because the amounts eligible for capitalization were immaterial. REVENUE RECOGNITION The Company recognizes product and license revenues upon execution of a contract and shipment to customers provided that no significant vendor obligations remain outstanding and collection of the resulting receivable is deemed probable by management. If insignificant vendor obligations remain after shipment of the product, the Company accrues for the estimated costs of such obligations. Additionally, the Company accrues for warranty costs upon shipment. Revenue from post-customer support (maintenance) contracts is recognized ratably over the life of the contract, generally one year. Revenue from training and consulting is recognized as the services are provided. For certain contracts eligible under AICPA Statement of Position No. 81-1, revenue is recognized using the percentage-of-completion accounting method based upon an efforts-expended method. In all cases, changes to total estimated costs and anticipated losses, if any, are recognized in the period in which determined. The percentage-of-completion method requires estimates of costs to complete which may differ from actual costs. Continued F-9 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED UNBILLED ACCOUNTS RECEIVABLE Unbilled accounts receivable represents revenue recognized for contracts accounted for under the percentage-of-completion method which had not been billed at the balance sheet date. All amounts are expected to be collected within one year. There are no amounts included in accounts receivable or unbilled accounts receivable which represent retainages. INCOME TAXES The Company provides for income taxes using the liability method whereby recognition of deferred tax liabilities and assets is based on expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company provides for a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, ---------------- 1997 1996 ------ ------ (IN THOUSANDS) Equipment $6,547 $4,511 Furniture and fixtures 623 422 Leasehold improvements 599 258 Construction in progress 88 -- ------ ------ 7,857 5,191 Less accumulated depreciation and amortization 4,412 3,291 ------ ------ $3,445 $1,900 ====== ======
Continued F-10 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED Equipment under capital leases consists of the following:
DECEMBER 31, ---------------- 1997 1996 ------ ------ (IN THOUSANDS) Equipment $ 178 $ 211 Less accumulated amortization 178 184 ------ ------ $ -- $ 27 ====== ======
Depreciation and amortization expense was approximately $1,121,000 and $716,000 for 1997 and 1996, respectively. 4. INVENTORIES: Inventories consists of the following:
DECEMBER 31, ---------------- 1997 1996 ------ ------ (IN THOUSANDS) Raw materials (purchased components) $1,588 $ 885 Work in process 157 67 Finished goods 432 236 ------ ------ Total inventories $2,177 $1,188 ====== ======
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT: REDEEMABLE CONVERTIBLE PREFERRED STOCK The authorized, issued and outstanding preferred stock of the Company consists of Redeemable Convertible Preferred Stock (issued and outstanding: 5,455,713 shares of Senior Preferred ("Senior") and 679,803 shares of Junior Preferred Series 1 ("Junior Series 1") and 729,758 shares of Junior Preferred Series 2 ("Junior Series 2"), respectively) (together the "Preferred Stock"). Continued F-11 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED The carrying amounts of the Preferred Stock were the same as the respective redemption amounts, and were as follows:
DECEMBER 31, ---------------- 1997 1996 ------- ------- (IN THOUSANDS) Senior Preferred $ 8,002 $ 7,228 Junior Series 1 2,889 2,611 Junior Series 2 1,611 1,458 ------- ------- Total $12,502 $11,297 ======= =======
VOTING The Preferred Stock has the same voting rights as common stock on an as-converted basis. DIVIDENDS The holders of Preferred Stock have the right to receive out of funds legally available cumulative dividends, when and if declared by the Board of Directors. The dividends for the Senior, Junior Series 1, and Junior Series 2 shares shall be at the annual rate of $0.10, $0.25 and $0.13 per share, respectively. Holders of Senior, Junior Series 1 and Junior Series 2 Preferred Stock shall also be entitled to an annual 10% interest on unpaid dividends, as defined. LIQUIDATION Upon any liquidation, dissolution or winding up of the Company the holders of Preferred Stock are entitled to receive the liquidation preference (as defined) plus any declared and unpaid dividends before any distribution may be made to common stockholders. CONVERSION Each share of Senior, Junior Series 1 and Junior Series 2 Preferred Stock is convertible, on a two-for-three basis, into shares of common stock at the option of the holders. The conversion rate is adjustable for certain dilutive events. REDEMPTION The Preferred Stock is redeemable at the option of the holder at any time on or after July 31, 1998, for Senior, Junior Series 1 and Junior Series 2 shares at redemption prices per share of $1.005785, $2.501729 and $1.329820, respectively, plus all accrued but unpaid dividends at per share amounts of $0.10, $0.25 and $0.13 for Senior, Junior Series 1 and Junior Series 2, respectively, on a per annum basis plus 10% interest. This redemption date was extended from July 31, 1997, by certain holders of Preferred Stock in February 1997. Continued F-12 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED COMMON STOCK SPLIT In February 1997, the Board of Directors authorized, and the shareholders later approved, a reverse two-for-three stock split of the Company's common stock. All share and per share amounts have been restated in these financial statements to reflect the reverse stock split. WARRANTS In September 1997, the Company issued warrants for the purchase of 191,327 shares of the Company's common stock at an exercise price of $7.84 per share, vesting immediately with a term of seven years. These warrants were issued in conjunction with a new debt arrangement (see Note 7). The fair market value of these warrants at the date of issuance was $295,000. STOCK OPTION PLANS 1992 EQUITY INCENTIVE PLAN In 1992, the Company amended its previous qualified stock option plan and established the 1992 Equity Incentive Plan (the "1992 Plan"). Options granted under the 1992 Plan vest over a period of four years. The options expire ten years from the date of grant. 1996 STOCK OPTION PLAN The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted by the Board of Directors of the Company in August 1996. The 1996 Option Plan provides for the grant of stock options to key employees (including officers who may be members of the Company's Board of Directors), directors who are not employees and consultants to Company. Under the 1996 Option Plan, the Company could grant options intended to qualify as incentive stock options within the meaning of Section 422A of the Code, and options not intended to qualify as incentive stock options. Options granted under the 1996 Stock Option Plan vest over a period of four years. The options expire ten years from date of grant. A total of 333,333 shares of Common Stock were originally authorized for issuance under the 1996 Option Plan. Effective January 1, 1997 and each January 1 thereafter through January 1, 2006, the number of shares of Common Stock authorized for issuance under the 1996 Option Plan shall be increased cumulatively such that the number of shares of Common Stock subject to the 1996 Option Plan shall equal 15% of the total number of fully diluted shares of Common Stock (excluding shares of Common Stock issuable upon the exercise of options to purchase Common Stock granted under the Company's 1996 Director Option Plan, as defined below) as of the close of business on December 31 of the preceding year. 1996 DIRECTOR OPTION PLAN The Company's 1996 Stock Option Plan for Non-Employee Directors and Clerk (the "1996 Director Option Plan") was adopted by the Board of Directors of the Company in August 1996. The 1996 Director Option Plan provides for the grant of stock options to the Clerk and Directors who are not employees of the Company. Under the 1996 Director Option Plan, the Company Continued F-13 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED could grant options not intended to qualify as incentive stock options within the meaning of Section 422A of the Code. Options granted under the 1996 Director Option Plan vest over a period of four years. The options expire ten years from the date of grant. A total of 60,000 shares of Common Stock were originally authorized for issuance under the 1996 Director Option Plan. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which is effective for periods beginning after December 15, 1995. SFAS No. 123 requires that companies either recognize compensation expense for grants of stock, stock options and other equity instruments based on fair value, or provide pro forma disclosures of net income in the notes to the financial statements. The Company has adopted the pro forma disclosure provision of SFAS No. 123 effective in 1996 and has applied Accounting Principles Board Opinion 25 "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its plans. Accordingly, compensation cost of stock options granted to employees and directors is measured as the excess, if any, of the fair value of the Company's stock at the date of grant over the amount that must be paid to acquire the stock. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for the awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net income (loss) would have been reduced to the pro forma amount indicated below:
1997 1996 -------- ---------- NET LOSS NET INCOME -------- ---------- As reported $ (7,006) $ 4,063 Pro forma $ (7,121) $ 3,893
The fair value of each option granted during 1997 and 1996 is estimated on the date of grant using the minimum value method utilizing the following weighted-average assumptions: (1) weighted average risk-free interest rates of 6.6% and 6.8% in 1997 and 1996, respectively, (2) expected option life of 8 years and 10 years in 1997 and 1996, respectively and (3) expected dividend yield of 0 for both years. The effects of applying SFAS 123 for the purposes of pro forma disclosures may not be indicative of the effects on reported net income (loss) for future years, as the pro forma disclosures include the effects of only those awards granted after January 1, 1995. Continued F-14 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED Information with respect to options granted under all stock option plans is as follows:
1997 1996 ------------------------- ------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE PRICE PER PRICE PER SHARES SHARE SHARES SHARE ---------- ---------- ---------- ---------- Options outstanding at beginning of year January 1, 759,775 $ 1.546 714,074 $ 0.432 Granted 380,873 $ 4.000 155,827 $ 6.740 Exercised (32,238) $ 1.026 (49,746) $ 0.111 Canceled (71,421) $ 5.018 (60,380) $ 2.957 ---------- ---------- ---------- ---------- Options outstanding at end of year December 31, 1,036,989 $ 2.225 759,775 $ 1.546 ========== ========== ========== ========== Options exercisable at December 31, 556,867 $ 0.548 459,631 $ 0.206 ========== ========== ========== ========== Options available for future grant at December 31, 185,986 495,438 ========== ========== Weighted average fair value of options granted during the year $ 1.608 $ 3.507 ========== ==========
OUTSTANDING EXERCISABLE --------------------------------------------------- ---------------------------- WEIGHTED- AVERAGE WEIGHTED- REMAINING WEIGHTED- AVERAGE NUMBER OF CONTRACTUAL AVERAGE NUMBER OF EXERCISE RANGE OF EXERCISE PRICES OPTIONS LIFE EXERCISE PRICE OPTIONS PRICE - ---------------------------- ------------- -------------- ---------------- ------------ ------------ $0.075 453,682 5.0 $ 0.075 453,088 $ 0.075 $0.150 to $0.375 85,062 7.0 $ 0.225 58,156 $ 0.222 $1.120 to $7.500 498,245 9.4 $ 4.524 45,623 $ 5.663 ------------- ------------ $0.075 to $7.500 1,036,989 7.3 $ 2.225 556,867 $ 0.548 ============= ============== ================ ============ ===========
Continued F-15 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED 6. INCOME TAXES: The provision for (benefit from) income taxes consists of the following:
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 -------- -------- (IN THOUSANDS) Current: Federal $ $ 22 State 4 33 -------- -------- 4 55 -------- -------- Deferred: Federal 3,729 (2,825) State 885 (589) -------- -------- 4,614 (3,414) -------- -------- Total provision for (benefit from) income taxes $ 4,618 $ (3,359) ======== ========
The following is a reconciliation between the U.S. federal statutory tax rate and the effective tax rate:
YEARS ENDED ----------- (IN THOUSANDS) 1997 1996 ------ ------ U. S. federal statutory tax rate (34.0)% 34.0% State income taxes, net of federal benefit (5.2) 5.5 Nondeductible expenses 1.8 3.8 Alternative minimum tax -- -- Increase (decrease) in valuation allowance 243.0 (520.4) Credits carried forward (12.2) -- ------ ------ Effective tax rate 193.4% (477.1)% ====== ======
Continued F-16 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED The following represents the significant components of the Company's net deferred tax assets:
DECEMBER 31, 1997 1996 -------- -------- (IN THOUSANDS) Deferred tax assets: Federal net operating losses $ 3,959 $ 3,303 Tax credit carryforwards 625 334 Depreciation and amortization 22 46 State tax credits and NOL, net of federal benefit 598 473 Other temporary differences 600 458 Valuation allowance for deferred tax assets (5,804) -- -------- -------- Net tax asset $ -- $ 4,614 ======== ========
As of December 31, 1997, the Company had approximately $11,600,000 of net operating loss carryforwards for federal income tax purposes which expire in the years 2004 through 2009. The Company had approximately $3,700,000 of state net operating losses which expire in the years 1997 through 2012. The Company had research and development credits for federal and state income tax purposes of approximately $848,000 and $637,000, which begin to expire at various dates through 2012. The federal and state net operating losses and credits are subject to certain limitations under IRC Section 382 which may affect the Company's ability to utilize them prior to expiration. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Under the applicable accounting standards, management has considered the Company's history of losses and concluded that it is more likely than not that the Company will not generate future taxable income prior to the expiration of these net operating losses. Accordingly, the deferred tax assets have been fully reserved. Management reevaluates the positive and negative evidence periodically. Continued F-17 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED 7. DEBT: The Company's debt consists of the following at December 31:
1997 1996 ------ ------ (IN THOUSANDS) Revolving line of credit $3,210 $2,700 Equipment term loan 1,099 377 Note payable, net of discount 2,705 -- ------ ------ 7,014 3,077 Less current portion 3,654 2,841 ------ ------ $3,360 $ 236 ====== ======
The aggregate maturities of the Company's debt outstanding at December 31, 1997, are as follows:
YEARS ENDING DECEMBER 31, (IN THOUSANDS) 1998 $3,654 1999 351 2000 490 2001 750 2002 and beyond 1,769 ------ $7,014 ======
Interest expense on notes payable and long-term debt was $546,000 and $229,000 in 1997 and 1996, respectively. In November 1997, the Company amended its revolving credit agreement with a bank to increase its revolving line-of-credit from $5,000,000 to $6,000,000, expiring on November 30, 1998. Outstanding balances under the agreement bear interest at the prime rate plus 0.75% (9.25% and 9.0% at December 31, 1997 and 1996, respectively). The line of credit is collateralized by certain receivables of the Company. Amounts borrowed under the term loan agreement are payable in monthly installments over a three-year period at an interest rate of the prime rate plus 1.00% (9.50% and 9.25% at December 31, 1997 and 1996, respectively). The term loan is collateralized by certain equipment of the Company. In September 1997, the Company issued a note to a third party for an amount of $3,000,000. The note bears interest at a rate of 10% and is payable in monthly installments commencing on Continued F-18 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED December 31, 2000, with the full amount due by September 30, 2004. The note payable had warrants attached granting the right to purchase 191,327 shares of common stock of the Company at a purchase price of $7.84 per share before September 30, 2004. The fair market value of the warrants at the date of issuance was $295,000, which has been recorded as a discount on the note payable and will be amortized over the term of the note. The Company is subject to certain financial covenants under its debt agreements including specified debt to worth ratios and maintenance of a specified capital base and profitability, as defined. At December 31, 1997, the Company was in violation of these covenants on all three loans. The parties involved subsequently waived these covenants. 8. COMMITMENTS AND CONTINGENCIES: The Company occupies manufacturing and office space under an operating lease which expires in October 2002. The Company must pay insurance, maintenance, utilities and a percentage of real estate taxes on the lease. Approximate future minimum annual payments under noncancelable operating leases are as follows:
YEARS ENDING DECEMBER 31, (IN THOUSANDS) - ------------ -------------- 1998 $ 333 1999 350 2000 414 2001 429 2002 429 ------ $1,955 ======
Rent expense under operating leases was approximately $462,000 and $233,000 in 1997 and 1996, respectively. The Company also leases certain equipment under noncancelable capital leases that mature at various dates. The future minimum payments under the capital leases are immaterial. Continued F-19 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED 9. EMPLOYEE PLAN: As amended on January 1, 1988, the Company approved the establishment of the Voicetek Corporation 401(k) Plan (the "Plan"). Employees are eligible to participate in the Plan by meeting certain requirements, including length of service and minimum age. The Company can elect to make discretionary matching contributions. The annual contributions may not exceed the maximum allowed under the applicable provisions of the Internal Revenue Code. The Company has provided for contributions of approximately $74,000 and $58,000 in 1997 and 1996, respectively. 10. SIGNIFICANT CUSTOMERS AND EXPORT SALES: The following represents significant customer revenue:
YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 ---- ---- Customer A 24% 24% Customer B 11% 12% Customer C 10% 12%
Export sales were approximately $8,011,000 and $2,352,000 in 1997 and 1996, respectively. 11. GOING CONCERN MATTERS: The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss in 1997 and used cash to fund operations, and the Company's redeemable convertible preferred stock becomes redeemable at a value of $12,502,000 from August 1, 1998 (see Note 5). These factors indicate that the Company may be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flows to meet its obligations on a timely basis, to comply with the terms of its financing agreements, to obtain additional financing or refinancing as may be required, Continued F-20 VOICETEK CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED and ultimately to obtain profitability. The Company is also actively pursuing additional financing through discussions with potential investors. Continued F-21 VOICETEK CORPORATION CONDENSED BALANCE SHEETS (In thousands, unaudited)
March 31, December 31, 1998 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 27 $ 96 Accounts receivable, net 7,932 7,692 Inventories 2,216 2,177 Other current assets 522 751 -------- -------- Total current assets 10,697 10,716 Property and equipment, net 4,148 3,445 Other assets 165 44 -------- -------- Total assets $ 15,010 $ 14,205 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 3,503 $ 2,808 Current portion of debt 3,511 3,654 Other accrued liabilities 3,403 2,890 -------- -------- Total current liabilities 10,417 9,352 Long-term debt, less current portion 3,673 3,360 Redeemable convertible preferred stock, at liquidation preference 8,302 12,502 Stockholders' deficit: Common stock, $.01 par value: 20,000,000 shares authorized, 664,423 and 483,989 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively 9 5 Additional paid-in-capital 10,423 6,210 Accumulated deficit (17,814) (17,224) -------- -------- Total stockholders' deficit (7,382) (11,009) -------- -------- Total liabilities and stockholders' deficit $ 15,010 $ 14,205 ======== ========
See notes to condensed financial statements. F-22 VOICETEK CORPORATION CONDENSED STATEMENTS OF OPERATIONS (In thousands - unaudited)
Three Months Ended March 31, 1998 1997 -------- -------- Revenues: Systems $ 6,332 $ 4,527 Services 1,647 1,818 -------- -------- Total revenues 7,979 6,345 Cost of revenues: Systems 1,962 1,617 Services 1,121 1,112 -------- -------- Total cost of revenues 3,083 2,729 -------- -------- Gross profit 4,896 3,616 Operating expenses: Research and development 2,488 1,654 Sales and marketing 2,188 1,868 General and administrative 608 578 -------- -------- Total operating expenses 5,284 4,100 -------- -------- Loss from operations (388) (484) Interest expense (202) (80) -------- -------- Loss before income taxes (590) (564) Provision for income taxes -- 4,618 -------- -------- Net loss (590) (5,182) Accretion of redeemable convertible preferred stock to redemption value 331 301 ======== ======== Net loss available to common stockholders $ (921) $ (5,483) ======== ========
See notes to condensed financial statements. F-23 VOICETEK CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (In thousands - unaudited)
Three Months Ended March 31, -------------------- 1998 1997 ------- ------- Cash flows from operating activities: Net loss $ (590) $(5,182) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 394 243 Provision for doubtful accounts 30 9 Changes in operating assets and liabilities: Accounts receivable (270) 754 Inventories (39) (17) Other current assets 229 (253) Other assets (121) -- Accounts payable 695 710 Other accrued liabilities 513 3,901 ------- ------- Net cash provided by operating activities 841 165 ------- ------- Cash flows from investing activities: Additions to property and equipment (1,097) (580) ------- ------- Net cash used in investing activities (1,097) (580) Cash flows from financing activities: Net increase (decrease) in revolving line of credit (143) 458 Proceeds from long term debt 377 209 Proceeds from exercise of stock options 17 3 Payments on long term debt (64) (35) ------- ------- Net cash provided by financing activities 187 635 ------- ------- Net change in cash and cash equivalents (69) 220 Cash and cash equivalents, beginning of period 96 -- ------- ------- Cash and cash equivalents, end of period $ 27 $ 220 ======= ======= Non Cash Transaction: Conversion of redeemable convertible preferred stock to common stock $ 4,200 $ -- ======= =======
F-24 VOICETEK CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 8-K 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. 2. INCOME TAXES: Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Under the applicable accounting standards, management has considered the Company's history of losses and concluded that it is more likely than not that the Company will not generate future taxable income prior to the expiration of these net operating losses. Accordingly, the deferred tax assets have been fully reserved in the amount of $4,618,000. 3. SUBSEQUENT EVENT: In May 1998, the Company was acquired by Aspect Telecommunications Corporation (Aspect) for cash of $72 million and Aspect options to the stockholders of the Company valued at approximately $11 million. The transaction was accounted for as a purchase. F-25 ASPECT TELECOMMUNICATIONS CORPORATION PRO FORMA CONDENSED COMBINING BALANCE SHEET (In thousands, unaudited)
Aspect Voicetek as of as of March 31, March 31, Pro Forma Pro Forma 1998 1998 Adjustments Notes Combined --------- --------- ----------- ----- -------- ASSETS Current assets: Cash and cash equivalents $ 59,563 $ 27 ($18,326) 2,3,6 $ 41,264 Short-term investments 87,243 0 (61,843) 2,3,6 25,400 Accounts receivable, net 94,866 7,932 (2,071) 4 100,727 Inventories 13,265 2,216 (225) 4 15,256 Other current assets 16,152 522 58 6 16,732 --------- --------- ----------- -------- Total current assets 271,089 10,697 (82,407) 199,379 --------- --------- ----------- -------- Property and equipment, net 62,161 4,148 0 66,309 Intangible assets, net 41,022 0 85,892 5 126,914 Other assets 3,138 165 0 3,303 --------- --------- ----------- -------- Total assets $377,410 $15,010 $3,485 $395,905 ========= ========= =========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 12,120 $ 3,503 $0 $ 15,623 Current portion of long-term debt 6,149 3,511 (3,511) 3 6,149 Accrued compensation and related benefits 15,740 1,162 0 16,902 Other accrued liabilities 29,966 1,345 1,265 3,4,6 32,576 Customer deposits and deferred revenue 22,637 896 0 23,533 --------- --------- ----------- -------- Total current liabilities 86,612 10,417 (2,246) 94,783 Long-term debt, less current portion 6,607 3,673 (3,673) 1,3 6,607 Redeemable convertible preferred stock at liquidation preference 0 8,302 (8,302) 1 0 Deferred Tax Liabilities 0 0 9,130 5,8 9,130 Shareholders' equity: Common stock 147,897 9 11,175 2 159,081 Paid-in-capital 0 10,423 (10,423) 1,2 - Net unrealized gain on available-for-sale securities 148 0 0 148 Accumulated translation adjustments (1,706) 0 0 (1,706) Retained earnings (deficit) 137,852 (17,814) 7,824 4,7,9 127,862 --------- --------- ----------- -------- Total shareholders' equity (deficit) 284,191 (7,382) 8,576 285,385 --------- --------- ----------- -------- Total liabilities and shareholders' equity $377,410 $15,010 $3,485 $395,905 ========= ========= =========== ========
See notes to pro forma condensed combining financial statements. F-26 ASPECT TELECOMMUNICATIONS CORPORATION PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (In thousands, except per share amounts - unaudited)
Aspect Voicetek Year Ended Year Ended December 31, December 31, Pro Forma Pro Forma 1997 1997 Adjustments Notes Combined ------------ ------------ ----------- ----- --------- Net revenues: Product $276,471 $21,314 ($611) 4 $ 297,174 Customer support 114,171 7,503 0 121,674 ----------- ------------ ----------- --------- Total net revenues 390,642 28,817 (611) 418,848 ----------- ------------ ----------- --------- Cost of revenues: Cost of product revenues 89,529 6,850 318 4 96,697 Cost of customer support revenues 79,444 4,937 0 84,381 ----------- ------------ ----------- --------- Total cost of revenues 168,973 11,787 318 181,078 ----------- ------------ ----------- --------- Gross margin 221,669 17,030 (929) 237,770 ----------- ------------ ----------- --------- Operating expenses: Research and development 45,723 7,596 4,119 10 57,438 Selling, general and administrative 104,431 10,934 9,833 4,10 125,198 Purchased in-process technology 4,910 0 0 4,910 Intellectual property settlement 14,000 0 0 14,000 ----------- ------------ ----------- --------- Total operating expenses 169,064 18,530 13,952 201,546 ----------- ------------ ----------- --------- Income (loss) from operations 52,605 (1,500) (14,881) 36,224 Interest and other income (expense), net 7,673 (888) (3,943) 11 2,842 ----------- ------------ ----------- --------- Income (loss) before income taxes 60,278 (2,388) (18,824) 39,066 Provision for (benefit from) income taxes 25,096 4,618 (10,171) 13 19,543 ----------- ------------ ----------- --------- Net income (loss) 35,182 (7,006) (8,653) 19,523 Accretion of redeemable convertible preferred stock to redemption value 0 1,205 (1,205) 14 0 ----------- ------------ ----------- --------- Net income (loss) available to common shareholders $35,182 (8,211) (7,448) $ 19,523 =========== ============ =========== ========= Basic earnings per share $ 0.71 $ 0.40 =========== ========= Weighted average shares outstanding 49,302 49,302 =========== ========= Diluted earnings per share $ 0.67 $ 0.37 ========= ========= Weighted average shares outstanding--assuming dilution 52,307 52,586 ========= =========
See notes to pro forma condensed combining financial statements. F-27 ASPECT TELECOMMUNICATIONS CORPORATION PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS (In thousands, except per share amounts - unaudited)
Aspect Voicetek Three Months Three Months Ended Ended March 31, March 31, Pro Forma Pro Forma 1998 1998 Adjustments Notes Combined ---------- ------------ ----------- ------- ----------- Net revenues: Product $77,332 $6,332 ($560) 4 $ 83,104 Customer support 36,125 1,647 - 37,772 ---------- ------------ ----------- ----------- Total net revenues 113,457 7,979 (560) 120,876 ---------- ------------ ----------- ----------- Cost of revenues: Cost of product revenues 24,372 1,962 23 4 26,357 Cost of customer support revenues 24,170 1,121 - 25,291 ---------- ------------ ----------- ----------- Total cost of revenues 48,542 3,083 23 51,648 ---------- ------------ ----------- ----------- Gross margin 64,915 4,896 (583) 69,228 ---------- ------------ ----------- ----------- Operating expenses: Research and development 12,830 2,488 1,030 10 16,348 Selling, general and administrative 31,084 2,796 2,233 10 36,113 ---------- ------------ ----------- ----------- Total operating expenses 43,914 5,284 3,263 52,461 ---------- ------------ ----------- ----------- Income (loss) from operations 21,001 (388) (3,846) 16,767 Interest and other income (expense), net 1,413 (202) (920) 11 291 ---------- ------------ ----------- ----------- Income (loss) before income taxes 22,414 (590) (4,766) 17,058 Provision for (benefit from) income taxes 8,517 - (1,390) 12 7,127 ---------- ------------ ----------- ----------- Net income (loss) 13,897 (590) (3,376) 9,931 Accretion of redeemable convertible preferred stock to redemption value - 331 (331) 14 - ---------- ------------ ----------- ----------- Net income (loss) available to common shareholders $13,897 ($921) ($3,045) $ 9,931 ========== ============ =========== =========== Basic earnings per share $ 0.28 $ 0.20 ========== =========== Weighted average shares outstanding 50,146 50,146 ========== =========== Diluted earnings per share $ 0.26 $ 0.19 ========== =========== Weighted average shares outstanding--assuming dilution 53,071 53,446 ========== ===========
See notes to pro forma condensed combining financial statements. F-28 ASPECT TELECOMMUNICATIONS CORPORATION NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS ACQUISITION VOICETEK CORPORATION - On May 11, 1998, pursuant to an Agreement and Plan of Merger dated April 1, 1998 (the "Merger Agreement") among the Registrant, Venus Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Registrant ("Sub"), and Voicetek Corporation, a Massachusetts corporation ("Voicetek"), related Articles of Merger dated May 11, 1998 between Sub and Voicetek filed with the Secretary of State of the Commonwealth of Massachusetts, and a related Certificate of Merger dated May 11, 1998 filed with the Secretary of State of the State of Delaware, Sub was merged with and into Voicetek and Voicetek, as the surviving corporation, became a wholly-owned subsidiary of the Registrant ("The Merger"). Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated financial statements the SEC issued new guidance on its views regarding the valuation methodology used in determining purchased in-process technology expensed on the date of acquisition. The Company has had discussions with the SEC staff concerning the valuation of purchased in-process technology and other intangible assets acquired in connection with the acquisition of Voicetek Corporation in May 1998 (see "Business Combinations" note). As a result of these discussions, the Company has modified its methods used to value the purchased in-process technology and other intangible assets. The revised valuation was based on management's estimates of the after tax net cash flows and gives explicit consideration to the SEC's views on purchased in- process technology as set forth in its September 9, 1998 letter to the American Institute of Certified Public Accountants. Specifically, the revised valuation gave consideration to the following: (i) a fair market value premise was employed, excluding any Aspect-specific considerations which would result in estimates of investment value for the subject assets; (ii) comprehensive due diligence concerning all potential intangible assets including trademarks/tradenames, patents, copyrights, non-compete agreements, assembled workforce and customer relationships and sales channel; (iii) the value of core technology was explicitly addressed, with a view toward ensuring the relative allocations to core technology and in-process technology were consistent with the relative contributions of each to the final product; (iv) the allocation to in-process technology was based on a calculation that considered only the efforts completed as of the transaction date, and only the cash flow associated with said completed efforts for one generation of the products currently in- process; and (v) it was assessed by the Company's independent accountants and deemed reasonable in light of all the quantitative and qualitative information available. Aspect recorded a one-time charge of $9.9 million in the second quarter of 1998 for purchased in-process technology related to two development projects that had not reached technological feasibility, had no alternative future use, and for which successful development was uncertain. The conclusion that each in-process development effort, or any material sub-component, had no alternative future use was reached in consultation with engineering personnel from both Aspect and Voicetek. The first of these projects is an interactive voice response (IVR) product that represents the next generation of Voicetek's "Generations" platform, ported to a Windows NT environment. The primary project tasks open include porting to Windows NT, compliance to industry standard protocols and various feature enhancements. At the time of acquisition, development remained on all tasks and estimated costs to complete were approximately $1.5 million. The second development project is a suite of personal communications services, which will provide modular, integrated applications for voice activated dialing, single number service, personal assistant call screening and unified message control. At the time of acquisition, most of the remaining development effort was focused on completing one of the applications, voice activated dialing, and additional coding for final feature development, as well as further testing. Estimated costs to complete were approximately $2.2 million. Management expects that both products being developed will become available for sale in fiscal 1999; however, no assurances can be given. Aspect will begin to benefit from the acquired research and development related to these products once they begin shipping. Failure to reach successful completion of these projects could result in impairment of the associated capitalized intangible assets and could require the Company to accelerate the time period over which the intangibles are being amortized, which could have a material adverse effect on the Company's business, financial condition or results of operations. Significant assumptions used to determine the value of in-process technology included several factors, including the following. First, a forecast of net cash flows that were expected to result from the development effort, using projections prepared by Voicetek management, portions of which (1998 and 1999) were provided to Aspect's Board of Directors. Second, a percentage complete for each project (40% for the first project and 50% for the second project) estimated by considering a number of factors, including the costs invested to date relative to the expected total cost of the development effort and the amount of progress completed as of the transaction date, on a technological basis, relative to the overall technological achievements required to achieve the intended functionality of the eventual product. The technological issues were addressed by engineering representatives from both Aspect and Voicetek. Third, discount rates of approximately 28% and 23% respectively, computed under two discount rate scenarios. The first discount rate was equivalent to the discount rate that would be employed in a Fair Value analysis, i.e., one that considers all cash flows associated with the project and resulting product, and therefore represents a blended rate of all the risks associated with the product. The second discount rate employed was moderately lower, and was intended to be reflective of the fact that the "Exclusion Method" only considers the "completed portion" of the development and the cash flow associated with the same. The results of each scenario were not materially different, and our final allocation to in-process research and development was based on an average of the results of the two scenarios for each project. As of September 30, 1998, technological feasibility had not been reached with respect to either project and no significant departures from the assumptions included in the valuation analysis have occurred. As a result of the revised valuation, the amount of purchase price allocated to in-process technology decreased from $68.2 million to $9.9 million and the amount ascribed to other intangible assets increased from $17.8 million to $89.8 million, including the impact of deferred taxes of $1.4 million and $15.2 million respectively. The Registrant's condensed consolidated financial statements included in its Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 1998 and September 30, 1998 have been restated to reflect the revised valuation. The unaudited pro forma condensed combining financial statements have also been similarly restated to reflect the revised valuation amounts. Pursuant to the Merger Agreement, the Registrant paid approximately $72 million in cash for all Voicetek common and preferred shares outstanding, converted all outstanding Voicetek options into options to purchase approximately 450,000 shares of Registrant's common stock, and assumed certain operating assets and liabilities of Voicetek. The Registrant has recorded a one-time charge against after-tax earnings of $9.9 million for purchased in-process technology and development expense in the quarter ended June 30, 1998. The source of the funds paid by the Company under the Merger Agreement was the Company's cash and cash equivalents and short-term investments. The purchase price was agreed upon in arms' length negotiation of the terms of the Merger. The Registrant received an opinion from its financial advisor that the Merger was fair to the Registrant's shareholders from a financial point of view. The Merger was treated by the Registrant as a purchase for accounting purposes. Voicetek is a leading provider of software platforms and application solutions, including highly scalable, mission-critical interactive voice response (IVR) and network-deployed enhanced services solutions. 2. PRO FORMA ADJUSTMENTS The accompanying pro forma financial statements are presented in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combining balance sheet has been prepared as if the acquisition, which was accounted for as a purchase, was completed as of March 31, 1998. The aggregate purchase price, and approximately $3 million of costs directly attributable to the completion of the acquisition have been allocated to the assets and liabilities acquired. The allocation of the purchase price among the identifiable intangible assets was based on estimates of the fair market value of those assets. As a result, $9.9 million was allocated to purchased in-process research and development, which has not yet reached technological feasibility and does not have alternative future uses. This amount was charged to the company's operations in accordance with generally accepted accounting principles in the quarter ended June 30, 1998. F-29 To prepare the pro forma unaudited condensed combining statements of operations, the Aspect Telecommunications ("Aspect") statement of income for the year ended December 31, 1997 has been combined with the statement of operations of Voicetek for the year ended December 31, 1997. Also, the Aspect statement of income for the three months ended March 31, 1998 has been combined with the statement of operations of Voicetek for the three months ended March 31, 1998. This method of combining the companies is only for the presentation of pro forma unaudited condensed combining financial statements. Actual statements of operations of the companies will be combined from the effective date of the acquisition, with no retroactive restatement. The unaudited pro forma condensed combining financial statements should be read in conjunction with the historical financial statements of Aspect and Voicetek. The unaudited pro forma condensed combining statements of operations do not include the one-time $9.9 million charge for purchased in-process technology arising from this acquisition, as it is a material nonrecurring charge. This charge will be included in the actual consolidated statement of income of Aspect in the second quarter of fiscal 1998. The following pro forma adjustments have been made to the pro forma condensed combining financial statements. (1) Reflects exercise of warrants and conversion of Voicetek preferred stock to Voicetek common stock. (2) Reflects cash paid of approximately $72 million and options issued valued at approximately $11 million to the stockholders of Voicetek. (3) Reflects payments of Voicetek line of credit, equipment term loan, and note payable. (4) Reflects adjustments to conform to Aspect's accounting policies for revenue recognition, allowance for doubtful accounts, inventory reserves and certain accrued liabilities. (5) Reflects the allocation of purchase price to the intangible assets identified in the purchase price allocation and the related deferred tax. (6) Reflects the payment and accrual of estimated costs directly attributable to the completion of the acquisition of approximately $3 million. (7) Reflects the elimination of Voicetek's shareholders' equity. (8) Reflects the reversal of valuation reserve related to deferred tax assets of $5.5 million arising from the estimated future benefit of Voicetek's net operating loss carryforwards. (9) Includes the one-time charge of $9.9 million for purchased in-process technology identified in the purchase price allocation. (10) Reflects pro forma amortization of the purchased intangibles over the estimated useful life ranging from four to seven years of $13.1 million for the year ended December 31, 1997 and $3.3 million for the three months ended March 31, 1998. (11) Reflects interest that would not have been earned, offset by interest expense that would not have been incurred. (12) Reflects the tax effect of pro forma adjustments at the statutory rate and the additional tax benefit of Voicetek net operating losses. (13) Reflects the tax effect of pro forma adjustments at the statutory rate, the additional tax benefit of Voicetek net operating losses, and the reversal of Voicetek tax provision. F-30 (14) Reflects the reversal of Voicetek's accretion of redeemable convertible preferred stock to redemption value. F-31 -----END PRIVACY-ENHANCED MESSAGE-----