UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2004

or

For the transition period from _________ to _________

Commission file number 0-28180

SPECTRALINK CORPORATION

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 þ No o

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

Applicable only to corporate issuers:
As of July 31, 2004, there were 19,187,138 shares outstanding of SpectraLink Corporation’s Common Stock — par value per share $0.01.

SPECTRALINK CORPORATION AND SUBSIDIARY
INDEX

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PART I — ITEM 1

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

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SPECTRALINK CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

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

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

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

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SPECTRALINK CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(Unaudited)

1. Basis of Presentation

     The accompanying condensed consolidated financial statements as of June 30, 2004 and December 31, 2003, and for the three and six months ended June 30, 2004 and 2003, have been prepared from the books and records of SpectraLink Corporation and its wholly owned subsidiary, 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, 2004, are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2004.

     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, 2003, 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.

     Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

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:

     For SFAS 123 purposes, the fair value of each option grant is estimated as of the date of grant using the Black-Sholes option pricing model with the following weighted average assumptions used for grants: risk-free interest rates of 2.52% and 2.05% for the three months and six months ended June 30, 2004, respectively and 1.29% and 1.45% for the three months and six months ended June 30, 2003, respectively; expected lives of (net of

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forfeitures) of 1.65 years and 1.67 years for the three and six months ended June 30, 2004, respectively and 1.78 years for the three months and six months ended June 30, 2003, respectively; a $0.10 per share dividend for the three months and six months ended June 30, 2004, respectively and no dividends for the three months and six months ended June 30, 2003; and expected volatility of 74% and 77% for the three months and six months ended June 30, 2004, respectively and 80% and 83% for the three months and six months ended June 30, 2003, respectively. The fair value of each purchase right under the employee stock purchase plan is estimated, for disclosure purposes, on the date of grant using the Black-Sholes model with the following assumptions: a $0.10 per share dividend for the three months and six months ended June 30, 2004, respectively and no dividends for the three months and six months ended June 30, 2003; an expected life of six months; expected volatility of 77% for the three months and six months ended June 30, 2004 and 80% and 81% for the three months and six months ended June 30, 2003, respectively; and a risk-free interest rate of 2.52% for the three months and six months ended June 30, 2004 and 1.29% for the three months and six months ended June 30, 2003.

3. Inventories

     Inventories include the cost of raw materials, direct labor and manufacturing overhead, and is stated at the lower of cost (first-in, first-out) or market. Inventories as of June 30, 2004 and December 31, 2003, consisted of the following:

     The reserve for potential excess and/or obsolete inventories was $761,000 and $591,000 as of June 30, 2004 and December 31, 2003, respectively.

4. 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 as 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 952,244 and 1,803,970 for the three months ended June 30, 2004 and 2003, respectively, and 607,605 and 1,824,627 for the six months ended June 30, 2004 and 2003, respectively. A reconciliation of the numerators and denominators used in computing earnings per share is as follows:

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5. Product Warranties and Service

     The Company provides warranties against defects in materials and workmanship for its products generally ranging from 90 days to 15 months, but in limited cases up to 24 months. At the time the product is shipped, the Company establishes a provision for estimated expenses of providing service under these warranties based on historical warranty experience. A summary of activity for accrued product warranty and service is as follows:

6. Advertising Costs

     The Company expenses all advertising costs as they are incurred. Advertising expense for the three months ended June 30, 2004 and 2003, were approximately $171,000 and $185,000, respectively, and $339,000 and $318,000 for the six months ended June 30, 2004 and 2003, respectively.

7. Stockholders’ Equity

     During the six months ended June 30, 2004, the Company did not repurchase any shares of outstanding common stock. During the second quarter of 2003, the Company repurchased 220,600 shares of outstanding common stock (now classified as treasury stock) at a cost of $1,899,000. For the six months ended June 30, 2003, the Company repurchased 447,100 shares of outstanding common stock (now classified as treasury stock) at a cost of $3,688,000. In addition, in July 2004, we announced that our Board of Directors approved the re-initiation of our stock repurchase program. Under our stock repurchase plan, we may repurchase up to an additional 2.070 million shares of our common stock. During the second quarter of 2004, the Company paid a quarterly cash dividend of $0.10 per share for a total of $1,925,000 to holders of common stock. For the six months ended June 30, 2004, the Company paid two cash dividends of $0.10 per share for a total of $3,825,000. The Company did not pay any dividends during the six months ended June 30, 2003.

8. Legal Proceedings

     On January 14, 2002, SpectraLink issued a press release announcing preliminary financial results for the fourth quarter of 2001 and revising downward its estimates for year 2002 results of operations. Shortly after the press release, the Company’s stock price declined and the Company and certain of its officers and directors were named as defendants in four lawsuits filed between February 7, 2002 and March 6, 2002, three of which were filed in the United States District Court for the District of Colorado and one of which was filed in the Colorado District Court for the City and County of Denver. In each of the lawsuits, plaintiffs, who purport to be purchasers or holders of SpectraLink common stock, initially sought to assert claims either on behalf of a class of persons who purchased securities in SpectraLink between July 19, 2001 and January 11, 2002, or in the case of two of the lawsuits (one filed

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in the United States District Court and one in the Colorado District Court), derivatively on behalf of SpectraLink. Two of the lawsuits filed in the United States District contained essentially identical claims alleging that SpectraLink and certain of its officers and directors violated Sections 10(b) and 20(a) and Rule 10b-5 under the Securities Exchange Act of 1934, as a result of alleged public misstatements and omissions, accompanied by insider stock sales made in the months prior to the decline in the price of SpectraLink’s stock after the January 14, 2002 press release. In the cases brought as derivative actions, the plaintiffs allege that the officers and directors of SpectraLink violated fiduciary duties owed to SpectraLink and its stockholders under state laws by allowing and/or facilitating the issuance of these same alleged public misstatements and omissions, misappropriating nonpublic information for their own benefit, making insider stock sales, wasting corporate assets, abusing their positions of control, and mismanaging the corporation. The plaintiffs in these derivative cases allege that SpectraLink has and will continue to suffer injury as a result of these alleged violations of duty for which the officers and directors should be liable.

     The cases are designated as follows: Wilmer Kerns, Individually And On Behalf of All Others Similarly Situated, Plaintiff, vs. SpectraLink Corporation, Bruce Holland and Nancy K. Hamilton, Defendants (United States District Court Civil Action Number 02-D-0263); Danilo Martin Molieri, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. SpectraLink Corporation, Bruce Holland and Nancy K. Hamilton, Defendants (United States District Court Civil Action Number 02-D-0315); Evie Elennis, derivatively on behalf of SpectraLink Corporation, Plaintiff(s), v. Bruce M. Holland, Anthony V. Carollo, Jr., Gary L. Bliss, Michael P. Cronin, Nancy K. Hamilton and John H. Elms, Defendants), and SpectraLink Corporation, Nominal Defendant (United States District Court Civil Action Number 02-D-0345); and Roger Humphreys, Derivatively on Behalf of Nominal Defendant SpectraLink Corporation, Plaintiff, v. Carl D. Carman, Anthony V. Carollo, Jr., Bruce M. Holland, Burton J. McMurtry, Gary L. Bliss, Michael P. Cronin, John H. Elms, and Nancy