the 2009 Annual Report (pdf) - PLX Technology

The Company analyzes the need for reserves for potential credit losses and records reserves when necessary.
Through fiscal 2009, there were no direct end customers that accounted for more than 10% of net revenues. Sales to
the following distributors accounted for 10% or more of net revenues:
Years Ended December 31,
2009 2008 2007
Excelpoint Systems Pte Ltd…………………………… 25% 29% 18%
Promate Electronics Co., Ltd………………………… 15% - *%
Answer Technology, Inc.……………………………… 12% 13% 10%
Avnet, Inc.…………………………………………… 12% 12% *%
Metatech.……………………………………………… - - 17%
∗ Less than 10%
Currently, the Company relies on single source suppliers for the significant majority of its product inventory. As a
result, should the Company's current suppliers not produce and deliver inventory for the Company to sell on a timely
basis, operating results may be adversely impacted.
6. Asset Impairment Charges
During the fourth quarter of 2008, the Company assessed goodwill and long lived assets for impairment as it
observed that there were indicators of impairment. The notable indicators were a sustained decline in the Company’s
market capitalization below book value, depressed market conditions, deteriorating industry trends and a significant
downward revision of its forecasts. These market conditions continuously change and it is difficult to project how
long an economic downturn may last. The Company’s 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 the Company’s 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 the Company’s single
reporting unit at the end of the discrete forecast period. These forecasts represent the best estimate that 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 the Company’s goodwill impairment testing, it also assessed the fair value of its long-lived assets,
including its corporate headquarters building and amortizable intangible assets. For the corporate headquarters
building, the Company used the sales comparison approach and the income capitalization approach, each equally
weighted, to arrive at a fair value estimate. The Company determined that the carrying value of the property was not
recoverable and exceeded its fair value, and it recorded an impairment charge of $18.8 million. For the amortizable
intangible assets, which included acquired technology, the Company 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, the Company determined that step two of
the impairment analysis was required because the estimated carrying value of its 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
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