SIRENZA MICRODEVICES INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004.

¨	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: 000-30615

SIRENZA MICRODEVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware

77-0073042

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


303 S. Technology Court, Broomfield, CO		80021
(Address of principal executive offices)		(Zip Code)

(303) 327-3030

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since 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 (or for such shorter period that the registrant was required to file such reports), and (2) had 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 Act). Yes ¨ No x

As of April 30, 2004 there were 34,282,409 shares of registrant’s Common Stock outstanding.

SIRENZA MICRODEVICES, INC.

INDEX


		Page

Part I. Financial Information

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	52

Part II. Other Information

Item 1.	Legal Proceedings	52

Item 2.	Changes in Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	54

Item 4.	Submission of Matters to a Vote of Security Holders	54

Item 5.	Other Information	54

Item 6.	Exhibits and Reports on Form 8-K	54

Signatures		55

Certifications

Part I.

Financial Information

Item 1.

Financial Statements

SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	March 31, 2004			December 31, 2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	7,804		$	7,468
Short-term investments		3,490			1,999
Accounts receivable, net		9,040			7,838
Inventories		7,427			6,497
Other current assets		892			1,093

Total current assets		28,653			24,895
Property and equipment, net		9,038			9,685
Long-term investments		2,000			4,015
Investment in GCS		4,600			4,600
Other assets		1,358			1,189
Acquisition related intangibles, net		5,098			5,529
Goodwill		4,219			4,219

Total assets	$	54,966		$	54,132

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,500		$	4,379
Accrued compensation and other expenses		2,629			2,530
Deferred margin on distributor inventory		1,581			1,042
Accrued restructuring		646			887
Capital lease obligations, current portion		67			65

Total current liabilities		9,423			8,903
Capital lease obligations		38			56
Commitments and contingencies
Stockholders’ equity:
Common stock		35			34
Additional paid-in capital		134,871			134,705
Deferred stock compensation		0			(3	)
Treasury stock, at cost		(165	)		(165	)
Accumulated deficit		(89,236	)		(89,398	)

Total stockholders’ equity		45,505			45,173

Total liabilities and stockholders’ equity	$	54,966		$	54,132

See accompanying notes.

SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2004		2003
Net revenues	$	13,801	$	5,799
Cost of revenues:
Cost of product revenues		7,391		2,758
Amortization of deferred stock compensation		—		23

Total cost of revenues		7,391		2,781

Gross profit		6,410		3,018
Operating expenses:
Research and development (exclusive of amortization of deferred stock compensation of $2 and $36 for the three months ended March 31, 2004 and March 31, 2003, respectively)		2,113		1,709
Sales and marketing (exclusive of amortization of deferred stock compensation of $1 and $47 for the three months ended March 31, 2004 and March 31,2003, respectively)		1,903		1,256
General and administrative (exclusive of amortization of deferred stock compensation of $0 and $81 for the three months ended March 31, 2004 and March 31, 2003, respectively)		1,825		1,236
Amortization of deferred stock compensation		3		164
Amortization of acquisition related intangible assets		431		48

Total operating expenses		6,275		4,413

Income (loss) from operations		135		(1,395	)
Interest expense		5		13
Interest and other income, net		32		124

Income (loss) before taxes		162		(1,284	)
Provision for income taxes		—		—

Net income (loss)	$	162	$	(1,284	)

Basic and diluted net income (loss) per share	$	0.00	$	(0.04	)

Shares used to compute net income (loss) per share:
Basic		34,197		30,008
Diluted		37,290		30,008

See accompanying notes.

SIRENZA MICRODEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2004			2003
Operating Activities
Net income (loss)	$	162		$	(1,284	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		1,485			836
Amortization of deferred stock compensation		3			187
Changes in operating assets and liabilities:
Accounts receivable		(1,202	)		(561	)
Inventories		(930	)		(1,069	)
Other assets		32			35
Accounts payable		121			251
Accrued expenses		99			(499	)
Accrued restructuring		(241	)		(194	)
Deferred margin on distributor inventory		539			(231	)

Net cash provided by (used in) operating activities		68			(2,529	)
Investing Activities
Sales/maturities (purchases) of available-for-sale securities, net		524			(475	)
Purchases of property and equipment		(407	)		(125	)
Purchase of Xemod, net of cash received		—			28
Purchase of Vari-L, net of amounts accrued		—			(1,386	)

Net cash provided by (used in) investing activities		117			(1,958	)
Financing Activities
Principal payments on capital lease obligations		(16	)		(155	)
Proceeds from employee stock plans		167			8

Net cash provided by (used in) financing activities		151			(147	)
Increase (decrease) in cash and cash equivalents		336			(4,634	)
Cash and cash equivalents at beginning of period		7,468			12,874

Cash and cash equivalents at end of period	$	7,804		$	8,240

Supplemental disclosures of noncash investing and financing activities
Cost and accumulated depreciation of equipment retired	$	83			—

See accompanying notes.

Note 1:

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for any subsequent period or for the year as a whole.

The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Sirenza Microdevices, Inc. (the Company) for the fiscal year ended December 31, 2003, which are included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on March 24, 2004.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated.

Prior to 2004, the Company operated on thirteen-week fiscal quarters ending on the Sunday closest to the end of the calendar quarter, with the exception of the fourth quarter, which ended on December 31. Effective January 1, 2004, the Company changed its reporting period to a calendar year with each of the fiscal quarters now ending on the last day of the calendar quarter. The adoption of this change did not have a material impact on the Company’s financial position or results of operation for the quarter ended March 31, 2004. The Company’s first quarter of fiscal year 2003 ended on March 30, 2003. For presentation purposes, the accompanying unaudited condensed consolidated financial statements refer to the quarter’s calendar month end for convenience.

Stock-Based Compensation

The Company has elected to account for its employee stock plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB Opinion No. 25), as amended by Financial Accounting Standards Board (FASB) Interpretation No. 44 (FIN 44), “Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25,” and to adopt the disclosure-only provisions as required under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (FAS 123). The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to stock-based employee compensation, as amended by Statement of Financial Accounting Standards No. 148 “Accounting for Stock Based Compensation, Transition and Disclosures” (in thousands, except per share data):


	Three Months Ended March 31,
	2004			2003
Net income (loss)—as reported	$	162		$	(1,284	)
Add: Stock-based employee compensation expense, included in the determination of net income (loss) as reported		3			187
Deduct: Stock-based employee compensation expense determined under the fair value method for all awards		(1,413	)		(1,390	)

Pro forma net loss	$	(1,248	)	$	(2,487	)

Net income (loss) per share:
Basic and diluted—as reported	$	0.00		$	(0.04	)

Basic and diluted—pro forma	$	(0.04	)	$	(0.08	)

Note 2:

Business Combinations

Acquisition of Vari-L

On May 5, 2003, the Company acquired substantially all of the assets of Vari-L Company, Inc. (Vari-L) and assumed specified liabilities of Vari-L in exchange for approximately 3.3 million shares of the Company’s common stock, valued at approximately $4.7 million, approximately $9.1 million in cash and incurred $2.4 million in estimated direct transaction costs for a preliminary aggregate purchase price of $16.2 million. The fair value of the Company’s common stock issued in connection with the Vari-L acquisition was derived using an average market price per share of Sirenza common stock of $1.43, which was based on an average of the closing prices for a range of three trading days (April 30, 2003, May 1, 2003 and May 2, 2003) prior to the closing date of the acquisition. Of the $9.1 million in cash, approximately $3.8 million was paid to Vari-L at closing and $5.3 million related to loans the Company made to Vari-L prior to the closing. All of the $5.3 million of Vari-L loans, which included $3.4 million of Vari-L loans outstanding on the Company’s balance sheet as of December 31, 2002, have been included in the calculation of the preliminary purchase price of Vari-L. The Company’s results of operations include the effect of Vari-L subsequent to May 5, 2003. Vari-L was a designer and manufacturer of RF and microwave components and devices for use in wireless communications. The acquisition strengthened the Company’s product portfolio of RF components, in particular, signal source processing and aerospace and defense products and enabled the Company to achieve significant cost synergies in the highly competitive wireless communication RF component industry.

The Company allocated the purchase price of its acquisition of Vari-L to the tangible assets, liabilities and intangible assets acquired, based on their estimated fair values. The excess purchase price over those fair values has been recorded as goodwill. The fair value assigned to intangible assets acquired was determined through established valuation techniques using estimates made by management. The goodwill resulting from this acquisition has been assigned to the Signal Source Division for segment reporting purposes.

The allocation of the purchase price is preliminary until finalization of all direct transaction costs and pre-acquisition contingencies. Although the Company does not anticipate direct transaction costs or pre-acquisition contingency costs to be materially different from amounts paid and accrued, the total purchase consideration and purchase price allocation is subject to change based on the actual amount of direct transaction costs.

The preliminary total purchase price of approximately $16.2 million has been allocated as follows (in thousands):


Accounts receivable	$	2,202
Inventory		2,018
Prepaid and other current assets		96
Property, plant and equipment		3,660
Amortizable intangible assets:
Developed product technology		4,840
Customer relationships		870
Committed customer backlog		310
Goodwill		3,511
Accounts payable		(817	)
Accrued liabilities		(483	)
Capital lease obligations		(7	)

Total purchase price	$	16,200

The developed product technology is designed for RF signal sourcing in the wireless communications market and is technologically feasible. The developed product technology is intended to strengthen the Company’s product portfolio of RF components. The Company is amortizing the fair value of the developed product technology on a straight-line basis over a period of 44 to 68 months, which represents the estimated useful life of the developed product technology. The weighted average amortization period for the developed product technology is approximately 65 months.

Customer relationships represent Vari-L’s relationships with original equipment manufactures (OEMs) and contract manufacturers of communications equipment in the wireless communications and aerospace and defense markets. The Company is amortizing the fair value of customer relationships on a straight-line basis over a period of 32 months, which represents the estimated useful life of the customer relationships.

Committed customer backlog represents outstanding purchase orders placed by Vari-L’s customers that are expected to be shipped and collected during the 12 months immediately subsequent to the closing date of the acquisition. The Company is amortizing the fair value of committed customer backlog on a straight-line basis over a period of 12 months.

Amortizable acquisition-related intangible assets

Amortization of acquisition-related intangible assets aggregated $431,000 and $48,000 for the three-month periods ended March 31, 2004 and 2003, respectively. The amortization of acquisition-related intangible assets in the three-month period ended March 31, 2004 included amortizatio

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