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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18391
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ASPECT TELECOMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2974062
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1730 FOX DRIVE, SAN JOSE, CALIFORNIA 95131-2312
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(408) 325-2200
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 22 ,1999, was $213,899,917 based upon the last sale
price reported for such date on the Nasdaq Stock Market. For purposes of this
disclosure, shares of Common Stock held by persons known to the Registrant
(based on information provided by such persons and/or the most recent schedule
13G's filed by such persons) to beneficially own more than 5% of the
Registrant's Common Stock and shares held by officers and directors of the
Registrant have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily a conclusive determination
for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of
March 22, 1999 was 48,858,530.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Proxy Statement for the Annual Meeting of Shareholders
of Aspect Telecommunications Corporation (Proxy Statement) scheduled to be
held on April 29, 1999, are incorporated by reference in Parts I, II, III, and
IV of the Report on Form 10-K.
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PART I
Item 1. Business
Aspect Telecommunications Corporation (Aspect or the Company) is a provider
of integrated software suites designed to enable companies to deliver
responsive and cost-effective customer service using call center solutions to
interact with their customers via voice, data, the Internet, and e-mail.
Aspect also consults, trains, and delivers system integration services to help
organizations effectively plan, integrate and manage call centers. The Company
markets its products and services worldwide to enterprises in a broad array of
industries including financial services, government, health care, retailing,
technology, telecommunications, and transportation.
In May 1998, the Company completed the acquisition of Voicetek Corporation
(Voicetek), a leading supplier of interactive voice response (IVR) and
intelligent network (IN) applications, based in Chelmsford, Massachusetts. The
acquisition was intended to augment Aspect customer premise IVR product
offerings, strengthen Aspect's position in the network service provider
marketplace, and extend the Company's original equipment manufacturer sales
channel capabilities. The Company paid approximately $72 million in cash for
all Voicetek common and preferred shares outstanding and converted all
outstanding Voicetek options into options to purchase approximately 450,000
shares of Aspect common stock with a fair value of approximately $11 million
plus transaction costs of approximately $3 million, and assumed certain
operating assets and liabilities. The transaction was accounted for as a
purchase and resulted in a one-time charge of $10 million in the second
quarter of 1998 for purchased in-process technology.
In August 1998, the Company completed a private placement of approximately
$150 million ($490 million principal amount at maturity) of zero coupon
convertible subordinated debentures due 2018 (debentures). The debentures are
priced at a yield to maturity of 6% per annum and are convertible into Aspect
common stock anytime prior to maturity at a conversion rate of 8.713 shares
per $1,000 principal amount. Holders can require Aspect to repurchase the
debentures on August 10, 2003, August 10, 2008, and August 10, 2013, for cash;
or at the election of Aspect, for Aspect common stock, if certain conditions
are met. The debentures are not secured by any Aspect assets and are
subordinated in right of payment to all of Aspect senior indebtedness and
effectively subordinated to the debt of Aspect subsidiaries. On October 30,
1998, the Company filed a registration statement with the SEC to register the
debentures and shares of Aspect common stock issuable upon conversion for
resale. The registration statement was declared effective on February 2, 1999.
In September 1997, the Company acquired Commerce Soft Inc. (Commerce Soft),
a developer of customer interaction technology. The transaction was accounted
for as a purchase and the operating results of Commerce Soft have been
included in the consolidated statements of income since the date of
acquisition.
In 1996, the Company completed two acquisitions: Envoy Holdings Limited
(Envoy) and Prospect Software, Inc. (Prospect). 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.
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended; Section 21E of the Securities and
Exchange Act of 1934, as amended; and the Private Securities Litigation Reform
Act of 1995; and are made under the safe-harbor provisions thereof. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis
1
only as of the date hereof. Aspect undertakes no obligation to publicly
release any revision to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof.
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control, that could
have a material adverse effect on the Company's business, operating results,
or financial condition. These risks include, but are not limited to: changing
business focus; volatility of the Company's common stock and convertible
subordinated debenture prices; variability and uncertainty of revenues and
operating results; product concentration; technological change; competition;
acquisitions and investments; litigation; intellectual property; international
operations; management of growth; expansion of distribution channels;
dependence on key personnel; geographic concentration; limited sources of
component supply; debt and debt service obligations; and Year 2000 compliance
issues. Such risks and uncertainties are described in the section titled
"Business Environment and Risk Factors" in the 1998 Annual Financial Report to
Shareholders, an appendix to the 1999 Proxy Statement, which is incorporated
by reference in this Annual Report on Form 10-K.
Industry Background
Many companies recognize that excellent customer service can be employed to
differentiate their firms from competitors and gain market share. As a result,
customer service has received greater prominence and resource allocation in a
wide variety of manufacturing and service industries. In addition to seeking
improved overall responsiveness to customer needs, certain companies have
recognized the benefits of market segmentation by introducing premium service
marketing programs, which provide a prioritized level of service for their
most valued customers. In many cases, companies attempt to differentiate
themselves from their competitors by providing superior customer service by
telephone. Many companies have established telephone sales and support centers
staffed by employees who handle the thousands of calls that may be received
each day.
This demand for handling customer transactions by telephone has created a
market for intelligent call control and management systems that process large
volumes of transactions. Aspect has coined the term "call transaction
processing" to describe the market for these application-specific
telecommunications systems and to distinguish it from the more established
markets of general connectivity (such as private branch exchange, or PBX, and
key systems) and office automation telecommunications products (such as
facsimile machines and voice messaging systems). The Company believes that the
call transaction processing market is characterized by mission-critical
applications and value-oriented relationships between vendors and customers.
Increased emphasis on customer service by a wide variety of manufacturing
and service companies has led to a growing number of call transaction
processing applications in such diverse industries as computer software and
systems, financial services, insurance, travel and entertainment, retail
catalog sales, office products, consumer products, public utilities,
publishing, and health care.
Products and Services
The Company's products and services are designed to create a comprehensive
array of integrated call center solutions. The products include automatic call
distributors, computer telephony integration products, interactive voice
response systems and automation products, agent desktop and web products,
networking software for virtual call centers, management information and
reporting tools, graphical user interface integration-enabling software, and
call center planning and forecasting software packages. The services include
installation and cutover support for system implementation, ongoing system
support services, business applications consulting, consulting and systems
integration, and customer education services. Collectively, these products and
services provide integrated benefits in intelligent call management, workforce
productivity, call transaction automation, and business re-engineering for
customer-centric corporate initiatives.
2
Automatic Call Distributor Products
Historically, the Company's core product offering has been a highly
scaleable, mission-critical family of digital automatic call distributor
systems known as the Aspect ACD System. Introduced in 1987, this product line
has accounted for the majority of the Company's sales volume to date, and has
helped establish the Company's reputation in the call center industry. Because
these systems are deployed in mission-critical applications such as customer
service, direct sales, and help desks, the underlying software and platform
have been designed for high availability as well as flexibility, and span
multiple uses.
From time-to-time since the product's introduction, Aspect has upgraded the
technological base of the Aspect ACD System from Release 1 through Release 6,
incorporating both new software capabilities and more powerful processors and
larger storage components. In November 1997, the Company announced Aspect ACD
Software Release 7, which utilizes a more advanced processor and operating
system as underlying technologies. The external functionality of this new
release is similar to the prior product version, designed to provide a
straightforward upgrade path for existing customers while offering larger
configurations and more intuitive design and implementation tools for both
existing and potential new customers. In early 1998, the Company announced
general availability of the ACD Software Release 7 in its major markets.
Computer Telephony Integration Products
Starting in 1988, Aspect began delivering technology that was an early
leading product for computer-telephony integration. Aspect Application Bridge
software, a message-oriented data stream allowing data-directed call routing
and synchronized screen-pop applications, is responsible for presenting
customer screen information to agents concurrent with audio cut-through. Since
1992, Application Bridge software has been available as a high-speed Ethernet
connection and has been combined with Aspect Resource Bridge and Aspect Event
Bridge software to provide client/server data networking technology designed
to allow the systems employed in the call center to evolve into servers in
enterprise-wide data networks.
With the acquisition of Prospect Software in 1996, the Company added a CTI
product family, namely a switch-neutral CTI open application programming
interface toolkit and a set of software procedures for development of screen
pops and intelligent data-directed routing applications.
Interactive Voice Response Systems and Automation Products
With the May 1998 acquisition of Voicetek, the Company added a highly
scaleable, stand-alone IVR system to its product portfolio. The Voicetek
Generations product is an IVR software offering that is sold both through
Aspect direct channels and original equipment manufacturers.
Agent Desktop and Web Products
Coupled with its ACD products, Aspect has offered advanced desktop
technology for call center agents and supervisory staff, designed for high-
volume call handling. The Aspect TeleSet is a freestanding special-purpose
telephone set designed specifically for the requirements of modern call
centers. The Aspect TeleCaster is a wall-mounted visual alerting panel
providing at-a-glance system-wide or group status information. Aspect WinSet
for Windows software brings the capabilities of the Aspect TeleSet into a
desktop personal computer, replacing the Aspect TeleSet with a simple adapter
and a personal computer graphical interface, replicating and extending the
call handling functions of the telephone on the computer screen.
Extending the geographical boundaries of the call center, the Aspect Remote
StaffCenter allows clusters of Aspect TeleSets and Aspect WinSets to be
located at a distance from the main center. Customers use this capability to
extend the call center working environment to branch offices and to establish
operating centers in sites more convenient to employees' homes. The Anywhere
Agent capability extends the range of Aspect TeleSet functionality to other
remote locations, including home offices, via the WinSet application.
3
With the acquisition of Commerce Soft in 1997, the Company gained technology
that expands the call handling scope of its call center products to include
interactive processing of transactions initiated over the Web. Early
implementations of these capabilities have been delivered as systems
integration custom projects and, in 1998, the Company announced a standard
product offering named WebAgent, based on the Commerce Soft technology.
Networking Software for Virtual Call Centers
With many Aspect ACD Systems implemented in accounts comprising multiple
geographic sites, the Company has developed capabilities to meet the needs of
these large, distributed operations. In response to customer requirements, the
Company introduced Network InterQueue software in 1995. This software,
resident in each system in a network of two to more than 50 sites, is designed
to provide a real-time coordinated load-balancing and resource allocation
function that allows large call centers to be implemented as a single virtual
system distributed over a large geographic area.
In response to anticipated reductions in international telecommunications
costs, the Company believes that more global call center customers will seek
to implement "follow-the-sun" multi-site, networked call centers located
several time zones apart. Using international variants of Network InterQueue
software, these implementations will be designed to allow calls to enter a
global virtual call center network from any location and be served at the site
best able to handle each call.
Management Information and Reporting Tools
Aspect offers call center managers, supervisors, and analysts, as well as
staff outside the call center department a wide variety of management
information features, including detailed and summary views of calling volumes,
call handling efficiencies, trends, and other business and IT-related
information.
The Aspect System Management Suite is an integrated set of software
applications providing a graphical user interface for direct access and
centralized control of call center system resources and features. Its five
integrated software packages include Hardware Administrator, Agent
Administrator, System Administrator, Route Administrator, and Alert Manager.
Using these desktop programs, users can set up call routings and add, delete,
and update sources to adapt to changing conditions.
Graphical User Interface Integration-Enabling Software
To achieve integration between a variety of application software modules and
set the basis for future integration, including applications developed by both
the Company and third-parties, Aspect created the Aspect Architect workflow
creation tool, a graphical user interface for the design of call flows, work
flows, scripts, and other flowchart-like specifications of state-driven
software. Included as a component of Aspect ACD Software Release 7, the Aspect
Architect provides an important integration-enabling software capability.
Call Center Planning and Forecasting Software
A common issue for many call center managers is the provision of appropriate
levels of staff resources for expected transaction volumes by time of day, and
under varying assumptions about operating conditions. With the acquisition of
TCS Management Group in 1995, the Company established an independent
subsidiary that is a market leader in workforce staff forecasting and planning
requirements software. The TCS TeleCenter System is a personal computer-based
software package that allows users to define operating requirements, staff
preferences and alternative case scenarios, and then to produce likely
performance outcomes. After resource constraints are adjusted and optimized, a
forecast for staff resources for each operating period is produced, and staff
rosters and schedules are developed.
4
Systems Installation and Cutover Support Services
Inherent in the selection of a supplier of call center technology is the
customer's need for support in the provisioning of the software and hardware,
connection and integration to telephony and data networks, definition and
setup of routing statements, definition of agent skills, and planning for the
startup of operations--whether for the first day of operation in a new center
or for the transfer of call traffic from an existing center. The Company
provides project management and a cross-functional support services team to
its direct customers to meet these requirements.
Ongoing System Support Services
Once in service, the Company's products are generally considered to be
mission-critical systems in front office applications by the Company's
customers. Therefore, the availability of 24-hour, 7-day, 365-day-per-year
support is required by the Company's typical customers. A variety of ongoing
support plans allows customers to tailor the level of support being purchased.
The Company maintains several customer operations support centers, which allow
the Company to provide needed levels of customer access and trouble
resolution. An extensive field-deployed spare parts inventory and trained
field support staff are designed to assure rapid response when system
performance is impacted by a hardware-related problem. For software or
configuration issues, most problems are resolved via interactive tools for the
analysts in the support centers or via online download of software
corrections.
Business Applications Consulting
Many of the Company's solutions are highly configurable, but require the
customer or a third party to determine exactly how to best utilize the
capabilities available. For the Company's main product offerings, a field-
based set of applications consultants assists direct customers in relating
Aspect solutions to their specific business requirements. When needed,
specialists and other resources may be utilized to select and recommend
optimum solutions. Customized script development and other applications-
oriented solutions services are available on a case-specific basis.
Consulting and Systems Integration Services
Global Solution Services offers a broad spectrum of consulting and systems
integration services, based on specialized knowledge of customer interaction
strategy and the growing selection of technologies designed to better serve
customers. Consultants create call center solutions designed to increase a
company's responsiveness and keep their customers satisfied by optimizing each
interaction.
Customer Education Services
The Company routinely trains its customers in methods for operating and
gaining utility from its software packages and integrated systems.
Product Support
The Company installs, maintains, and supports systems sold directly in the
United States with the Company's own employees or qualified third parties in
selected cities. Although the Company anticipates that some customers may
elect to maintain their own systems in the future, substantially all direct
U.S. customers currently have support contracts with the Company. The Company
subcontracts some field support for certain customers to distributors and
other third parties in selected geographic locations. The Company expects to
expand support coverage to additional cities, primarily through the addition
of direct field support employees. In international markets, customers receive
support directly from Aspect, from distributors, or from certain third
parties. The Company has established Customer Operations Support Centers based
in North America, Europe and Asia.
5
The purchase price of a system typically includes an initial twelve-month
support and warranty period (warranty only in international markets), which
begins at the installation date. Subsequent support (initial support in
international markets) is provided to the Company's direct customers under a
contractual support agreement.
Product Development
The Company has a continuing program of product development directed toward
the enhancement of existing products based upon current and anticipated
customer needs. The Company's research and product development efforts also
emphasize introduction of new products to broaden the Company's product line
and to reach a larger segment of the call transaction processing market, which
has expanded to include transactions using many different forms of media,
including voice, fax, e-mail, and the Web. During 1998, 1997, and 1996,
Company spending on R&D totaled $67.9 million, $45.7 million, and $34.6
million, respectively. The Company believes that a significant commitment of
financial resources and talent will be necessary to maintain and increase its
competitive position in the years ahead, and expects to increase its total
spending for research and development in 1999.
Manufacturing
The Company's manufacturing operations consist primarily of final assembly
and testing of materials, components, subassemblies, and systems, together
with related quality management processes. The Company presently uses third
parties to perform various levels of product assembly. The Company believes
that its approach to system design has allowed flexibility in the
manufacturing process and has allowed the Company to satisfy a wide variety of
customer configuration requirements, while achieving high quality and
reasonable lead times.
The Company orders materials with differing lead times, generally 30 to 120
days ahead of required date of delivery to the Company. Because this is a
longer time frame than the average customer order to shipment cycle, the
Company acquires materials and builds standard assemblies based on forecasted
production requirements. Upon receipt of firm orders from customers, the
Company assembles fully configured systems, and subjects them to a number of
tests before shipment. The Company's manufacturing procedures are designed to
assure rapid response to customer orders.
Markets and Customers
The Company markets and sells its products and services primarily to large
organizations in diversified industries worldwide. The Company has
historically sold its products and services primarily through its direct sales
force. In addition, the Company has agreements under which certain
distributors and original equipment manufacturers sell the Company's products.
Competition
The Company believes the market for its products and services is highly
competitive and that competition is likely to intensify. The Company's
principal competitors currently include companies that market ACD systems,
private branch exchange systems that include ACD features, and alternative or
complementary technologies and services such as CTI software companies and
systems integrators, telephone operating companies that market ACD
functionality, companies with other technologies capable of providing call
transaction processing, including participants in the problem tracking and
resolution software market, pre-network routing companies, and a wide variety
of CTI and software companies. As the hardware requirements for a traditional
call center diminish due to the emergence of the Internet, local area
networks, and other factors, other companies may obtain a significant position
in the call transaction processing market. Many current and potential
competitors, including but not limited to Lucent, Nortel, Rockwell, and
Siemens, have longer operating histories, considerably greater resources, and
larger customer bases than Aspect. Consequently, the Company expects to
encounter substantial competition from these sources, as well as from new
market entrants and emerging technologies.
6
INTELLECTUAL PROPERTY AND RELATED MATTERS
The Company's success depends in part upon its internally developed
technology. The Company generally enters into confidentiality or license
agreements with its employees, consultants, and vendors, and generally
controls access to and distribution of its software, documentation, and other
proprietary information. Despite these precautions, unauthorized third parties
may copy or otherwise obtain and use the Company's technology. In addition,
third parties may develop similar technology independently.
The Company files patent applications to protect inventions and improvements
that are significant to the development of its business. In October 1997, the
Company acquired certain rights to two intellectual property portfolios by
paying $9.8 million in cash and issuing $10 million in notes payable. In July
and September 1998, the Company acquired the remaining rights under these
intellectual portfolios by making additional payments of $7.5 million and $3.8
million, respectively. Including these portfolios, the Company currently holds
approximately 40 issued United States patents and a lesser number of issued
foreign patents and has pending approximately 40 United States patent
applications and a lesser number of corresponding foreign patent applications
that cover various aspects of its technology. The Company's issued United
States patents expire on dates ranging from 2004 through at least 2016. There
can be no assurance that any of the claims in the pending applications will be
allowed, or that any issued patents will be upheld, or not circumvented by
competitors, or that any patents or licenses will provide competitive
advantages for the Company's products.
The Company maintains as proprietary the software that is delivered to its
customers. Under certain circumstances, a limited number of the Company's
customers have been granted licenses to use certain of the Company's
proprietary rights, primarily to ensure the continued maintenance and supply
of certain of the Company's products.
The Company holds licenses from multiple third parties regarding engineering
and manufacturing rights to certain technology that the Company incorporates
in its products. Certain of these technology license rights expire at various
dates through 2004. The Company has also entered into standard commercial
license agreements with several suppliers of operating systems, databases, and
other software used for development and implementation of the Company's
products. These licenses are ongoing and generally involve the payment of
royalties based on the volume of systems the Company ships over periods of
time.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 2,200 full-time
employees.
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information with respect to the executive
officers of the Company, and their ages as of March 1, 1999:
NAME AGE POSITION
---- --- --------
James R. Carreker........ 52 Chairman, President and Chief Executive Officer
Deborah E. Barber........ 59 Senior Vice President, Human Resources and
Corporate Services
Robert A. Blatt.......... 38 Vice President, Corporate Development
Kathleen M. Cruz......... 49 Senior Vice President, Information Technology
and Chief Information Officer
Beatriz V. Infante....... 44 Executive Vice President, Products and Services
Eric J. Keller........... 46 Senior Vice President, Finance and Chief
Financial and Accounting Officer
7
Executive officers serve at the election of the Board of Directors of the
Company. There are no family relationships among any directors or executive
officers of the Company.
Mr. Carreker, a founder of the Company, has served as Chief Executive
Officer and as a director of the Company since its inception in August 1985.
He has served as Chairman of the Company's Board of Directors since October
1995 and resumed the position of President of the Company in January 1999.
Since January 1997, Mr. Carreker has also served as a director of Herman
Miller, Inc., a company that manufactures and sells office systems products
and services.
Ms. Barber has been employed by the Company since April 1998, and has served
as an executive officer since that time. Ms. Barber currently holds the
position of Senior Vice President, Human Resources and Corporate Services.
Prior to joining the Company, Ms. Barber served as Vice President, Human
Resources and Worldwide Real Estate and Corporate Services at Quantum
Corporation since October 1992. Prior to joining Quantum Corporation, Ms.
Barber served as Vice President, Human Resources at Cray Research Inc.
Mr. Blatt has been employed by the Company since 1986, and has served as an
executive officer of the Company since 1994. He currently holds the position
of Vice President, Corporate Development, and has previously served as Vice
President, Marketing and Channel Development and as Vice President, Worldwide
Products, and as a Product Development Manager. Prior to joining the Company,
Mr. Blatt was an engineer for New York Telephone.
Ms. Cruz has been employed by the Company since June 1996, and has served as
an executive officer since that time. Ms. Cruz currently holds the position of
Senior Vice President, Information Technology and Chief Information Officer.
Prior to joining the Company, Ms. Cruz served as Vice President, MIS and Chief
Information Officer, at Verifone, Inc., a global provider of secure payment
solutions, from January 1994 to May 1996; and Director, Information Services,
at Textainer, Inc., a container leasing company, from January 1992 to December
1993.
Ms. Infante has been employed by the Company since October 1998, and has
served as an executive officer since that time. Ms. Infante currently holds
the position of Executive Vice President, Products and Services. Prior to
joining the Company, Ms. Infante served as Senior Vice President, Application
Server Division, Vice President, Open Systems Division and Vice President,
Digital Products Division at Oracle Corporation, from January 1994 to October
1998, and Director, Development at Taligent, Inc. from August 1992 to August
1993.
Mr. Keller has been employed by the Company since January 1996, and has
served as an executive officer since that time. Mr. Keller currently holds the
position of Senior Vice President, Finance and Chief Financial Officer. Prior
to joining the Company, Mr. Keller served as Vice President and Chief
Financial Officer of Ventritex, Inc., a manufacturer of implantable medical
devices, from June 1993 to January 1996; and previously held a similar
position with Dionex Corporation, a manufacturer of scientific instruments,
from December 1985 to June 1993.
Item 2. Properties
Aspect's headquarters facility consists of four office and manufacturing
buildings, totaling approximately 290,000 square feet, in San Jose,
California. The Company owns one of the buildings, which is approximately
100,000 square feet on 10 acres of land, and occupies the remaining buildings
totaling approximately 190,000 square feet under coterminous leases expiring
in 2001, with options for five-year extensions. Aspect also has several
facilities to support its European operations. The principal UK operations are
located near London in facilities totaling approximately 68,000 square feet,
which are leased under long-term agreements expiring through 2023. In
addition, other significant European facilities are located near Amsterdam,
The Netherlands, and Frankfurt and Dusseldorf, Germany. In Asia, the Company
occupies sales and support offices in Japan, Singapore, Australia, and Hong
Kong. Aspect also occupies several U.S. regional centers for sales and
support, totaling approximately 66,000 square feet under leases expiring
through 2003. The Company's subsidiary, TCS
8
Management Group (TCS), occupies approximately 97,000 square feet in
facilities located near Nashville, Tennessee, that are leased through 2006. In
May 1998, with the completion of the Voicetek acquisition, the Company added a
leased 60,000 square foot facility in Chelmsford, Massachusetts. Other North
American and international sales and support functions operate from various
leased multi-tenant offices nationwide.
The Company believes its existing facilities are adequate to meet current
requirements and that suitable additional or alternative space will be
available as needed on commercially reasonable terms. See Note 10 to "Notes to
Consolidated Financial Statements," in the 1998 Annual Financial Report to
Shareholders, an appendix to the 1999 Proxy Statement, which is incorporated
by reference in this Annual Report on Form 10-K.
Item 3. Legal Proceedings
The segment of the telecommunications market that includes the Company's
products has been characterized by extensive litigation regarding patents and
other intellectual property rights. As is common in the telecommunications
industry, the Company has been in the past and may in the future be notified
of claims that its products or services are subject to patents or other
proprietary rights of third parties. For example, in March 1997, Lucent filed
a lawsuit in the United States District Court for the Eastern District of
Pennsylvania alleging that the Company infringed four of Lucent's U.S.
patents. While the Company is not aware that its products or processes
infringe any 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.
Although the Company resolved its dispute with Lucent by entering into a
cross-license agreement, paying Lucent a one-time fee of $14 million and
agreeing to pay future royalties that are not expected to be material to
Aspect's future results of operations, there can be no assurance that such
other future negotiations will result in the Company obtaining a license on
satisfactory terms or at all. Moreover, license agreements with third parties
may not include all intellectual property rights that may be issued to or
owned by the licensors, and thus future disputes with these companies are
possible. In the event an intellectual property dispute is not settled through
a license, litigation could ensue. An adverse determination in such litigation
or proceeding could prevent the Company from making, using, or selling certain
of its products, and subject the Company to damage assessments, any of which
could have a material adverse effect on the Company's business, operating
results, or financial condition.
In addition, the Company is from time to time involved in litigation or
claims that arise in the normal course of business. The Company does not
expect that any current litigation or claims will have a material adverse
effect on the Company's business, operating results, or financial condition.
In the future, Aspect could become involved in other types of litigation,
such as shareholder lawsuits for alleged violations of securities laws, claims
asserted by employees, and product liability claims. Any litigation could
result in substantial cost to the Company and diversion of the Company's
efforts.
Item 4. Submission Of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1998.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Reference is made to the information regarding market price range,
market, and dividend information appearing under the captions "Quarterly stock
price," "Stock Listing," and "Dividend Policy" on pages F-33 and the inside
back cover of the Registrant's 1998 Annual Financial Report to Shareholders
attached as an appendix to the Registrant's 1999 Proxy Statement, which
information is hereby incorporated by reference.
(b) Reference is made to the information regarding holders of common stock
appearing under the caption "Stock Listing" on the inside back cover of the
Registrant's 1998 Annual Financial Report to Shareholders attached as an
appendix to the Registrant's 1999 Proxy Statement, which information is hereby
incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to selected consolidated financial data for fiscal years
1994 through 1998, appearing under the caption "Selected Consolidated
Financial Data" on page F-1 of the Registrant's 1998 Annual Financial Report
to Shareholders attached as an appendix to the Registrant's 1999 Proxy
Statement, which information is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information appearing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages F-2 through F-12 of the Registrant's 1998 Annual
Financial Report to Shareholders attached as an appendix to the Registrant's
1999 Proxy Statement, which information is hereby incorporated by reference.
(a) Quantitative and Qualitative Disclosures About Market Risk
Reference is made to the information appearing under the caption
"Quantitative and Qualitative Disclosures About Financial Market Risk" on
pages F-11 through F-12 of the Registrant's 1998 Annual Financial Report to
Shareholders attached as an appendix to the Registrant's 1999 Proxy Statement,
which information is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the following information appearing in the Registrant's
1998 Annual Financial Report to Shareholders attached as an appendix to the
Registrant's 1999 Proxy Statement, which information is hereby incorporated by
reference:
DESCRIPTION PAGE(S)
----------- ------------
Consolidated Financial Statements.......................... F-13 to F-31
Independent Auditors' Report............................... F-32
Quarterly Financial Data for the 1998 and 1997 Quarters
(unaudited)............................................... F-33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not Applicable.
10
PART III
Certain information required by Part III is omitted from this report because
the Registrant filed a definitive proxy statement within 120 days after the
end of its fiscal year pursuant to Regulation 14A for its annual meeting of
shareholders to be held April 29, 1999, and the information included therein
is incorporated herein by reference to the extent detailed below.
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of the Registrant is incorporated by
reference to the information under the caption "Election of Directors" in the
Registrant's Proxy Statement.
Information with respect to executive officers of the Registrant is set
forth in "Item 1. Business--Executive Officers of the Company" of this Annual
Report on Form 10-K.
Information required by Item 405 of Regulation S-K is incorporated by
reference to the information under the caption "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Registrant's Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the
information under the caption "Executive Compensation" contained in the
Registrant's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to the
information under the caption "Security Ownership of Principal Shareholders
and Management" contained in the Registrant's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
information under the caption "Certain Relationships and Related Transactions"
contained in the Registrant's Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index to financial
statements and financial statement schedule are incorporated by reference
as part of this Annual Report on Form 10-K.
2. Financial Statement Schedule
The financial statement schedule listed in the accompanying index to
financial statements and financial statement schedule is filed as part of
this Annual Report on Form 10-K.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
Not Applicable.
11
ASPECT TELECOMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(Item 14 (a))
Reference Page(s)
-----------------
1998 Annual
Form Report to
10-K Shareholders
---- ------------
Consolidated Balance Sheets as of December 31, 1998 and
1997........................................................ -- F-13
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996............................ -- F-14
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996...................... -- F-15
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996............................ -- F-16
Notes to Consolidated Financial Statements................... -- F-17 to F-31
Independent Auditors' Report................................. -- F-32
Selected Consolidated Financial Data......................... -- F-1
Quarterly Financial Data for the 1998 and 1997 Quarters
(unaudited)................................................. -- F-33
Consolidated Financial Statements Schedule for the years
ended December 31, 1998, 1997 and 1996: II--Valuation and
Qualifying Accounts and Reserves............................ 13 --
All other schedules have been omitted, since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or notes thereto.
12
ASPECT TELECOMMUNICATIONS CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (in thousands)
Beginning Ending
Balance Additions Deductions Balance
--------- --------- ---------- -------
1998
Allowance for doubtful accounts...... $1,716 $3,081 $ 382(/1/) $4,415
Warranty reserve..................... $3,948 $5,083 $5,684(/2/) $3,347
1997
Allowance for doubtful accounts...... $1,202 $1,354 $ 840(/1/) $1,716
Warranty reserve..................... $3,778 $6,825 $6,655(/2/) $3,948
1996
Allowance for doubtful accounts...... $ 825 $ 938 $ 561(/1/) $1,202
Warranty reserve..................... $2,397 $5,797 $4,416(/2/) $3,778
- --------
(1) Accounts written off.
(2) Warranty costs incurred.
13
ASPECT TELECOMMUNICATIONS CORPORATION
INDEX TO EXHIBITS
(Item 14 (a))
Exhibit
Number Description
------- -----------
3.3 Amended and Restated Articles of Incorporation of the Registrant, as
amended to date. (1)
3.4 Bylaws of the Registrant, as amended to date. (1)
4.1 Indenture, dated August 10, 1998, by and among the Registrant and
State Street Bank and Trust Company of California, N.A., as Trustee,
including the form of Debenture. (2)
4.2 Form of Debenture (included in Exhibit 4.1). (2)
4.3 Registration Rights Agreement, dated August 10, 1998, by and among the
Registrant, Morgan Stanley & Co. Incorporated and Credit Suisse First
Boston Corporation. (2)
10.2a 1989 Stock Option Plan and forms of option agreements thereunder, as
amended, effective January 22, 1991. (3)
10.2b 1989 Stock Option Plan and forms of option agreements thereunder, as
amended, effective May 20, 1993. (3)
10.3 1989 Directors' Stock Option Plan and forms of option agreements
thereunder. (1)
10.4a 1990 Employee Stock Purchase Plan and form of subscription agreement
thereunder, as amended, effective July 1, 1991. (3)
10.6 Form of Stock Bonus Agreement for the Registrant's Newborn Stock Bonus
Program. (1)
10.7 Form of Indemnification Agreement. (1)
10.39 Lease Agreement between the Registrant and Spieker Partners, dated
October 1,1990, as amended. (3)
10.39a Amendment Number One to the Lease Agreement between the Registrant and
Spieker Partners, dated October 1, 1990. (3)
10.39b Amendment to the Lease Agreement between the Registrant and Spieker
Partners, dated August 1, 1993. (3)
10.39c Amendment to the Lease Agreement between the Registrant and Spieker
Partners, dated October 1, 1993. (3)
10.39d Amendment to the Lease Agreement between the Registrant and Spieker
Properties, L.P., dated July 12, 1995. (3)
10.39e Amendment to the Lease Agreement between the Registrant and Spieker.
(3)
10.54 Acquisition Agreement by and among the Registrant, Next plc, Callscan,
Inc., and TCS Management Group, Inc., dated October 5, 1995. (4)
10.55 Agreement of Purchase and Sale between the Registrant and Arrow
Electronics, Inc., dated April 22, 1996. (3)
10.56 Patent License Agreement and Mutual Release with Lucent Technologies
Inc., effective as of January 1, 1998. (3)
10.57 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.(5)
10.58 Severance Agreement between the Registrant and Dennis L. Haar, dated
November 11, 1998.
21.1 Subsidiaries of the Registrant--Jurisdiction of Incorporation.
23.1 Independent Auditors' Consent and Report on Schedule.
24.1 Power of Attorney (see page 16).
27 Financial Data Schedule.
- --------
(1) Incorporated by reference to identically numbered exhibits to the
Registrant's Registration Statement on Form S-1 and Amendment No. 1 and
Amendment No. 2 thereto (File No. 33-33994), which became effective on
April 30, 1990.
14
(2) Incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form S-3 filed on December 21, 1998.
(3) Incorporated by reference to identically numbered exhibits to the
Registrant's previously filed Form 10-K's or Form 10-Q's.
(4) Incorporated by reference to the Registrant's Report on Form 8-K, dated
October 19, 1995.
(5) Incorporated by reference to the Registrant's Report on Form 8-K, dated
May 11, 1998.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on March 26, 1999 on its behalf by the undersigned, thereunto duly authorized.
Aspect Telecommunications
Corporation
/s/ James R. Carreker
By___________________________________
James R. Carreker,
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally James R. Carreker and
Eric J. Keller, and each one of them, his or her attorneys in fact, each with
the power of substitution, for him or her in any and all capacities, to sign
any and all amendments to this Report on Form 10-K and to file the same, with
exhibits thereunto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his or her substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ James R. Carreker Chairman, President and March 26, 1999
____________________________________ Chief Executive Officer and
(James R. Carreker) Director (Principal
Executive Officer)
/s/ Eric J. Keller Senior Vice President, March 26, 1999
____________________________________ Finance and Chief Financial
(Eric J. Keller) Officer (Principal Financial
and Accounting Officer)
/s/ Norman A. Fogelsong Director March 26, 1999
____________________________________
(Norman A. Fogelsong)
/s/ James L. Patterson Director March 26, 1999
____________________________________
(James L. Patterson)
/s/ John W. Peth Director March 26, 1999
____________________________________
(John W. Peth)
/s/ Debra J. Engel Director March 26, 1999
____________________________________
(Debra J. Engel)
16