SPECTRALINK CORP - 10-Q Quarterly Report

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, 2003

or

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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
(Registrant’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

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

Applicable only to corporate issuers:

As of June 30, 2003, there were 18,293,732 shares outstanding of SpectraLink Corporation’s Common Stock — par value $0.01.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3 Quantitative and Qualitative Disclosures about Market Risk.
	Item 4 Controls and Procedures.
Part II Other Information
	Item 1 Legal Proceedings
	Item 4 Submission of Matters to a Vote of Security Holders
	Item 6 Exhibits and Reports on Form 8-K
	(a) Exhibits
	(b) Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-10.16 Lease Agreement
EX-10.17 Lease Agreement
EX-10.18 Lease Agreement
EX-31.1 Certification by CEO
EX-31.2 Certification of CFO
EX-32.1 Certification by CEO
EX-32.2 Certification by CFO

SPECTRALINK CORPORATION AND SUBSIDIARY
INDEX


		Page
Part I	Financial Information
Item 1	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2003 and December 31, 2002 (Unaudited)		3
	Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2003 and 2002 (Unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002 (Unaudited)		5
	Notes to Condensed Consolidated Financial Statements (Unaudited)		6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3	Quantitative and Qualitative Disclosures About Market Risk		15
Item 4	Controls and Procedures		22
Part II	Other Information
Item 1	Legal Proceedings		22
Item 4	Submission of Matters to a Vote of Security Holders		23
Item 6	Exhibits and Reports on Form 8-K
	(a) Exhibits		24
	(b) Form 8-K		24
Signatures			25
Certifications			180

PART I — FINANCIAL INFORMATION


ITEM 1		CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SPECTRALINK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
ASSETS


			June 30,			December 31,
			2003			2002

CURRENT ASSETS:
	Cash and cash equivalents		$	43,665		$	44,211
	Trade accounts receivable, net of allowance of $335 and $311, respectively			12,629			11,143
	Income taxes receivable			—			105
	Inventory, net of allowance of $722 and $651, respectively			7,445			7,449
	Other			2,287			1,773

		Total current assets		66,026			64,681
PROPERTY AND EQUIPMENT, at cost:
	Furniture and fixtures			2,260			1,632
	Equipment			7,870			7,240
	Leasehold improvements			928			865

				11,058			9,737
	Less — accumulated depreciation			(7,751	)		(7,224	)

		Net property and equipment		3,307			2,513
OTHER				479			397

		TOTAL ASSETS	$	69,812		$	67,591

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Accounts payable		$	1,266		$	1,023
	Income taxes payable			325			—
	Accrued payroll, commissions and employee benefits			2,196			2,069
	Accrued sales, use and property taxes			628			512
	Accrued warranty expenses			404			274
	Other accrued expenses and liabilities			1,907			1,564
	Deferred revenue			5,938			5,281

		Total current liabilities		12,664			10,723
LONG-TERM LIABILITIES				278			178

		TOTAL LIABILITIES		12,942			10,901

STOCKHOLDERS’ EQUITY:
	Preferred stock, 5,000 shares authorized, none issued and outstanding			—			—
	Common stock, $0.01 par value, 50,000 shares authorized, 22,223 and 22,130 shares issued, respectively, and 18,294 and 18,648 shares outstanding, respectively			222			221
	Additional paid-in capital			64,274			63,763
	Retained earnings			21,768			18,412
	Treasury stock, 3,929 shares and 3,482 shares, respectively, at cost			(29,394	)		(25,706	)

		TOTAL STOCKHOLDERS’ EQUITY		56,870			56,690

		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	69,812		$	67,591

The accompanying notes to condensed financial statements are an integral part of these condensed consolidated balance sheets.

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,

					2003			2002			2003			2002

SALES:
	Product Sales, net				$	14,895		$	12,128		$	26,172		$	23,391
	Service Sales					3,740			3,109			7,032			5,707

			Net Sales			18,635			15,237			33,204			29,098
COST OF SALES:
	Cost of Product Sales					4,174			3,821			7,480			7,345
	Cost of Service Sales					1,697			1,607			3,310			2,905

			Total Cost of Sales			5,871			5,428			10,790			10,250

				Gross Profit		12,764			9,809			22,414			18,848
OPERATING EXPENSES:
	Research and Development					2,101			1,620			4,004			3,142
	Marketing and Selling					5,960			5,237			11,104			10,488
	General and Administrative					1,062			1,025			2,057			1,958

			Total Operating Expenses			9,123			7,882			17,165			15,588

INCOME FROM OPERATIONS						3,641			1,927			5,249			3,260

INVESTMENT INCOME AND OTHER:
		Interest Income				116			169			238			341
		Other Income (Expense), net				(47	)		(17	)		(74	)		(46	)

			Total Investment Income and Other			69			152			164			295

INCOME BEFORE INCOME TAXES						3,710			2,079			5,413			3,555
INCOME TAX EXPENSE						1,410			790			2,057			1,351

NET INCOME					$	2,300		$	1,289		$	3,356		$	2,204

BASIC EARNINGS PER SHARE (Note 4)					$	0.13		$	0.07		$	0.18		$	0.12

BASIC WEIGHTED AVERAGE SHARES OUTSTANDING						18,340			19,060			18,460			19,130

DILUTED EARNINGS PER SHARE (Note 4)					$	0.12		$	0.07		$	0.18		$	0.11

DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING						18,570			19,460			18,690			19,530

The accompanying notes to condensed financial statements are an integral part of these condensed consolidated statements.

SPECTRALINK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


			Six Months Ended
			June 30,

			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income		$	3,356		$	2,204
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		527			556
		Income tax benefit from the exercise of stock options		56			160
		Provision for bad debts		36			110
		Provision for excess and obsolete inventory		332			157
		Amortization of premium on investments in marketable securities		—			4
	Changes in assets and liabilities -
		(Increase) decrease in trade accounts receivable		(1,522	)		794
		(Increase) decrease in inventory		(328	)		119
		(Increase) decrease in other assets and income taxes receivable		(491	)		920
		Increase (decrease) in accounts payable		243			(349	)
		Increase in accrued liabilities, income taxes payable and deferred revenue		1,677			516

		Net cash provided by operating activities		3,886			5,191

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment			(1,194	)		(205	)
	Maturity of investments in marketable securities			—			1,000

		Net cash (used in) provided by investing activities		(1,194	)		795

CASH FLOWS FROM FINANCING ACTIVITIES:
	Principal payments under long-term obligation			(6	)		—
	Proceeds from exercises of common stock options			159			798
	Proceeds from issuances of common stock			297			311
	Purchases of treasury stock			(3,688	)		(4,497	)

		Net cash used in financing activities		(3,238	)		(3,388	)

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(546	)		2,598
CASH AND CASH EQUIVALENTS, beginning of period				44,211			37,242

CASH AND CASH EQUIVALENTS, end of period			$	43,665		$	39,840

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid for income taxes		$	1,498		$	74

SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
	Assets acquired under long-term obligation		$	127		$	—

The accompanying notes to condensed financial statements are an integral part of these condensed consolidated statements.

SPECTRALINK CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)

1. Basis of Presentation

The accompanying condensed consolidated financial statements as of June 30, 2003 and December 31, 2002, and for the three and six months ended June 30, 2003 and 2002, have been prepared from the books and records of SpectraLink Corporation and SpectraLink International Corporation (together “SpectraLink” or “the Company”) 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, 2003, are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2003.

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, 2002, 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. Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion (APB) No. 25 (APB No. 25), “Accounting for Stock Issued to Employees”. Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation” defines a fair value based method of accounting for stock options and similar equity instruments. As allowed by SFAS 123, the Company has continued to apply APB No. 25 to account for its employee stock based compensation plans and has adopted the disclosure requirements of SFAS 123 and Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, an amendment of SFAS 123. Had the Company determined compensation expense for its stock-based compensation plans based on fair value at the date of grant under SFAS 123, the Company’s consolidated net income, and basic and diluted earnings per share, would have been the pro forma amounts as follows:


			Three months ended June 30						Six months ended June 30,

			2003			2002			2003				2002

			(in thousands, except per share amounts)						(in thousands, except per share amounts)
Net Income, as reported			$	2,300		$	1,289		$	3,356			$	2,204
Deduct stock based employee compensation expense under the fair value based method, net of related tax effect:
		Compensation expense for stock options		(588	)		(765	)		(1,169	)			(1,550	)
		Compensation expense for the stock purchase plan		(39	)		(48	)		(81	)			(96	)
Net Income, pro forma			$	1,673		$	476		$	2,106			$	558
Earnings Per Share:
	Basic — as reported		$	0.13		$	0.07		$	0.18			$	0.12
	Basic — pro forma		$	0.09		$	0.02		$	0.11			$	0.03
	Diluted — as reported		$	0.12		$	0.07		$	0.18		<

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