the 2009 Annual Report (pdf) - PLX Technology

Amortization of purchased intangible assets decreased by $0.5 million or 42.0% in the year ended December 31,
2008 compared to 2007. The decrease was due to customer base acquired as a result of the NetChip Technology, Inc.
acquisition in May 2004 becoming fully amortized in 2007 and the developed core technology acquired as a result of
the HiNT Corporation acquisition in May 2003 becoming fully amortized in May 2008.
Impairment of Goodwill, Other Intangible Assets and Long-Lived Assets. During the fourth quarter of 2008, we
assessed goodwill and long lived assets for impairment as we observed that there were indicators of impairment. The
notable indicators were a sustained decline in our market capitalization below book value, depressed market
conditions, deteriorating industry trends and a significant downward revision of our forecasts. These market
conditions continuously change and it is difficult to project how long an economic downturn may last. Our goodwill
and intangible assets were primarily established in purchase accounting at the completion of the Sebring, HiNT
Corporation and NetChip Technology, Inc acquisitions in 2000, 2003 and 2004, respectively.
The projected discounted cash flows for our single reporting unit were based on discrete five-year financial
forecasts developed by management for planning purposes. Cash flows beyond the discrete forecasts were estimated
using terminal value calculations. The terminal value represents the value of our single reporting unit at the end of the
discrete forecast period. These forecasts represent the best estimate that our management had at the time and were
believed to be reasonable. The annual sales growth rates ranged from 5% to 7% during the discrete forecast period
and the future cash flows and terminal value were discounted to present value using a discount rate of 22%. The
terminal value was based on the application of an 8.0x multiple to forecasted 2013 earnings before interest, taxes,
depreciation and amortization expense (EBITDA). The discount rate was based on an analysis of the weighted
average cost of capital of our single reporting unit. The EBITDA multiple used in the terminal value calculation was
based upon EBITDA multiples paid in comparative merger and acquisition transactions and a review of trading
multiples for similar public companies and considered the growth prospects and profitability for our single reporting
unit at the end of the discrete forecast period.
Prior to our goodwill impairment testing, we also assessed the fair value of our long-lived assets, including our
corporate headquarters building and amortizable intangible assets. For the corporate headquarters building, we used
the sales comparison approach and the income capitalization approach, each equally weighted, to arrive at a fair value
estimate. We determined that the carrying value of the property was not recoverable and exceeded its fair value, and
we recorded an impairment charge of $18.8 million. For the amortizable intangible assets, which included acquired
technology, we estimated a negligible fair value using a relief from royalty method and recorded an impairment
charge of $0.8 million related to all of the remaining net book value of this acquired technology.
As part of the goodwill impairment test for the fourth quarter of 2008, we determined that step two of the
impairment analysis was required because the estimated carrying value of our net assets, subsequent to the
impairment of long-lived assets noted above, exceeded its estimated fair value. The second step of the goodwill
impairment test compared the implied fair value of the goodwill with the carrying amount of that goodwill. When the
carrying amount of the goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in
an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of
goodwill recognized in a business combination. The determination of the amount of the impairment required that the
fair values of our assets and liabilities be determined as if the Company had been acquired in a hypothetical business
combination with a purchase price equal to the fair value of the reporting unit as of December 31, 2008. As a result
of this analysis, we recorded an impairment charge of $34.7 million related to all of the recorded goodwill.
In the fourth quarter of 2009, we tested the goodwill acquired in the Oxford acquisition in January 2009 and
determined there was no impairment.
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