UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 — Q
| [X] |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 |
||
| or | |||
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ___________ to ___________ |
Commission file number 0-28180
SPECTRALINK CORPORATION
(Exact name of registrant as specified in charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
84-1141188 (IRS Employer Identification Number) |
|
| 5755 Central Avenue, Boulder, Colorado (Address of principal executive office) |
80301-2848 (Zip code) |
303-440-5330
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed from last report)
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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No__
Applicable only to corporate issuers:
As of June 30, 2002, there were 19,040,673 shares of SpectraLink Corporation’s
Common Stock — par value $.01.
SPECTRALINK CORPORATION AND SUBSIDIARY
INDEX
| Page | ||||||
Part I Financial Information |
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Item 1 Condensed Consolidated Financial Statements |
||||||
Condensed Consolidated Balance Sheets at
June 30, 2002 and December 31, 2001(Unaudited) |
3 | |||||
Condensed Consolidated Statements of Income for the
Three Months and Six Months Ended June 30, 2002 and 2001 (Unaudited) |
4 | |||||
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2002 and 2001 (Unaudited) |
5 | |||||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 | |||||
Item 2 Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
9 | |||||
Item 3 Quantitative and Qualitative Disclosures about Market Risk |
14 | |||||
Part II Other Information |
||||||
Item 1 Legal Proceedings |
20 | |||||
Item 4 Submission of Matters to a Vote of Security Holders |
21 | |||||
Item 6 Exhibits and Reports on Form 8-K |
||||||
(a) Exhibits |
||||||
None |
21 | |||||
(b) Form 8-K |
||||||
None |
21 | |||||
2
SPECTRALINK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| June 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| ASSETS | ||||||||||||
CURRENT ASSETS: |
||||||||||||
Cash and cash equivalents |
$ | 39,840 | $ | 37,242 | ||||||||
Short-term investments in marketable securities |
— | 1,004 | ||||||||||
Trade accounts receivable, net of allowance of $344 and $364, respectively |
11,916 | 12,820 | ||||||||||
Income taxes receivable |
1,428 | 2,579 | ||||||||||
Inventory, net of allowance of $567 and $410, respectively |
7,797 | 8,073 | ||||||||||
Deferred income taxes-current portion |
1,548 | 1,548 | ||||||||||
Other |
732 | 520 | ||||||||||
Total current assets |
63,261 | 63,786 | ||||||||||
PROPERTY AND EQUIPMENT, at cost: |
||||||||||||
Furniture and fixtures |
1,577 | 1,575 | ||||||||||
Equipment |
6,485 | 6,290 | ||||||||||
Leasehold improvements |
864 | 856 | ||||||||||
| 8,926 | 8,721 | |||||||||||
Less — accumulated depreciation |
(7,059 | ) | (6,503 | ) | ||||||||
Net property and equipment |
1,867 | 2,218 | ||||||||||
DEFERRED INCOME TAXES — NON CURRENT |
201 | 201 | ||||||||||
OTHER |
252 | 233 | ||||||||||
TOTAL ASSETS |
$ | 65,581 | $ | 66,438 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
CURRENT LIABILITIES: |
||||||||||||
Accounts payable |
$ | 660 | $ | 1,009 | ||||||||
Accrued payroll, commissions and employee benefits |
1,764 | 2,371 | ||||||||||
Accrued sales, use and property taxes |
491 | 345 | ||||||||||
Accrued warranty expenses |
289 | 278 | ||||||||||
Other accrued expenses |
1,180 | 618 | ||||||||||
Deferred revenue |
4,291 | 3,868 | ||||||||||
Total current liabilities |
8,675 | 8,489 | ||||||||||
LONG-TERM LIABILITIES |
212 | 231 | ||||||||||
TOTAL LIABILITIES |
8,887 | 8,720 | ||||||||||
STOCKHOLDERS’ EQUITY: |
||||||||||||
Preferred stock, 5,000 shares authorized, none issued and outstanding |
— | — | ||||||||||
Common stock, $0.01 par value, 50,000 shares authorized, 22,027 and 21,754 shares
issued, respectively, and 19,041 and 19,228 shares outstanding, respectively |
220 | 218 | ||||||||||
Additional paid-in capital |
63,387 | 62,120 | ||||||||||
Retained earnings |
15,201 | 12,997 | ||||||||||
Treasury stock, 2,987 shares and 2,526 shares, respectively, at cost |
(22,114 | ) | (17,617 | ) | ||||||||
TOTAL STOCKHOLDERS’ EQUITY |
56,694 | 57,718 | ||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 65,581 | $ | 66,438 | ||||||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
3
SPECTRALINK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
SALES: |
|||||||||||||||||||
Product Sales, net |
$ | 12,128 | $ | 14,083 | $ | 23,391 | $ | 25,777 | |||||||||||
Service Sales |
3,109 | 2,479 | 5,707 | 4,848 | |||||||||||||||
Net Sales |
15,237 | 16,562 | 29,098 | 30,625 | |||||||||||||||
COST OF SALES: |
|||||||||||||||||||
Cost of Product Sales |
3,821 | 4,213 | 7,345 | 7,398 | |||||||||||||||
Cost of Service Sales |
1,607 | 1,373 | 2,905 | 2,683 | |||||||||||||||
Total Cost of Sales |
5,428 | 5,586 | 10,250 | 10,081 | |||||||||||||||
Gross Profit |
9,809 | 10,976 | 18,848 | 20,544 | |||||||||||||||
OPERATING EXPENSES: |
|||||||||||||||||||
Research and Development |
1,620 | 1,327 | 3,142 | 2,602 | |||||||||||||||
Marketing and Selling |
5,237 | 5,730 | 10,488 | 10,881 | |||||||||||||||
General and Administrative |
1,025 | 895 | 1,958 | 1,700 | |||||||||||||||
Total Operating Expenses |
7,882 | 7,952 | 15,588 | 15,183 | |||||||||||||||
INCOME FROM OPERATIONS |
1,927 | 3,024 | 3,260 | 5,361 | |||||||||||||||
INVESTMENT INCOME AND OTHER, net |
152 | 359 | 295 | 800 | |||||||||||||||
INCOME BEFORE INCOME TAXES |
2,079 | 3,383 | 3,555 | 6,161 | |||||||||||||||
INCOME TAX EXPENSE |
790 | 1,269 | 1,351 | 2,310 | |||||||||||||||
NET INCOME |
$ | 1,289 | $ | 2,114 | $ | 2,204 | $ | 3,851 | |||||||||||
BASIC EARNINGS PER SHARE (Note 3) |
$ | 0.07 | $ | 0.11 | $ | 0.12 | $ | 0.20 | |||||||||||
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING |
19,060 | 18,890 | 19,130 | 18,980 | |||||||||||||||
DILUTED EARNINGS PER SHARE (Note 3) |
$ | 0.07 | $ | 0.11 | $ | 0.11 | $ | 0.19 | |||||||||||
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING |
19,460 | 19,680 | 19,530 | 19,870 | |||||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
4
SPECTRALINK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 2002 | 2001 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|||||||||||
Net income |
$ | 2,204 | $ | 3,851 | |||||||
Adjustments to reconcile net income to net cash provided by operating
activities: |
|||||||||||
Depreciation and amortization |
556 | 527 | |||||||||
Income tax benefit from the exercise of stock options |
160 | 374 | |||||||||
Provision for bad debts |
110 | 56 | |||||||||
Write-down for excess and obsolete inventory |
157 | 154 | |||||||||
Amortization of premium (discount) on investments in marketable securities |
4 | (40 | ) | ||||||||
Changes in assets and liabilities - |
|||||||||||
Decrease (increase) in trade accounts receivable |
794 | (2,541 | ) | ||||||||
Decrease in inventory |
119 | 805 | |||||||||
Decrease in other assets and income tax receivable |
920 | 58 | |||||||||
Decrease in accounts payable |
(349 | ) | (682 | ) | |||||||
Increase (decrease) in accrued liabilities, income taxes payable and
deferred
revenue |
516 | (278 | ) | ||||||||
Net cash provided by operating activities |
5,191 | 2,284 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|||||||||||
Purchases of property and equipment |
(205 | ) | (695 | ) | |||||||
Purchases of investments in marketable securities |
— | (3,484 | ) | ||||||||
Maturity of investments in marketable securities |
1,000 | 9,500 | |||||||||
Net cash provided by investing activities |
795 | 5,321 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|||||||||||
Proceeds from exercises of common stock options |
798 | 548 | |||||||||
Proceeds from issuances of common stock |
311 | 295 | |||||||||
Purchases of treasury stock |
(4,497 | ) | (3,555 | ) | |||||||
Net cash used in financing activities |
(3,388 | ) | (2,712 | ) | |||||||
INCREASE IN CASH AND CASH EQUIVALENTS |
2,598 | 4,893 | |||||||||
CASH AND CASH EQUIVALENTS, beginning of period |
37,242 | 20,793 | |||||||||
CASH AND CASH EQUIVALENTS, end of period |
$ | 39,840 | $ | 25,686 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|||||||||||
Cash paid for income taxes |
$ | 74 | $ | 1,933 | |||||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
5
SPECTRALINK CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements as of June 30, 2002 and December 31, 2001, and for the three months and six months ended June 30, 2002 and 2001, have been prepared from the books and records of SpectraLink Corporation and SpectraLink International Corporation (together “SpectraLink”) and are unaudited. In management’s opinion, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to fairly present SpectraLink’s financial position, results of operations and cash flows for the periods presented. The results of operations for the period ended June 30, 2002, are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2002.
The financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2001, which are included in SpectraLink’s Annual Report on Form 10-K. The accounting policies utilized in the preparation of the financial statements herein presented are the same as set forth in SpectraLink’s annual financial statements.
2. Inventory
Inventory includes the cost of raw materials, direct labor and manufacturing overhead, and is stated at the lower of cost (first-in, first-out) or market. Inventory as of June 30, 2002 and December 31, 2001, consisted of the following:
| June 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
| (In Thousands) | ||||||||
Raw materials |
$ | 2,624 | $ | 3,621 | ||||
Work in progress |
— | 16 | ||||||
Finished goods |
5,173 | 4,436 | ||||||
| $ | 7,797 | $ | 8,073 | |||||
The reserve for inventory was $567,000 and $410,000 as of June 30, 2002 and December 31, 2001, respectively.
6
3. Earnings Per Share
Basic earnings per share is computed by dividing the net income by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is determined by dividing the net income by the sum of the weighted average number of common shares outstanding and if not anti-dilutive, the effect of outstanding stock options and/or other common stock equivalents determined utilizing the treasury stock method. Potentially dilutive common stock options excluded from the calculation of dilutive income per share because they were anti-dilutive, totaled 423,984 and 781,237 for the three months ended June 30, 2002 and 2001, respectively, and 419,779 and 299,230 for the six months ended June 30, 2002 and 2001, respectively. A reconciliation of the numerators and denominators used in computing earnings per share is as follows:
Three Months Ended June 30,
(In thousands, except per share amounts)
| 2002 | 2001 | ||||||||||||||||||||||||||||
| Income | Shares | Per Share | Income | Shares | Per Share | ||||||||||||||||||||||||
Basic EPS— |
$ | 1,289 | 19,060 | $ | 0.07 | $ | 2,114 | 18,890 | $ | 0.11 | |||||||||||||||||||
Effect of dilutive securities: |
|||||||||||||||||||||||||||||
Stock purchase plan |
— | 27 | — | — | 25 | — | |||||||||||||||||||||||
Stock options outstanding |
— | 373 | — | ||||||||||||||||||||||||||