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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 0-18391

Aspect Communications Corporation

1320 Ridder Park Drive, San Jose, California 95131-2312

(408) 325-2200

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

Preferred Share Purchase Rights

     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 þ          No o

      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.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of the Act)     Yes þ          No o.

      The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2003, was $189,032,250 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 January 30, 2004, was 57,345,647.

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ASPECT COMMUNICATIONS CORPORATION

INDEX TO ANNUAL REPORT ON FORM 10-K

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Forward-Looking Statements

      The matters discussed in this report including, but not limited to, statements relating to anticipated spending levels for capital equipment, research and development, and selling, general and administrative expenses, adequacy of our financial resources to meet currently anticipated cash flow requirements for the next twelve months, lack of significant changes in financial market risk exposures to the Company, and general economic conditions 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, which may be identified by phrases such as “we anticipate”, “we expect”, and “on a forward-looking basis”, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Specific factors that may cause results to differ include the hiring and retention of key employees; changes in product line revenues; insufficient, excess, or obsolete inventory and variations in valuation; and foreign exchange rate fluctuations. For a discussion of additional risks, see “Risk Factors”, appearing under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake 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.

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PART I

Company Overview

      We are a leading provider of software, hardware and services that enable businesses to manage and optimize enterprise communications. We develop, market, license and support an end-to-end, integrated suite of contact center software applications that supports and manages customer communications, customer and contact center information and workforce productivity. Our solutions allow businesses to better service their customers by connecting them to appropriate resources, functionalities or applications, regardless of user location or method of communication. We have focused exclusively on contact center solutions since our inception in 1985. We have a well established global customer base including more than two-thirds of the Fortune 50, in a broad range of industries including transportation, financial services, insurance, telecommunications and outsourcing.

Industry Overview

      The contact center has become an important component of business strategy, evolving from an organizational outpost to a vital strategic resource. Historically, call centers were viewed as a necessary expense for providing customer support. Today, enterprises manage customer communications across a wide variety of technologies, helping transform traditional voice-based call centers into integrated multi-channel contact centers. Contact centers provide valuable customer information that enables enterprises to understand customer buying trends, target markets more effectively, and increase revenue. Therefore, contact centers are now increasingly perceived as profit centers instead of cost centers.

      Evolution of Contact Center Technology. In the mid-1980s, call center technology was limited to the distribution of voice calls to customer service representatives using automatic call distributors, or ACDs. This technology grew to encompass inbound and outbound calls and the coordinated management of multiple call centers. As large numbers of enterprises implemented customer relationship management, or CRM, software systems to record and track front-office customer interactions, it became necessary to integrate contact center solutions with these systems. Computer telephony integration, or CTI, routed customer information along with voice calls to customer service representatives, enabling them to more efficiently service customers. The development of text-to-speech and speech recognition technologies allowed interactive voice response technology, or IVR, to service customers without employing live customer service representatives. The development of workforce management software helped companies automate the complex task of scheduling large workforces with varied skills and responsibilities. Quality monitoring and recording technology also became a critical call center component that enabled companies to constantly evaluate their interactions and processes. The widespread adoption of the Internet in the late 1990s required companies to manage a broader variety of customer contact channels, including e-mail and the Web. Contact center applications are also converging as key contact center functionalities such as those of ACDs, CTI, and IVR are integrated.

      Increased Demand for Open, Standards-Based Solutions. As call center infrastructure technology was developing, call center hardware and software solutions were typically purchased from a single vendor which had its own proprietary architecture and offered limited support for and interoperability with third-party applications and systems. While such systems may have initially provided a complete contact center solution, technological advances and the increasing heterogeneity of technology infrastructures have outpaced the ability of individual proprietary platform vendors to offer a comprehensive end-to-end solution. As a result, there is an increasing demand for open standards-based solutions that can address the full range of contact center needs.

      The Trend Towards Remote Contact Center Solutions. Advances in contact center technology and the reduction of international communications costs have been driving a significant industry trend towards remote call center solutions. Companies save substantial labor costs and are able to more cost-effectively provide around the clock customer support by off-shoring, or moving contact centers to international or other off-site locations, or by outsourcing contact center services to a third party. For example, companies have been moving

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      Workforce Management and Optimization Challenge. The most significant cost in operating a contact center is personnel and related expenses. The complexity of contact center operations and the related demands being placed on contact center managers create the need for effective tools for forecasting, scheduling, staffing, managing and optimizing contact center operations. Workforce management software allows supervisors to efficiently and effectively manage the challenges of contact center labor. An optimal workforce management solution should help forecast customer demand based on changing business and customer requirements, schedule staff according to agent skill level and customer demand, and plan employee schedules. Also, it should accommodate new communication media as they are added and integrate with training applications so agent training on new products or skills is part of the overall schedule consideration. By matching the contact center operation needs with the individual agent’s schedule preferences and skill sets, contact center managers can improve employee retention and job satisfaction and increase productivity in a cost-effective manner.

      Analytics and Consolidated Reporting. Multiple communications media, geographically dispersed sites and increasing pressures to increase operational efficiency are generating demand for applications that enable users to capture and view data in dynamic and immediate ways. These applications must gather data from a variety of media and contact center applications into an open-standards based repository against which standard tools can be applied for analytics and reporting. They should be dynamic enough to allow users to view high-level operational metrics as well as allow them to view details specific to particular agents. This would enable users to make informed decisions and rapid changes to how customer interactions are being handled based on the depth and breadth of information they can access.

      The Emergence of VoIP. VoIP, together with other Internet technologies is anticipated to be the next major advance in communications. VoIP permits the movement of voice traffic over the Internet using Internet Protocol, improving the performance of a converged system, and typically lowering transmission costs relative to PSTN by enabling the consolidation of networks and the bypass of toll charges for long distance voice. Instead of two separate networks for voice and data, voice calls flow over the data network similar to other communications such as e-mail. Therefore, in order to support VoIP, contact centers will have to employ software-based applications that blend voice, e-mail and Web communications into a single queue and route them intelligently over a data network to the optimal destination. Convergence of voice and data networks in the contact center has been and will continue to be evolutionary due to its mission critical role in business. This will drive the need for a migration strategy which is not disruptive to businesses and which offers support for legacy and converged networks.

Products

      We develop, market and support software and hardware products designed to enable organizations to provide a high level of service to their customers. Our solutions are based on our Uniphi architecture, which connects the contact center to the enterprise by integrating the applications that drive customer communications, customer and contact center information, and workforce productivity. We offer our software products as integrated suites or separate modules, depending on customer requirements.

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      The following table summarizes our software product suites, the individual application and the capability within the contact center:

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      We also provide hardware products and solutions including:

Technology and Architecture

      Our Uniphi business communications architecture extends the contact center across the enterprise by integrating the complex applications that drive customer communications, customer and contact center information, and workforce productivity.

      Our open architecture is modular, flexible and interoperable within multi-vendor environments. We incorporate open standards into the design of our products to optimize the integration and interoperability with third-party contact center technologies and applications such as quality monitoring and recording, outbound dialing and analytics. In addition, we offer integration modules that make connecting to a wide range of applications in the contact center and the enterprise less costly than developing customized interfaces to proprietary systems. We offer connectivity to key customer relationship management applications from leading vendors such as Oracle, PeopleSoft, SAP and Siebel Systems. By integrating with these applications,

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      Standards-based products are a critical part of our Uniphi solutions and product roadmap. As such, we continue to incorporate standards into our product roadmap as evidenced by the standards that we currently support in our range of communications, workforce and information solutions. In addition to incorporating standards, we support common operating systems, languages, hardware, networking protocols, database and data storage mediums and front office applications.

      We continuously evaluate and invest in research and development to expand our product roadmap to consider emerging standards. We developed our open architecture to easily accommodate the integration of emerging technologies such as Web services and Voice eXtensible Markup Language or VXML, and support our customer’s choice of standards. In addition, we enable our customers to create and quickly modify business rules to drive live and self-service communications between them and their customers. Our open architecture provides a flexible and low-cost solution that scales to address the evolving communication and infrastructure demands of our customers.

Customer Service and Support

      We believe that superior customer service and support is critical to retaining and expanding our customer base. Our customer service group provides technical support and maintenance, consulting, installation and education services to help our customers successfully implement, upgrade and utilize our products.

      Our technical support and maintenance services are provided primarily by support centers located around the world and include telephone support and remote field support. In addition, our eServices online support enables our customers to download software updates and technical information and open and track support cases on the Web. We offer various levels of support, ranging from basic support to 24 by 7 mission critical support. Pricing of support services is generally based on the level of support selected and the number of users authorized to access our products. Our contracts generally include update rights for licensed products.

      Our Global Professional Services group provides services that include the installation and implementation of our products. Our end-to-end consulting services include project design, requirements analysis, implementation, and closure. These services are generally billed on a fixed price or time and materials basis. We also partner with third-party systems integrators, or SIs, to provide additional coverage and complementary technical skills.

      Our education services include training courses, which are provided in our training centers or at customer sites around the world. These services are generally billed on a per person, per class basis.

Customers

      We have a well established global customer base including more than two-thirds of the Fortune 50, with customer deployments worldwide across a broad range of industries and markets including transportation, financial services, insurance, telecommunications and outsourcing. No customer accounted for 10 percent or more of revenue in 2003.

Sales and Marketing

      We sell and market our products and services in the U.S. primarily through our direct sales force and internationally through our direct sales force and VARs. Our direct sales force is comprised of inside sales and field sales personnel. Our sales people are located in more than 20 major cities worldwide. Our sales efforts target companies of varying sizes across diversified industries. A key aspect of our sales strategy is to increase sales through indirect channels including VARs and SIs. In addition, we plan to continue to develop alliances with key technology partners who integrate their products or services with our products or services to offer customers a complete solution.

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      We have a variety of marketing programs designed to create global brand recognition and market awareness for our product and service offerings. We market our products and services through our Web site, direct mail and online and print advertising. In addition, our marketing initiatives include hosting user conferences and active participation in tradeshows and industry events, cooperative marketing efforts with our customers and partners, publication of technical and educational articles in industry journals, sales training, product and strategy updates with industry analysts, speaking engagements, and preparation of competitive analyses. Our marketing organization also produces materials in support of sales to prospective customers that include programs and materials, brochures, data sheets, white papers, presentations, demonstrations and other marketing tools.

Research and Development

      Our product development efforts are focused on improving and enhancing our existing products as well as developing new products to broaden our offering and market opportunity. These efforts are largely driven by current and anticipated customer and strategic partner needs. Our research and development expenditures for 2003, 2002 and 2001 were $49 million, $57 million and $96 million, respectively, which represented 14%, 14% and 21% of total revenues, respectively.

      We invest a vast majority of our research and development budget to increase the functionality and interoperability of our software solutions.

Manufacturing

      We outsource our manufacturing operations to third-party suppliers. We order materials with different lead times, generally 30 to 90 days ahead of the required date of delivery. Because this is a longer time frame than the average customer order to shipment cycle, we authorize our third-party suppliers to acquire materials and build standard sub-assemblies based on forecasted production requirements. Upon receipt of firm orders from our customers, we instruct our third-party suppliers to assemble, configure, test and ship systems to meet our customers’ request dates. We have established manufacturing procedures with our third-party suppliers that are designed to achieve rapid response to customer orders.

Competition

      The markets in which we operate are intensely competitive and rapidly changing. Our competition includes workforce management software vendors such as Blue Pumpkin and IEX, a subsidiary of Tekelec, and certain product lines of diversified communications equipment companies, including Avaya; Cisco Systems; Genesys, a subsidiary of Alcatel; and Nortel Networks. The principal competitive factors in our industry include quality, reliability, performance, price, level of customer support, reputation, timely introduction of new products, functionality and market presence.

      Our future success will depend on our ability to develop superior, cost-effective products, continue developing alliances with key technology partners, provide superior customer service and support, and expand our market reach relative to our competitors. Many of our competitors have greater name recognition, larger installed customer bases, longer operating histories and significantly greater financial, technical, sales, marketing and other resources than we do. Our competitors could introduce products with superior features, scalability and functionality at lower prices than our products, and could also bundle existing or new products with other more established products in order to compete with us. Our competitors could also gain market share by acquiring or forming strategic alliances with our other competitors.

Intellectual Property

      We rely on a combination of patent, trademark, copyright and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We file patent applications to protect inventions and improvements that are significant to the development of our business. As of January 31, 2004, we held 96 issued United States patents and a lesser number of issued foreign patents and have pending 54 United States patent applications and a lesser number of corresponding foreign patent applications that cover various

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      We believe that customer perception of our brand and trademarks is important to our success. We have eight trademarks registered in various jurisdictions globally.

      We generally enter into non-disclosure agreements with our employees, consultants, customers and vendors, and generally control access to and distribution of our software, documentation and other proprietary information. We provide our proprietary software to customers under license agreements. Despite these precautions, unauthorized third parties may copy or otherwise obtain and use our technology. In addition, third parties may develop similar technology independently.

      We hold licenses from various third parties regarding rights to certain technology that we incorporate in our products. We have also entered into standard commercial agreements with several suppliers of operating systems, databases and other software used for development and implementation of our products. We believe that the licensing of complementary technologies and software from parties with specific expertise is an effective means of expanding the features and functionality of our products. These licenses are ongoing and generally involve the payment of a fixed license fee or royalties based on the volume of systems we ship over periods of time.

      Despite our efforts to protect our intellectual property, we cannot assure you that the steps we take will be adequate to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. The laws of many countries do not protect proprietary technology to as great an extent as do the laws of the United States. Moreover, the market for our products is subject to rapid technological change and therefore we also believe that factors such as the technological and creative skills of our personnel and new product developments and enhancements are essential to establishing and maintaining a technology leadership position.

Employees

      As of December 31, 2003, we had 1,291 full-time employees. None of our employees is represented by a labor union. We have never experienced a work stoppage and believe that our relationship with our employees is good.

Website Posting of SEC Filings

      The Company’s website provides a link to the Company’s SEC filings, which are available on the same day such filings are made. The specific location on the Company’s website where these reports can be found is http://www.aspect.com/ir/financials/index.cfm. The Company’s website also provides a link to the Company’s Section 16 filings which are available on the same day such filings are made.

      Our headquarters currently occupy three office buildings, totaling approximately 285,000 square feet, in San Jose, California. Two of the buildings are owned and the third building is leased. The owned buildings are approximately 209,000 square feet in total. We occupy approximately 90,000 square feet in facilities located in Tennessee that are leased through 2006. We also occupy 105,000 square feet in facilities located in Massachusetts that are leased through 2009. Other North American sales and support functions operate from various leased multi-tenant offices nationwide covering a total of 61,000 square feet with leases expiring as late as 2010. Additionally, we lease approximately 244,000 square feet of space in North America that is currently unoccupied, of which we sublease approximately 39,000 square feet as of December 31, 2003.

      We have several facilities to support our European operations. Our principal U.K. operations are located near London in facilities totaling approximately 30,000 square feet and are leased through 2023. Other

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      We are subject to various legal proceedings and claims that arise in the normal course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, we do not believe that the outcome of any of these legal matters will have a material adverse effect on our business, operating results or financial condition. However, litigation in general, and intellectual property litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict.

      On May 20, 2003, Electronic Data Systems Corporation, or EDS, made a demand for arbitration with the American Arbitration Association in connection with the Master Services Agreement entered into by us and EDS in December 2000 in which we outsourced certain of our IT needs to EDS. A dispute arose between us and EDS over the services to be performed and charges paid under the Master Services Agreement and we terminated the Master Services Agreement for EDS’ breach of the agreement. EDS alleges that we breached the Master Services Agreement and implied warranties associated with the Master Services Agreement, committed fraud, engaged in negligent misrepresentation and that EDS is entitled to approximately $26 million in damages plus reasonable attorneys’ fees. On June 11, 2003, we filed our answer and counterclaims in which we denied every allegation made by EDS, denied that EDS is owed any amount in damages, and counterclaimed that EDS breached the Master Services Agreement, committed fraud, engaged in fraudulent and unfair business practices and therefore we are entitled to damages, restitution and disgorgement in an amount to be proven in the arbitration. The arbitration hearing began February 17, 2004.

      No matters were submitted to a vote of security holders during the quarter ended December 31, 2003.

PART II

      Aspect Communications Corporation’s common stock is traded on The Nasdaq National Market under the symbol “ASPT”. As of December 31, 2003, there were approximately 1,058 shareholders of record of Aspect’s common stock.

      Aspect has never paid cash dividends on its common stock and the terms of our credit arrangement prohibit our declaration of cash dividends without bank consent. Pursuant to the terms of the Series B convertible preferred stock set forth in the Company’s Certificate of Determination of Rights, Preferences and Privileges of Series B Convertible Preferred Stock, the Company may not declare or pay dividends on any class of stock junior to that of the Series B convertible preferred stock without the prior written consent of the

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Overview

      We are a leading provider of enterprise communication solutions that manage and optimize the contact center by integrating the applications that drive customer communications, customer and contact center information and workforce productivity. Our software and hardware solutions allow businesses to better service their customers by connecting them to appropriate resources, functionalities or applications, regardless of user location or method of communication. We understand the importance of unifying the applications that support customer communications, collect customer information and enhance workforce productivity, and we have focused exclusively on contact center solutions since our inception in 1985. We have a well established customer base, including more than two-thirds of the Fortune 50.

The Current Economic Environment

      The economic climate in which we operate has been difficult over the last three years, and capital spending has decreased dramatically. This has had a pronounced effect on our ability to generate new license fees, as IT budgets have been frozen and large capital expenditures like those required to purchase some of our products have been quite limited. Additionally, competition for these more limited sales opportunities has increased, and we have seen intense price competition both for new licenses and for support services. While we believe our installed base continues to represent a solid recurring revenue opportunity and a significant cash flow generator, we cannot provide any assurance that these pressures on IT spending will ease, or that the general economic climate will improve. Continued competitive pressure and a weak economy could have a

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Significant Financial Events in 2003

      During 2003, we generated $99 million in cash flow from op