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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] 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 0-25699
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PLX TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 94-3008334
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
870 MAUDE AVENUE
SUNNYVALE, CALIFORNIA 94085
(408) 774-9060
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Securities Registered Pursuant to Section 12(g) of the Act:
Common stock, $0.001 par value per share
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) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on March
30, 2001, as reported on the Nasdaq National Market, was approximately
$49,092,561. Shares of Common Stock held by each executive officer and
director and by each person who to the Company's knowledge owns 5% or more of
the outstanding voting stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of Common Stock outstanding at March 30, 2001 was
23,421,382.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates information by reference from
the Registrants Proxy Statement for its 2001 Annual Meeting of Stockholders--
Items 10, 11, 12 and 13.
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PART I
ITEM 1: BUSINESS
OVERVIEW
PLX Technology Inc., established in May 1986 ("PLX" or the
"Company"), develops and supplies semiconductor devices and software that
accelerate and manage the transfer of data in networking and telecommunications,
enterprise storage, imaging and industrial equipment. This equipment is
typically controlled by internal computers, commonly referred to as embedded
systems. We offer a complete solution consisting of three related types of
products: semiconductor devices, software development kits and hardware design
kits. Our semiconductor devices simplify the development of data transfer
circuits in high-performance embedded systems and are compatible with
microprocessors such as IBM's PowerPC, Motorola's PowerPC, Intel's i960 and
StrongArm, Hitachi's SH, and DSPs from companies such as Texas Instruments and
Analog Devices. Our software development kits and hardware design kits promote
sales of our semiconductor devices by lowering customers' development costs and
by accelerating their ability to bring new products to market.
Demand for networking, telecommunications and other equipment that
transmits, stores and processes information rapidly has dramatically increased
due to:
- growth of the Internet,
- deployment of high-speed networking, and
- proliferation of multimedia.
Suppliers of this equipment are changing the way they design their
products to reduce product development time and to use their scarce engineering
resources more efficiently. Until recently, these suppliers typically developed
their own system components and the connections between the components. Now,
however, they are increasingly building their equipment based on industry
standard connection methods, and they are purchasing components supplied by
other companies that comply with these standards. By doing so, they reduce the
time and resources required for product development. Consequently, there is a
growing demand for standards-based components that connect systems together,
such as our semiconductor devices. The majority of our products are based on
Peripheral Component Interconnect, or PCI, an interconnect standard that is
widely used in our markets. PLX is an active member of many of the trade
associations that define current and future interconnect standards including
PCI, Compact PCI, RapidIO , HyperTransport and Infiniband.
Our objective is to expand our advantages in data transfer
technology by:
- focusing on high-growth markets,
- delivering comprehensive solutions, including semiconductor
devices, software development kits and hardware design kits,
- extending our technology advantages by incorporating new
functions and technologies,
- driving industry standards, and
- strengthening and expanding our industry relationships.
INDUSTRY BACKGROUND
Embedded systems are found in many common products and offer varying
levels of performance depending on each product's requirements. These products
range from low performance devices such as electronic toys and microwave ovens
to very complex, high-performance electronic equipment such as network routers
and
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switches. High-performance embedded systems offer increased data processing
capabilities and typically utilize one or more 32-bit or 64-bit microprocessors,
fast memories and peripherals, and sophisticated operating systems or control
code.
The communications infrastructure has significantly increased the
demand for high performance embedded systems of all types. This demand has been
fueled by the growth of the Internet; the deployment of high-speed networking
systems to transmit, store, and process the data; and the proliferation of data
types in the network, including voice traffic and multimedia.
Markets for electronic equipment that rely on high-performance
embedded systems include the following:
Networking and Telecommunications. Networking and telecommunications
applications include digital telephony, multimedia gateways,
wireless base stations, remote access servers, routers, switches and
cable modem equipment. This market segment is growing rapidly due to
the rise of the Internet and the proliferation of high bandwidth
communication technologies such as Fast Ethernet, Gigabit Ethernet,
Asynchronous Transfer Mode, or ATM, cable modems, Digital Subscriber
Line, or xDSL, and Voice-over-IP or VoIP.
Enterprise Storage. Enterprise storage applications include disk
storage subsystems, automated tape libraries and file servers. The
growing use of multimedia applications and storage networks is
driving corporate demand for increased data storage capacity.
Imaging. Imaging applications include printers, copiers, medical
instrumentation and video and graphics equipment. The demand for
better image quality and higher performance, as well as connection
of these applications to high-speed networks, have increased their
data processing requirements.
Industrial. Industrial applications include a wide range of process
control computers and factory automation equipment. These products
have high data transfer rate requirements, are used to monitor and
control complex processes in real-time and are being increasingly
attached to networks.
Manufacturers of products that rely on high-performance embedded
systems seek to maximize the performance and minimize the cost of their
increasingly complex products. In addition, these manufacturers must develop and
bring new products to market quickly to keep pace with technological
advancements.
THE I/O SUBSYSTEM
A typical embedded system can be described in terms of four primary
functions: the host microprocessor, the memory, the peripherals and the
input/output, or I/O, subsystem. The host microprocessor is the primary control
center for the system. The memory acts as a storage area for instructions to be
executed and data to be processed. The peripherals enable connections between
the system and other external devices such as network components, printers and
storage systems. The I/O subsystem is the circuitry and software that connects
these three other functions and allows for the transfer of instructions and data
among these functions. The I/O subsystem includes the system bus or switch
fabric which is a physical connection between these different functions.
High-performance electronic equipment can contain multiple embedded systems,
each requiring a separate I/O subsystem.
To enable increased performance and functionality from computer
systems, semiconductor suppliers have historically focused on improving the
operation of peripherals, microprocessors and memories. The I/O subsystem must
also improve to keep pace with these improvements by transferring more
information at faster speeds.
In parallel with the increased performance demands of customers and
their data traffic, the reliability of these systems is under constant pressure
to improve. This is especially true as the networking and telecommunications
disciplines merge through use of the Internet to carry all types of traffic.
Highly available systems are required to meet the expectations of customers.
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As data transfer requirements for the I/O subsystem have increased,
so has the complexity of its interface components such as processors, logic and
related software. Until a few years ago, most embedded systems used simple I/O
subsystems that contained no processors, limited logic and rudimentary software,
if any. Complex I/O subsystem components such as processors, elaborate control
logic and advanced software were costly, and therefore their use was confined to
very high-end equipment such as mainframe computers. Furthermore, the lack of
widely accepted I/O standards impeded the use of complex I/O subsystems in other
than high-end applications. However, advances in semiconductor technology
combined with the widespread adoption of standards in embedded systems have
enabled the development of highly integrated semiconductor devices that can
better manage I/O subsystem performance at lower cost.
PENETRATION OF I/O STANDARDS IN EMBEDDED SYSTEMS
Until a few years ago, embedded systems manufacturers relied on a
wide variety of proprietary solutions and a fragmented set of industry standard
I/O architectures. For example, many networking, imaging, storage and industrial
applications employed proprietary architectures to meet their specific
performance and cost requirements. A mix of standard buses such as VMEbus,
Multibus and ISA was used in some industrial, telecommunications and military
applications. Embedded system software was even more fragmented with many
proprietary and application specific software architectures in use. While
embedded developers could take advantage of many standard microprocessor, memory
and peripheral components supplied by external vendors, the lack of acceptable
I/O standards forced many to develop custom I/O subsystems internally, placing a
heavy demand on development resources.
The deployment of the PCI standard was one of the catalysts for the
widespread adoption of I/O standards in embedded systems. In the early 1990s, PC
manufacturers developed PCI, a new standard hardware architecture to connect the
major components of a PC at high speed. It offered up to a one hundred times
improvement in I/O data transfer rates over the previous architectures. By the
mid-1990s, PCI became the most widely used bus architecture in the PC market.
Consequently, most suppliers of peripheral semiconductor components used in PCs
adopted PCI as the standard system interface. PCI is now emerging as the
standard I/O architecture for many high-performance embedded systems because it
allows the use of low cost and state-of-the-art peripheral semiconductor
components developed for the PC market and provides a foundation for embedded
system interoperability. PCI also offers equivalent or superior performance to
the in-house developed standards of many embedded equipment suppliers.
Furthermore, the use of PCI enables faster time to market, lower development
cost and the ability to quickly integrate new I/O components.
Although the PCI standard has resolved many development issues
relating to I/O hardware architectures, software remains a challenge. The lack
of standards for I/O control software and the wide use of proprietary operating
systems place a significant demand on development resources. Consequently,
embedded developers are increasingly adopting standard operating systems with
well-defined I/O structures as opposed to developing their own software
internally. Examples include VxWorks, pSOS, Windows CE, Linux, and Windows NT.
NEED FOR STANDARD I/O PRODUCTS AND COMPREHENSIVE I/O SOLUTIONS
Even with standard I/O specifications, design teams must still
create the circuitry and related software that implements these specifications.
Designers must also update their I/O subsystems to include frequent improvements
in these specifications.
Instead of developing all the hardware and software technology
internally, embedded systems developers seek to focus their scarce engineering
resources on the proprietary features of their products. By using standard
semiconductor devices in the I/O subsystem instead of using custom-designed
devices they are able to implement the basic framework of the system more easily
and thereby reduce the I/O subsystem design effort, providing faster
time-to-market and lower development cost. Standard products allow the design
teams to concentrate their efforts on differentiating hardware and software
features. In addition to standard semiconductor devices, embedded designers can
benefit from several other design elements, such as data control software,
hardware design kits and third-party development tools to complete their
development work in a timely manner. These additional elements simplify
development and improve time to market. They provide the design team with proven
hardware and software design examples and the tools to adapt these examples to
the embedded designers' needs.
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Due to the availability and adoption of I/O standards by embedded
developers, there is now a large demand for I/O subsystem components based on
these standards.
THE PLX SOLUTION
PLX develops and supplies semiconductor devices and software that
accelerate and manage the transfer of data in high-performance embedded systems.
Our solution consists of three related products:
- semiconductor devices,
- software development kits which assist in developing
systems that incorporate our semiconductor devices, and
- hardware design kits that allow development of a system
using our semiconductor devices and software development
kits.
Development tools provided by third parties support these three
related products. These development tools are used for the design of other parts
of the embedded system but also work with our products.
Our products are designed for use in a variety of high-performance
embedded applications including networking and telecommunications, enterprise
storage, imaging and industrial. We focus on I/O accelerators, switch fabric
controllers and I/O processors, which are highly integrated, cost-effective
semiconductor devices that optimize the flow of data and simplify the
development of high-performance I/O subsystems. Our software development kits
and hardware design kits promote sales of our semiconductor devices by lowering
customers' development costs and allowing them to bring new products to market
more quickly.
PLX products provide I/O connectivity solutions for PCI and other
industry standards. As new I/O standards evolve, we expect to support them where
appropriate. More than 1,000 electronic equipment manufacturers use PLX
semiconductor devices in a wide variety of embedded systems applications.
Customers that shipped systems in 2000 that incorporate our products include
Accton, Cisco Systems, Compaq Computer, Gilat, Hewlett-Packard, IBM, Intel,
Lucent Technologies, Marconi, Nortel Networks and Siemens.
STRATEGY
Our objective is to continue to expand our market position as a
developer and supplier of I/O connectivity solutions for high-performance
embedded systems. Key elements of our strategy include the following:
Focus on High-Growth Markets. We focus on the high-growth
communications infrastructure equipment market. Within this market, there are
many highly differentiated applications with different design criteria such as
product function, performance, cost, power consumption, software, size
limitations and design support. The requirements of many of these differentiated
applications are addressed by our products, and we target those applications
where we believe we can attain a leadership position.
Deliver Comprehensive Solutions. Our products provide embedded
systems developers with a comprehensive, proven development environment to
simplify I/O subsystem design, enhance performance, reduce development costs and
accelerate time-to-market. This solution consists of semiconductor devices,
software development kits and hardware design kits. These design elements are
supported by development tools provided by third parties.
Extend I/O Subsystem Technology. We offer our customers highly
integrated semiconductor devices and related software that incorporate many of
the latest advances in I/O technology. Our semiconductor devices and software
are designed to enable quick adoption of new I/O technologies and enhancements
to existing I/O standards. We seek to integrate additional I/O-related functions
into our semiconductor devices to provide our customers with
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increasing functionality at the same or lower costs. For example, we developed
our IOP 480, a device that integrates IBM's PowerPC core with our PCI
technology. We employ a team of engineers with considerable expertise in
embedded systems architectures, product definition, semiconductor and software
design and engineering to maintain our I/O subsystem technology advantages.
Drive I/O Subsystem Standards for Embedded Applications. We believe
that our understanding of I/O technology trends and market requirements allows
us to bring to market more quickly new products that support the latest I/O
technologies. Through our participation in key industry groups responsible for
standards such as the PCI Special Interest Group, the PCI Industrial Computer
Manufacturer's Group (PICMG), Infiniband Trade Association, PCI-X Manufacturers'
Group, and the RapidIO Trade Association, we have taken an active role in
defining new I/O standards.
Strengthen and Expand Industry Relationships. We work with industry
leaders in developing software development tools and marketing programs that
promote the use of each company's products. Key microprocessor partners include
Analog Devices, Hitachi, IBM, IDT, Intel, Motorola, NEC, and Texas Instruments,
and key software partners include Mentor Graphics, Meta Ware, Microsoft,
Synopsys, Tasking, and Wind River. As a result of these relationships, we enable
embedded systems designers to choose the best products for their particular
applications while still employing our product as the core of their I/O
subsystem design.
CUSTOMERS
We supply our products to customers for a wide variety of
high-performance communications infrastructure applications including
networking, telecommunications, and enterprise storage. We also have sales in
other markets such as the imaging, industrial, personal computer, and server and
consumer markets. The typical product life cycle of a high performance embedded
system is one to two years or more of product development and initial marketing
activity followed by two to five years or more of volume production, assuming
the product is successful in the market. The embedded system design team
typically selects the sole-source hardware and software components early in the
design cycle. Generally, the embedded system will incorporate these same
components throughout its product life because changes require an expensive
re-engineering effort. Therefore, when our products are designed into an
embedded system, they are likely to be used in that system throughout its two to
five year or more production life.
Our products are standard semiconductor devices that may be
incorporated into equipment used in several of our target markets. More than
1000 electronic equipment manufacturers incorporate our semiconductor devices in
their products.
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The following table lists representative customers that purchased
directly or through distributors more than $100,000 of our products in 2000.
NETWORKING AND
TELECOMMUNICATIONS ENTERPRISE STORAGE
------------------ ------------------
Artesyn Technologies Compaq
Brooktrout DPT
Cisco Systems IBM
Combox
Digi International IMAGING/INDUSTRIAL/MEDICAL
Eicon Technology --------------------------
Gilat Cognex
Hewlett-Packard Hewlett-Packard
IBM Kofax Image Products
Intel Moxa
Lucent Technologies Pinnacle Systems
Marconi Siemens
Nortel Networks Smart Modular
Paradyne
Performance Technologies
Proxim
SDL Communications
Siemens
PRODUCTS
Our products consist of semiconductor devices, software development
kits and hardware design kits. Development tools provided by third parties
support these three design elements. Our semiconductor device products include
I/O accelerators, I/O processors, and switch fabric products, which are designed
to simplify the development of high-performance I/O subsystems. The sales of
these semiconductor devices account for a substantial majority of our revenues.
We generate less than two percent of our revenues from sales of our software and
hardware design kits. The other layers of our solution promote sales of our
semiconductor devices by lowering customers' development costs and allowing them
to bring new products to market more quickly.
I/O Accelerators and I/O Processors. Our I/O accelerators are
semiconductor devices that accelerate movement of data across a PCI bus and
between one or more devices or subsystems that need to communicate across the
PCI bus. These products incorporate the Data Pipe Architecture technology, a set
of circuits and features that enable efficient flow of data within systems with
minimal supervision from the system processor. Our I/O accelerators address a
range of applications and provide flexible interfaces that allow them to connect
to a wide variety of semiconductor devices, including processors such as IBM's
and Motorola's PowerPC, Intel's i960 and Strong ARM, Hitachi's SH, IDT's MIPS,
and Motorola's 68K series. Customers also use these semiconductor devices in
connection with digital signal processors, or DSPs, which are specialized
microprocessors, from Texas Instruments, Analog Devices and others. The I/O
accelerators can be connected with a wide range of peripheral devices, including
LAN, WAN, disk control and graphics.
An I/O processor is a microprocessor designed to manage I/O tasks
and move data efficiently. The I/O processor will enhance overall system
performance by maximizing data flow and off-loading more I/O tasks from the host
processor, compared with an I/O accelerator. It will integrate, in one cost and
space-saving device, many of the circuit elements required for I/O management.
By combining several functions into one semiconductor device, the IOP 480 will
enable a more compact, power-efficient design, compared with designs that use
several semiconductor devices to achieve these functions.
Switch Fabric Products. During the second quarter of 2000, PLX
purchased Sebring Systems, a company that was in process of developing an
innovative switch fabric product. Switch fabrics route data in a flexible, high
speed manner in embedded systems, and our new switch fabric product provides
high availability and PCI
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compatibility features not found in previous or current standard products. We
publicly disclosed the architecture of this product line during the fourth
quarter of 2000.
Software Development Kits. Our software development kits (SDKs) are
designed to simplify and accelerate the development of systems that incorporate
our semiconductor devices. For PCI technology we offer SDKs, which shorten the
time needed to develop the software used to transfer data through a PCI bus.
They include an application programming interface (API) that enables developers
to execute complex transactions with simple commands. This programming interface
allows customers to migrate their designs, with the same software interface,
from our existing 32 bit I/O accelerators to our 64 bit I/O accelerators and I/O
processor products. This common interface allows customers to preserve their
software investment even as their designs evolve in complexity and as new I/O
architectures are deployed. The SDKs are applicable to both proprietary and
standard operating systems.
Hardware Design Kits. We offer hardware design kits that support the
development of systems incorporating PLX semiconductor devices. We call our
hardware design kits "rapid development kits" (RDKs). Designers use the RDKs to
evaluate our semiconductor devices and to simplify and accelerate product
development. Each hardware design kit includes a development circuit board that
designers can use to evaluate the PLX products and also design their own system.
These hardware design kits also include technical drawings, documentation and
other design assistance tools. Current hardware design kits support Motorola's
PowerQUICC and ColdFire processors, IDT's MIPS processors, Hitachi's SH
processors, and DSPs from Texas Instruments and Analog Devices.
To offer additional design support, we work with third party
companies that provide development tools for our customers. Although we receive
no revenue directly from these development tools, they promote sales of our
semiconductor devices because these tools often make it easier to develop
embedded systems incorporating our products. Examples include software
development tools from Green Hills Software, Jungo, IBM, Integrated Systems,
Mentor Graphics, MetaWare, Microsoft, Tasking, and Wind River and software
modeling tools from Synopsys.
Our principal product offerings and functions include the following:
CATEGORY PRODUCT DESCRIPTION
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SEMICONDUCTOR DEVICES
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32-bit Target I/O PCI 9030 - Enables connection of 8-, 16- and 32-bit
Accelerators PCI 9052 peripherals and personal computer
PCI 9050 adapters to PCI.
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32-bit Master I/O PCI 9054 - Provides the flexibility to connect
Accelerators PCI 9080 with a wide range of processors,
PCI 9060SD peripherals and memory including
PCI 9060ES Motorola PowerQUICC, Intel i960,
PCI 9060 IBM PowerPC, Hitachi SH, IDT
MIPs and Texas Instruments DSPs.
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32-bit I/O Processors IOP 480 - Incorporates PowerPC
microprocessor and memory
controller in addition to a 32-bit
master I/O accelerator.
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64-bit/66 MHz I/O PCI 9656 - Provides the flexibility to connect
Accelerators (Announced, PCI 9610 with a wide range of
in development) microprocessors, peripherals and
memory including Motorola
PowerQUICC, PowerQUICCII, Intel
i960, IBM PowerPC, Hitachi SH,
IDT MIPs and Texas Instruments DSPs.
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SOFTWARE DEVELOPMENT KITS
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PCI Software SDK-Pro - Provides tools for accelerating design
Host-SDK of data transport software.
- Includes development and debugging
utilities, sample firmware and
drivers.
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HARDWARE DESIGN KITS
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Rapid Development Kits More than ten kits supporting a - Include evaluation boards, SDK
range of products software, documentation and
schematics to assist system
development.
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TECHNOLOGY
We believe that supplying high-performance connectivity solutions
for I/O subsystems requires expertise in four areas:
- semiconductor design,
- software technology,
- system design, and
- industry standards.
Semiconductor Design. Our engineers have substantial expertise in
semiconductor design and have developed a comprehensive library of complex
functional blocks for use in semiconductor devices for I/O connectivity. As a
result of this expertise, we offer both innovative architectures and high levels
of functionality. For example, our proprietary Data Pipe Architecture technology
allows the system developer a high degree of control over the PCI bus in order
to address specific design needs. In high-performance systems, the Data Pipe
Architecture technology enables data throughput that is several times faster
than typical approaches. We continue to integrate more functionality in our
semiconductor devices to reduce cost, improve performance, reduce size and
simplify the customer's design effort.
Software Technology. We devote substantial engineering resources to
the development of software technology used to assist the system developer in
debugging hardware and creating data control software. The quality and
availability of these tools are key differentiating factors between PLX and
competing alternatives. We are now shipping, as part of our software development
kits, our PCI debugging tool, PLXMon 2000. We continue to enhance and expand our
software development kits, which contain a set of programming interfaces that
simplify the development of software. Our software expertise provides us with
valuable insights into our customers' software development issues, which aids
the definition and development of future semiconductor devices.
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System Design. We employ a team of system level design engineers
that are dedicated to the development of hardware design kits. These kits are
high-performance adapters and embedded systems that customers can use to assist
development of their products. Each of these hardware design kits is a system or
adapter similar in complexity to those built by our customers. The system design
experience provides us valuable insights which we can use to improve future
semiconductor device and software products.
Industry Standards. Through our participation in the key industry
groups responsible for interconnect standards we take an active role in defining
new I/O standards such as PCI-X, RapidIO, HyperTransport, and Infiniband. In
addition, we are closely monitoring other new I/O technologies to determine
their applicability to our embedded market customer base.
COMPETITION
Competition in the semiconductor industry is intense. If our main
target market, the embedded systems market, continues to grow, the number of
competitors may increase significantly. In addition, new semiconductor
technology may lead to new products that can perform similar functions as our
products.
Competition in the various markets we serve comes from companies of
various sizes, many of which are significantly larger and have greater financial
and other resources than we do and thus can better withstand adverse economic or
market conditions than we can. Our principal products compete with standard
products from companies such as Applied Micro Circuits, Cypress Semiconductor,
Marvel Technology Group, Tundra Semiconductor, and V3 Semiconductor.
In addition, two alternative devices can perform some or all of the
functions of our semiconductor devices. The first is the Application Specific
Integrated Circuit, or ASIC. With the ASIC approach, a customer creates a custom
semiconductor device for a particular application. Because the customer buys the
ASIC directly from the semiconductor foundry, this approach may lead to lower
unit production costs. However, this approach entails a large initial investment
in developing the custom device. The second alternative device is the Field
Programmable Gate Array, or FPGA. The FPGA is a semiconductor device whose logic
function can be programmed by the system manufacturer. This requires less design
effort than the ASIC approach. However, because of the additional circuitry
required to enable the device to be programmed, this approach entails higher
unit production costs which can be prohibitive compared to ASICs or standard
semiconductor devices. Accordingly, we also experience indirect competition from
leading ASIC suppliers, including IBM, LSI Logic, NEC, and Toshiba as well as
from FPGA suppliers, including Altera, Atmel, Lucent Technologies, Quicklogic,
Vantis, and Xilinx. With I/O processor products, we compete with established
embedded microprocessor companies including Hitachi, IBM, IDT, Intel, Motorola
and others. Many of these indirect competitors and processor companies are large
companies that have significantly greater financial, technical, marketing and
other resources than PLX. With switch fabric controllers we will compete with
Stargen, a company marketing a competing standard product, plus solutions
developed by our customers using ASICs, FPGAs, and standard networking
components.
We believe that the principal factors of competition in our business
include functionality, product performance, price, product innovation,
availability of development tools, customer service and reliability. We believe
that we compete favorably with respect to each of these factors. We
differentiate our products from those of our competitors by incorporating
innovative features that allow our customers to build systems based on industry
standards that are more efficient and higher in performance. Furthermore, in
general, our software and hardware development tools are more comprehensive than
competing solutions. However, we cannot assure you that we will be able to
compete successfully in the future against existing or new competitors, and
increased competition may adversely affect our business.
SALES, MARKETING AND TECHNICAL SUPPORT
Our sales and marketing strategy is to achieve design wins at
leading embedded systems companies in high-growth market segments. We market and
sell our products in the United States through a combination of direct regional
sales managers and a network of independent manufacturers' representatives. We
maintain United States direct sales offices in Austin, Boston, Los Angeles,
Raleigh, Tampa and Sunnyvale.
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Outside the United States, we have engaged a team of manufacturers'
representatives, stocking representatives and distributors to sell and market
our products. Our international network includes representatives in Australia,
Belgium, Canada, Denmark, France, Germany, Hong Kong, Israel, Japan, Korea,
Norway, Singapore, South Africa, Sweden, Taiwan, The Netherlands, and the United
Kingdom. We maintain a direct sales office in the United Kingdom to service
customers in Europe and the Middle East and in Japan and Hong Kong to service,
Japan, Southeast Asia, and China.
As of December 31, 2000, we employed 47 individuals in sales and
marketing. Sales in North America represented 61%, 65% and 66% of product
revenues for 2000, 1999, and 1998, respectively. All sales to date have been
denominated in U.S. dollars.
In 2000, sales to our exclusive United States distributor, Unique
Technologies, accounted for 25% of our revenues, and sales to a European
distributor, A2M, accounted for 11% of our revenues. In March 2001, we decided
to terminate our relationship with Unique, our US distributor, and service all
of our US customers directly or through manufacturer's representatives. Despite
this change, revenues related to sales through distributors are expected to
continue to account for a significant portion of our total revenues. See "Risk
Factors -- A Large Portion of Our Revenues Is Derived from Sales to Third-Party
Distributors Who May Terminate Their Relationships with Us at Any Time."
Net revenues through distributors accounted for approximately 65%,
58% and 49% of our net revenues for 2000, 1999 and 1998, respectively. In 2000,
sales to Cisco Systems and IBM directly or through distributors accounted for
17% and 11%, respectively. In 1999, sales to Cisco Systems and IBM directly or
through distributors accounted for 12% and 11%, respectively. In 1998, sales to
IBM accounted for 13% of net revenues.
Technical support to customers is provided through field and factory
applications engineers, technical marketing personnel and, if necessary, product
design engineers. Local field support is provided in person or by telephone. We
also use our World Wide Web site to provide product documentation and technical
support information. We believe that providing customers with comprehensive
product support is critical to remaining competitive in the markets we serve. In
addition, our close contact with customer design engineers provides valuable
input into existing product enhancements and next generation product
specifications.
RESEARCH AND DEVELOPMENT
Our future success will depend to a large extent on our ability to
rapidly develop and introduce new products and enhancements to our existing
products that meet emerging industry standards and satisfy changing customer
requirements. We have made and expect to continue to make substantial
investments in research and development and to participate in the development of
new and existing industry standards.
Our research and development has been focused in three main areas:
semiconductor devices, hardware design kits and software development kits. The
majority of our engineers are involved in semiconductor device design and
verification, with the remaining engineers working on software and reference
design hardware. Before development of a new product commences, our marketing
managers work closely with research and development engineers and customers to
develop a comprehensive requirements specification. In addition, our marketing
managers and engineers review the applicable industry standards and incorporate
desired changes into the new product specification. After the product is
designed and commercially available, our engineers continue to work with various
customers on specific design issues to understand emerging requirements that may
be incorporated into future product generations or product upgrades.
Our research and development expenditures totaled $16.4 million in
2000, $7.3 million in 1999 and $6.6 million in 1998. Research and development
expenses consist primarily of salaries and related costs of employees engaged in
research, design, and development activities. In addition, expenses for outside
engineering consultants and non- recurring engineering at our independent
foundries are included in research and development expenses. As of December 31,
2000, there were 57 employees engaged in research and development. We perform
our research and development activities at our headquarters in Sunnyvale,
California and in Salt Lake City, Utah. We are seeking to hire additional
skilled development engineers, who are currently in short supply. Our business
could be adversely
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affected if we encounter delays in hiring additional engineers. See "Certain
Factors That May Affect Future Operating Results -- Failure to Hire Additional
Personnel and to Improve Our Operations Will Limit Our Growth."
Our future performance depends on a number of factors, including our
ability to identify emerging technology trends in our target markets, define and
develop competitive new products in a timely manner, enhance existing products
to differentiate them from those of competitors and bring products to market at
competitive prices. The technical innovations and product development required
for us to remain competitive are inherently complex and require long development
cycles. We typically must incur substantial research and development costs
before the technical feasibility and commercial viability of a product can be
ascertained. We must also continue to make significant investments in research
and development in order to continually enhance the performance and
functionality of our products to keep pace with competitive products and
customer demands for improved performance. Revenues from future products or
product enhancements may not be sufficient to recover the development costs
associated with these products or enhancements. The failure to successfully
develop new products on a timely basis could have a material adverse effect on
our business. See "Certain Factors That May Affect Future Operating Results --
Rapid Technological Change Could Make Our Products Obsolete."
MANUFACTURING
We have adopted a "fabless" semiconductor manufacturing model and
outsource all of our semiconductor manufacturing, assembly and testing. This
approach allows us to focus our resources on the design, development and
marketing of products and significantly reduces our capital requirements. We
subcontract substantially all of our semiconductor manufacturing to Seiko-Epson
Semiconductor in Japan, Taiwan Semiconductor Manufacturing Corporation in
Taiwan, Samsung in Korea, and IBM in the United States. None of our products is
currently manufactured by more than one supplier, and all of our products are
expected to be single-source manufactured for the foreseeable future. We must
place orders three to four months in advance of expected delivery of finished
goods. We maintain inventory levels based on current lead times from foundries
plus safety stock to account for anticipated fluctuations in demand. Our
inventory comprises a large portion of our working capital. As a result, we have
limited ability to react to fluctuations in demand for our products, which could
cause us to have an excess or a shortage of inventory of a particular product
and reduced product revenues.
In the event of a loss of, or a decision by us to change, a key
supplier or foundry, qualifying a new supplier or foundry and commencing volume
production would likely involve delay and expenses, resulting in lost revenues,
reduced operating margins and possible detriment to customer relationships.
Since we place our orders on a purchase order basis and do not have a long term
volume purchase agreement with any of our existing suppliers, any of these
suppliers may allocate capacity to the production of other products while
reducing deliveries to us on short notice. While we believe we currently have
good relationships with our foundries and adequate capacity to support our
current sales levels, there can be no assurance that adequate foundry capacity
will be available in the future on acceptable terms, if at all. See "Certain
Factors That May Affect Future Operating Results -- Our Independent
Manufacturers May Not be Able to Meet Our Manufacturing Requirements."
Our semiconductor devices are currently fabricated using a range of
semiconductor manufacturing processes. We must continuously develop our devices
using more advanced processes to remain competitive on a cost and performance
basis. Migrating to new technologies is a challenging task requiring new design
skills, methods and tools. We believe that the transition of our products to
smaller geometries will be important for us to remain competitive. Our business
could be materially adversely affected if any transition to new processes is
delayed or inefficiently implemented. See "Certain Factors That May Affect
Future Operating Results -- Defects in Our Products Could Increase Our Costs and
Delay Our Product Shipments."
INTELLECTUAL PROPERTY
Our future success and competitive position depend upon our ability
to obtain and maintain the proprietary technology used in our principal
products. We have two patents which will be used in our switch fabric technology
that expire in December 2016. Most of our current products include
implementations of the PCI industry standard, which is available to other
companies. We currently have no patents on any of our accelerator or I/O
processor products and rely instead on trade secret protection. We have two
patents on technology in our other products that
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expire in September 2007 and September 2014. In the future, we plan to seek
patent protection when we believe it is necessary.
Our existing or future patents may be invalidated, circumvented,
challenged or licensed to others. The rights granted thereunder may not provide
competitive advantages to us. In addition, our future patent applications may
not be issued with the scope of the claims sought by us, if at all. Furthermore,
others may develop technologies that are similar or superior to our technology,
duplicate our technology or design around the patents owned or licensed by us.
In addition, effective patent, trademark, copyright and trade secret protection
may be unavailable or limited in foreign countries where we may need this
protection. We cannot be sure that steps taken by us to protect our technology
will prevent misappropriation of our technology.
The semiconductor industry is characterized by vigorous protection
and pursuit of intellectual property rights or positions. This often results in
significant and often protracted and expensive litigation. There is no
intellectual property litigation currently pending against us. However, we may
from time to time receive notifications of claims that we may be infringing
patents or other intellectual property rights owned by other third parties. If
it is necessary or desirable, we may seek licenses under these third party
patents or intellectual property rights. However, we cannot be sure that
licenses will be offered or that the terms of any offered licenses will be
acceptable to us.
The failure to obtain a license from a third party for technology
used by us could cause us to incur substantial liabilities and to suspend the
manufacture or shipment of products or our use of processes requiring the
technology. Litigation could result in significant expenses to us, adversely
affect sales of the challenged product or technology and divert the efforts of
our technical and management personnel, whether or not the litigation is
determined in our favor. In the event of an adverse result in any litigation, we
could be required to pay substantial damages, cease the manufacture, use, sale
or importation of infringing products, expend significant resources to develop
or acquire non-infringing technology, and discontinue the use of processes
requiring the infringing technology or obtain licenses to the infringing
technology. We may not be successful in the development or acquisition, or the
necessary licenses may not be available under reasonable terms, and any
development, acquisition or license could require expenditures by us of
substantial time and other resources. Any of these developments would have a
material adverse effect on our business. See "Certain Factors That May Affect
Future Operating Results -- Our Limited Ability to Protect Our Intellectual
Property and Proprietary Rights Could Adversely Affect Our Competitive
Position."
EMPLOYEES
As of December 31, 2000, we employed a total of 126 full-time
employees, including 57 engaged in research and development, 47 engaged in sales
and marketing, 7 engaged in manufacturing operations and 15 engaged in general
administration activities. We also from time to time employ part-time employees
and hire contractors. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work stoppage. We believe
that our employee relations are good.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, their ages and their positions
as of December 31, 2000, are as follows:
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NAME AGE POSITION
- ---- --- --------
Michael J. Salameh................ 46 President and Director
Michael Franz, Ph.D............... 52 Vice President, Engineering
Rafael Torres..................... 32 Vice President, Finance, Chief Financial Officer and Secretary
Larry Chisvin..................... 46 Vice President, Marketing
Michael A. Hopwood................ 38 Vice President, Worldwide Sales
Raymond Holzworth................. 45 Vice President, Operations
D. James Guzy..................... 64 Chairman of the Board of Directors
Eugene Flath...................... 63 Director
Timothy Draper.................... 42 Director
Young K. Sohn..................... 44 Director
John H. Hart...................... 55 Director
Michael J. Salameh co-founded PLX and has served as our President
and as a member of the Board of Directors since PLX's inception in May 1986.
From 1980 through 1986, Mr. Salameh was employed in various marketing management
positions with Hewlett-Packard Company. Mr. Salameh received a B.S. in
Engineering and Applied Science from Yale University and an M.B.A. from Harvard
Business School.
Dr. Michael Franz has served as our Vice President of Engineering
since joining us in November 1999. From 1993 through October 1999, Dr. Franz
held various senior engineering management level positions with Toshiba's
semiconductor company, including Director of System Level Integration and
Director of Technology Development. From 1986 to 1993, Dr. Franz was employed
with Siemens' semiconductor division, as Director of Engineering. Dr. Franz
received a B.S. in Electrical Engineering from Technical University of Munich
and an M.S. and Ph.D. in Electrical Engineering from the University of
Wisconsin.
Rafael Torres has served as our Vice President of Finance and Chief
Financial Officer since November 2000. From May 1999 to November 2000, Mr.
Torres served as our Corporate Controller. From September 1998 to May 1999, Mr.
Torres was employed by OnCommand Corporation, an on demand video company, as
Accounting Manager. From June 1998 to September 1999, Mr. Torres was employed by
Silicon Valley Group, a semiconductor equipment company, as Manager of Financial
Reporting and Analysis. From September 1994 to June 1997, Mr. Torres was
employed with PriceWaterhouse LLP, a public accounting firm, as senior auditor.
Mr. Torres received a B.S. in Accounting from Santa Clara University. Mr. Torres
is a Certified Public Accountant.
Larry Chisvin has served as our Vice President of Marketing since
May 2000. From September 1998 through May 2000, Mr. Chisvin was employed by
Neomagic, a semiconductor company, as Director of Marketing. From May 1996
through September 1998, Mr. Chisvin was employed by LSI Logic, a semiconductor
company, as Director of Marketing. Prior to LSI Logic, Mr. Chisvin was employed
in a variety of marketing and engineering positions at S3, Philips, Western
Digital, and Digital Equipment Corporation. Mr. Chisvin received a B.S. in
Electrical Engineering from Northeastern University and an M.S. in Electrical
Engineering from Worcester Polytechnic Institute.
Michael A. Hopwood has served as our Vice President of Worldwide
Sales since 1995. From 1989 to 1995, he held a variety of other sales management
positions with our Company. From 1984 until 1989, Mr. Hopwood held various sales
positions at Intel Corporation, a semiconductor manufacturer. Mr. Hopwood
received a B.S. in Physics Engineering from Pacific Lutheran University.
Raymond M. Holzworth has served as our Vice President of Operations
since joining us in November 2000. From July 1998 through November 2000, Mr.
Holzworth was employed by Triscend, a semiconductor company, as Vice President
of Operations. From March 1995 to July 1998, Mr. Holzworth was employed by ISD,
a semiconductor company, as Foundry Director. From June 1986 to March 1995, Mr.
Holzworth was employed by Advanced Micro Devices, a semiconductor company, as
Program Manager. Mr. Holzworth received a B.A. in Chemistry, Math, and Physics
from Erskine College, an MS in Mechanical Engineering from the University of
Florida, an MS in Electrical Engineering from Stanford University, and an M.B.A.
from San Jose State University.
D. James Guzy has been a director of PLX since 1986. Mr. Guzy is the
Chairman, President and CEO of SRC Computer Corporation, a developer of super-
computer systems. Since 1969, he has also served as the
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President of the Arbor Company, a limited partnership involved in the
electronics and computer industry. Mr. Guzy is also a director of Cirrus Logic,
Inc., Intel Corporation, Micro Component Technology, Inc., Novellus Systems,
Inc., Davis Selected Group of Mutual Funds and Alliance Capital Management
Technology Fund, and a member of the board of directors of several private
technology companies. Mr. Guzy received a B.S. from the University of Minnesota
and an M.S. from Stanford University.
Eugene Flath has been a director of PLX since May 1989. Mr. Flath
has been a Special General Partner of Applied Technology Investors since July
1994. Mr. Flath also serves on the board of directors of several private
companies. Mr. Flath received a B.S. in Electrical Engineering and a B.S. in
Naval Science from the University of Wisconsin and an M.S. in Electrical
Engineering from the University of New Hampshire.
Timothy Draper has been a director of PLX since 1986. Mr. Draper has
been a Managing Director of Draper Fisher Jurvetson, an investment company,
since 1992. Mr. Draper managed Draper Associates LP from 1986 to 1992. Mr.
Draper received a B.S. in Electrical Engineering from Stanford University and an
M.B.A. from Harvard Business School.
Young K. Sohn has been a director of PLX since April 1999. Mr. Sohn
is currently serving as CEO of Oak Technology, a semiconductor manufacturer.
From 1992 until March 1999, Mr. Sohn held various executive management positions
at Quantum Corporation, a disk drive manufacturer, including President of the
Hard Disk Drive Business. Prior to joining Quantum, Mr. Sohn was employed for
nine years at Intel as a Marketing and Sales Executive and Director of Worldwide
Channel Marketing in Intel's Reseller Channel organization. Mr. Sohn received a
B.S. in Electrical Engineering from the University of Pennsylvania and an M.B.A.
from MIT's Sloan School of Management.
John H. Hart has been a director of PLX since April 1999. Mr. Hart
is currently a 3Com fellow and serves on the Board of two other companies. In
September of 2000 he retired as Senior Vice President and Chief Technical
Officer of 3Com Corporation, a position he held since August of 1996. From the
time Mr. Hart joined 3Com in September 1990 until July 1996, he was Vice
President and Chief Technical Officer. Prior to joining 3Com, Mr. Hart worked
for Vitalink Communications Corporation for seven years, where his most recent
position was Vice President of Network Products. Mr. Hart received a B.S. in
Mathematics from the University of Georgia.
BACKLOG
PLX's backlog at any particular date is not necessarily indicative
of actual sales for any succeeding period. This results from expected changes in
product delivery schedules and cancellation of product orders. In addition,
PLX's sales will often reflect orders shipped in the same quarter that they are
received.
ITEM 2: PROPERTIES
We own one facility in Sunnyvale, California, which has
approximately 55,000 square feet. We also lease a facility in Sunnyvale,
California, which has approximately 15,000 square feet pursuant to a lease,
which expires in November 2004. These two facilities comprise our headquarters
and include our research and development, sales and marketing and administration
departments. We believe that our current facilities will be adequate through
2001.
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security holders during the
three months ended December 31, 2000.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The Nasdaq Stock Market and
has been quoted on the Nasdaq National Market under the symbol "PLXT" since its
initial public offering on April 5, 1999. The following table sets forth, for
the periods indicated, the range of quarterly high and low bid information for
the Company's common stock as reported on the Nasdaq National Market:
1999 HIGH BID LOW BID
- ---- -------- -------
April 5, 1999 through the end of the Second Quarter ........ $ 50.00 $ 10.75
Third Quarter .............................................. 46.00 17.50
Fourth Quarter ............................................. 26.00 13.75
2000 HIGH BID LOW BID
- ---- -------- -------
First Quarter .............................................. $ 40.75 $ 15.50
Second Quarter ............................................. 43.81 14.50
Third Quarter .............................................. 51.25 23.06
Fourth Quarter ............................................. 30.62 4.34
As of March 30, 2001, there were approximately 153 holders of record
of the Company's Common Stock. As of March 30, 2001, the last reported sales
price of our common stock was $4.41.
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividend in the foreseeable future. Any
future declaration and payment of dividends will be subject to the discretion of
the Company's Board of Directors, will be subject to applicable law and will
depend upon the Company's results of operations, earnings, financial condition,
contractual limitations, cash requirements, future prospects and other factors
deemed relevant by the Company's Board of Directors.
Sales of Unregistered Securities. In May 2000, in connection with
its acquisition of Sebring Systems, the Company issued 960,931 shares of its
Common Stock in exchange for the capital stock of Sebring Systems. The issuance
was exempt from registration pursuant to Section 4 (2) of the Securities Act of
1933, as amended.
ITEM 6: SELECTED FINANCIAL DATA
The following table includes selected consolidated financial data
for each of the five years ended December 31, 2000. Each of the three years in
the period ended December 31, 2000 are derived from and more fully described in
the consolidated financial statements and notes included in this report at Item
14.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues ................................................ $ 65,351 $ 40,699 $ 26,276 $ 17,534 $ 9,813
Gross margin ................................................ 45,983 27,831 16,605 10,558 5,287
Operating income (loss) ..................................... (3,108) 9,994 3,383 1,991 893
Net income (loss) ........................................... (7,042) 7,231 2,766 1,924 891
Basic earnings (loss) per share ............................. $ (0.31) $ 0.43 $ 0.77 $ 0.58 $ 0.28
Shares used to compute basic earnings per share ............. 22,560 17,007 3,601 3,293 3,137
Diluted earnings (loss) per share ........................... $ (0.31) $ 0.33 $ 0.15 $ 0.11 $ 0.05
Shares used to compute diluted earnings (loss) per share .... 22,560 21,849 18,405 17,758 17,287
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YEARS ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents ................................... $ 16,621 $ 8,636 $ 5,638 $ 2,701 $ 1,077
Working capital ............................................. 22,862 32,827 6,116 3,591 2,257
Total assets ................................................ 113,479 52,055 11,766 8,013 4,053
Long-term debt .............................................. 28,500 -- -- -- --
Total stockholders' equity .................................. $ 73,198 $ 46,402 $ 7,760 $ 4,889 $ 2,909
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including those set forth under "Certain Factors That May Affect Future
Operating Results" and elsewhere in this report. The following discussion should
be read in conjunction with our Consolidated Financial Statements and related
notes thereto included elsewhere in this report.
OVERVIEW
PLX was founded in 1986, and since 1994 we have focused on
development of I/O interface semiconductors and related software and development
tools that are used in systems incorporating the PCI standard. In 1994 and 1995,
a significant portion of our revenues was from the sale of semiconductor devices
that perform similar functions as our current products, except they were based
on a variety of industry standards. Our revenues since 1996 have been derived
predominantly from the sale of semiconductor devices based on the PCI standard
to a large number of customers in a variety of applications including networking
and telecommunications, enterprise storage, imaging, industrial and other
embedded applications as well as in related adapter cards. We generate a small
portion of our revenues from sales of our software and development tools.
We utilize a "fabless" semiconductor business model whereby we
purchase packaged and tested semiconductor devices from independent
manufacturing foundries. This approach allows us to focus on defining,
developing, and marketing our products and eliminates the need for us to invest
large amounts of capital in manufacturing facilities and work-in-process
inventory.
We rely on a combination of direct sales personnel and distributors
and manufacturers' representatives throughout the world to sell a significant
portion of our products. We pay manufacturers' representatives a commission on
sales while we sell products to distributors at a discount from the selling
price. We generally recognize revenue at the time of title passage. Revenues
from sales to distributors that are made under agreements which allow the return
of products unsold by the distributor are not recognized until the distributor
ships the product to its customer. See "Certain Factors That May Affect Future
Operating Results -- A Large Portion of Our Revenues Is Derived From Sales to
Third-Party Distributors Who May Terminate Their Relationships with Us at Any
Time."
Our gross margins have fluctuated in the past and are expected to
fluctuate in the future due to changes in product mix, the position of our
products in their respective life cycles, and specific product manufacturing
costs.
The time period between initial customer evaluation and design
completion can range from six to twelve months or more. Furthermore, there is
typically an additional six to twelve month or greater period after design
completion before a customer commences volume production of equipment
incorporating our products. Due to these lengthy sales cycles, we may experience
significant fluctuations in new orders from month to month. Consequently, if
anticipated sales and shipments in any quarter do not occur when expected,
expenses and inventory
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levels could be disproportionately high, and our results for that quarter and
potentially future quarters would be materially and adversely affected.
In May 2000, we purchased Sebring Systems, a development stage
company, which is developing a switch fabric product. In connection with this
acquisition, we issued an aggregate of 960,931 shares of our common stock in
return for the capital stock of Sebring Systems. In addition, outstanding
options of Sebring Systems were converted into options to purchase our common
stock. The transaction was accounted for using purchase accounting.
Our long-term success will depend on our ability to introduce new
products. Although typically new products generate little or no revenues during
the first twelve months following their introduction, our revenues in subsequent
periods depend upon these new products. Due to the lengthy sales cycle and
additional time for customers to commence volume production, significant
revenues from our new products typically occur only twelve to twenty-four months
after product introduction. As a result, revenues from newly introduced products
have been a small percentage of revenues in the year the product was introduced.
See "Certain Factors That May Affect Future Operating Results -- Our Lengthy
Sales Cycle Can Result in Uncertainty and Delays with Regard to Our Expected
Revenues."
RESULTS OF OPERATIONS
The following table summarizes historical results of operations as a
percentage of net revenues for the periods shown.
FISCAL YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
---- ---- ----
Net revenues ...................................................................... 100.0% 100.0% 100.0%
Cost of revenues .................................................................. 29.6 31.6 36.8
----- ----- -----
Gross profit ...................................................................... 70.4 68.4 63.2
Expenses:
Research and development .................................................... 25.0 17.8 24.9
Selling, general and administrative ......................................... 24.3 26.0 25.4
Amortization of goodwill and purchased intangible assets .................... 3.9 -- --
In-process research and development ......................................... 21.9 -- --
----- ----- -----
Total operating expenses ........................................ 75.1 43.8 50.3
----- ----- -----
Operating income (loss) ........................................................... (4.7) 24.6 12.9
Interest income and other, net .................................................... 3.0 3.6 0.3
----- ----- -----
Income (loss) before income taxes and equity in net loss of unconsolidated investee (1.7) 28.2 13.2
Provision for income taxes ........................................................ 9.0 9.6 2.6
----- ----- -----
Income (loss) before equity in net loss of unconsolidated investee ................ (10.7) 18.6 10.6
Equity in net loss of unconsolidated investee ..................................... -- (0.8) --
----- ----- -----
Net income (loss) ................................................................. (10.7)% 17.8% 10.6%
===== ===== =====
COMPARISON OF YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Increasing overall end customer demand during the second half of
1999 and the first half of 2000 resulted in capacity constraints and increasing
order lead times for semiconductor suppliers. Longer lead times and concern
about availability of semiconductor components, resulted in increased order
rates for standard products during the first three quarters of 2000 compared to
the same periods in 1999, resulting in increased order backlog. Orders from OEM
customers and contract manufacturers serving the network and telecommunications
market were especially strong in the first nine months of 2000 as these
customers attempted to secure semiconductor components to meet their projected
end demand. However, the supply of semiconductors can quickly and unexpectedly
match or exceed demand because customer end demand can change very quickly and,
semiconductor suppliers can rapidly increase
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production output. This can lead to a sudden oversupply situation and a
subsequent reduction in order rates as customers adjust their inventories to
true demand rates. Customers continuously adjust their inventories resulting in
frequent changes in demand our products. The volatility of customer demand
limits our ability to predict future levels of sales and profitability.
The semiconductor industry experienced significant changes in the
supply and demand situation during 2000. Shipments to our customers declined in
the fourth quarter compared to the third quarter as these customers attempted to
align inventories with revised demand projections. In the Fourth Quarter of
2000, our customers and the contract manufacturing firms that serve them, began
to adjust their inventories to lower demand projections, resulting in
cancellations and rescheduling of previously placed orders. This activity,
combined with the overall slowing of economic growth in the North American
economy, led to lower order rates in the fourth quarter of 2000 compared with
the same period in 1999, and a reduction in order backlog from the end of the
third quarter.
Net Revenues. Revenues consist of product revenues generated
principally by sales of our semiconductor devices. Revenues for 2000 were $65.4
million, an increase of $24.7 million or 61% from 1999. Revenues for 1999 were
$40.7 million, an increase of $14.4 million or 55% from 1998. In each year the
increase was primarily due to higher volume shipments of PCI products.
Gross Profit. Gross profit represents net revenues less the cost of
revenues. Cost of revenues includes the cost of purchasing semiconductor devices
from our independent foundries, additional assembly and testing costs, our
operating costs associated with the procurement and storage of products, as well
as royalty expenses paid on some of our products. Gross profit for 2000 was
$46.0 million, an increase of $18.2 million or 65% from 1999. Gross profit for
1999 was $27.8 million, an increase of $11.2 million or 68% from 1998. Gross
profit as a percentage of revenues was 70.4 % in 2000, 68.4% in 1999 and 63.2%
in 1998. In each year, the increase in absolute dollars was primarily due to
higher revenues. Gross margin as a percentage of revenues increased in 2000 from
1999 and in 1999 from 1998 primarily due to lower product costs.
Research and Development Expenses. Research and development expenses
consist primarily of salaries and related costs of employees engaged in
research, design, and development activities. In addition, expenses for outside
engineering consultants and non-recurring engineering at our independent
foundries are included in research and development expenses. Research and
development expenses for 2000 were $16.4 million, an increase of $9.1 million or
125% from 1999. Research and development expenses for 1999 were $7.3 million, an
increase of $0.7 million or 11% from 1998. Research and development expenses as
a percentage of revenues were 25.0% in 2000, 17.8% in 1999 and 24.9% in 1998.
The increase in research and development expenses as a percentage of revenue
from 1999 to 2000 was primarily due to the amortization of deferred compensation
associated with the acquisition of Sebring Systems, a one-time compensation
charge related to a severance agreement, and increased headcount and higher
costs to support the Company's continuing efforts to develop new products. The
decrease in research and development expenses as a percentage of revenue from
1998 to 1999 was primarily due to higher net revenues as well as lower expenses
for non-recurring engineering at our independent foundries. The increase in
absolute dollars in 2000 and 1999 was primarily due to the addition of personnel
for the development of new product and the enhancement of existing products, as
well as payments to outside consultants where specific resources were needed in
the development process. We expect that research and development expenses in
absolute dollars will likely increase in future periods.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of employee related expenses,
professional fees, trade show and other promotional expenses, as well as sales
commissions to manufacturers' representatives. Selling, general and
administrative expenses for 2000 were $15.9 million, an increase of $5.3 million
or 50% from 1999. Selling, general and administrative expenses for 1999 were
$10.6 million, an increase of $3.9 million or 59% from 1998. Selling, general
and administrative expenses as a percentage of revenues were 24.3% in 2000,
26.0% in 1999 and 25.4% in 1998. In each year, the increase in absolute dollars
principally reflected higher personnel related costs resulting from an increase
in sales and marketing personnel as well as increased sales commissions from
higher product revenues. We expect that selling, general and administrative
expenses in absolute dollars will likely increase in future periods.
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Amortization of goodwill and purchased intangible assets.
Amortization of goodwill and purchased intangible assets was $2.5 million in
2000. Amortization of goodwill and purchased intangible assets includes the
amortization of goodwill and other purchased intangible assets related to the
acquisition of Sebring Systems in 2000.
In-process research and development. In May 2000, we acquired
Sebring Systems, Inc., a development stage company, that was developing the
SebringRing(TM), a silicon switch fabric interconnect solution. Switch fabrics
route data in a flexible, high speed manner in embedded systems, and our new
switch fabric product will provide high availability and PCI compatibility
features not found in previous or current standard products.
We wrote off approximately $14.3 million of acquired in-process
research and development associated with this acquisition in fiscal 2000. This
write-off was necessary because the acquired technology had not yet reached
technological feasibility and there was no alternative future use.
We estimate that the project was 95% complete as of December 31,
2000. The efforts required to develop the acquired in-process technology
principally relate to the completion of all testing activities that are
necessary to establish that the product can be produced to meet its design
specifications, including features, functions and performance. We expect the
acquired in-process technology to be developed into commercially feasible
products. However, there are no assurances that this will occur. If we fail to
complete the product in its entirety, or in a timely manner, our sales and
profitability could be adversely impacted, and the value of the other
acquisition related intangible assets may become impaired.
The $14.3 million fair value of the acquired in-process technology
was determined by a valuation specialist. The value was determined by estimating
the expected cash flows from the project once commercially viable, discounting
the net cash flows to their present value, and then applying a percentage of
completion to the calculated value. The discount rate utilized was 25%, and was
based on the cost of capital for well managed venture capital funds which
typically have similar risks and returns on investments. The cash flows utilized
were based on estimates of revenues, cost of sales, research and development
costs, selling, general and administrative costs, royalty costs and income taxes
from the project. The research and development costs excluded costs to bring the
acquired in-process project to technological feasibility. The estimated revenues
were based on management projections of the acquired in-process project. The
business projections were compared with and found to be in line with industry
analysts' forecasts of growth in substantially all of the relevant markets.
Estimated total revenues from the acquired in-process technology product were
assumed to peak in fiscal 2003 and decline in fiscal 2004 as other new products
were expected to become available. These projections were based on estimates of
market size and growth, expected trends in technology, and the nature and
expected timing of our new product introductions, as well as competitors new
product introductions.
The assumptions and projections discussed for the technology
acquired were based on information available at the time and should not be
taken as indications of actual results, which could vary materially based on
the rights and uncertainties identified in the risk factors set forth in this
Form 10-K.
Deferred Compensation. In connection with the grant of restricted
stock and options to our employees during 1997 and 1998, we recorded aggregate
deferred compensation of $361,000, representing the difference between the
deemed value of our common stock for accounting purposes and the restricted
stock purchase price or stock option exercise price at the date of grant. The
amount of deferred compensation is presented as a reduction of stockholders'
equity and amortized ratably over the vesting period of the applicable stock
grants. We also recorded deferred compensation of $12.3 million related to stock
options granted below fair market value to employees in relation to the
acquisition of Sebring Systems in May 2000. Additionally, we recorded deferred
compensation of $3.5 million in connection with the grant of stock options below
fair market value to our employees in September 2000. Amortization of deferred
compensation recorded in 2000, 1999 and 1998 was $2,272,000, $91,000 and
$79,000, respectively. These amounts are substantially included in research and
development expenses. We expect to record compensation expenses related to
deferred compensation of approximately $800,000 per quarter through September
30, 2003.
Interest Income and Other, Net. Interest income and other, net
reflects interest earned on average cash, cash equivalents and short-term and
long-term investment balances. Interest income and other, net increased to $2.0
million in 2000 from $1.5 million in 1999. Interest income and other, net
increased to $1.5 million in 1999 from $75,000 in 1998. The increase from 1999
to 2000 was primarily due to interest earned on higher levels of short-term
investments, long-term investments, and cash balances. The increase from 1998 to
1999 was primarily due to interest earned on higher levels of short-term
investments, long-term investments, and cash balances generated by the initial
public offering in April 1999.
Provision for Income Taxes. Income tax expense for the period ended
December 31, 2000 was $5,900,000 on a pretax loss of $1,142,000, compared to
income tax expense of $3,896,000 on pretax income of $11,467,000 and income tax
expense of $692,000 on pretax income of $3,458,000 for the periods ended
December 31, 1999 and 1998, respectively. Our 2000 income tax expense differs
from the expected benefit derived by applying the applicable U.S. federal
statutory rate to the loss from operations primarily due to non-deductible
acquisition related items partially offset by the benefit of research and
development tax credits. Our 1999 income tax expense differs from the expected
expense derived by applying the applicable U.S. federal statutory rate to income
from operations primarily due to state taxes offset by the benefit of research
and development tax credits. Our 1998 income tax expense differs from the
expected expense derived by applying the applicable U.S. federal statutory rate
to income from operations primarily due to the benefit of research and
development tax credits and the realization of deferred tax assets.
Equity in Net Loss of Unconsolidated Investee. Equity in net loss of
unconsolidated investee represents losses recognized under the equity method of
accounting for the investment in Sebring Systems in the fourth quarter of 1999.
In May 2000, the Company purchased the remaining interest in Sebring Systems and
consolidated its results from the date of acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through a
combination of sales of equity securities and cash generated by operations. At
December 31, 2000, we had $22.9 million in working capital including $16.6
million in cash and cash equivalents. Our operating activities generated cash of
$13.2 million, $5.1 million and $4.0 million in 2000, 1999 and 1998,
respectively. The $13.2 million of cash provided by operations was primarily
attributable to our net loss of $7.0 million adjusted for non-cash charges of
$21.8 million associated primarily with the acquisition of Sebring Systems and
an increase in accounts payable of $2.9 million, partially offset by a decrease
of $2.7 million in deferred tax assets, a decrease of $2.0 million in
inventories and a decrease of $2.3 million in other current assets.
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Our investing activities used cash of $31.2 million, $33.3 million
and $1.1 million in 2000, 1999 and 1998, respectively. The $31.2 million cash
used in investing activities was primarily attributed to the purchase of a $27.9
million new facility. Cash provided by financing activities was approximately
$26.0 million in 2000, $31.2 million in 1999 and $26,000 in 1998. Cash provided
by financing activities in 2000 was primarily due to cash generated from a loan
used to purchase PLX's primary facilities in the fourth quarter of 2000.
In November 2000, we entered into a loan agreement to borrow $28.5
million in connection with our purchase of a facility in Sunnyvale, California.
The agreement includes covenants regarding profitability and sets interest at a
rate of LIBOR plus 0.45%. The agreement requires monthly interest payments with
the outstanding principal balance due and payable in November 2005.
In January 2001, the Board of Directors of the Company approved a
stock repurchase program whereby up to 2,000,000 shares of its common stock may
be purchased in the open market or in privately negotiated transactions.
As of December 31, 2000, we had no material purchase commitments
outstanding.
We believe that our existing resources, together with cash generated
from our operations will be sufficient to meet our capital requirements for at
least the next twelve months. Our future capital requirements will depend on
many factors, including the inventory levels we maintain, the level of
investment we make in new technologies and improvements to existing technologies
and the levels of monthly expenses required to launch new products. To the
extent that existing resources and future earnings are insufficient to fund our
future activities, we may need to raise additional funds through public or
private financing. Additional funds may not be available or, if available, we
may not be able to obtain them on terms favorable to us and our stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities" ("SFAS 133"), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. We are required to adopt SFAS 133, as
amended, effective January 1, 2001. We anticipate that the adoption of SFAS 133
will have no impact on results of operations or financial position, as we hold
no derivative financial instruments and do not currently engage in hedging
activities.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition",
which provides guidance on the recognition, presentation and disclosure of
revenue in the financial statements. SAB 101 outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. SAB 101 was effective for our fiscal year 2000.
The adoption of SAB 101 did not have a material affect on our financial position
or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving
Stock Compensation -- an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequence of various modifications to
the terms of the previously fixed stock options or awards; and the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
was effective July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 did not have a material impact on our financial position
or results of operations.
On February 14, 2001, the Financial Accounting Standards Board
issued a limited revision of its September 7, 1999 exposure Draft, "Business
Combinations and Intangible Assets", that proposes to significantly change the
accounting for goodwill acquired in a purchase business combination. Under the
revised proposal, goodwill would not be amortized but would be reviewed for
impairment, using a complex methodology different from the original proposal,
when an event occurs indicating the potential for impairment. Goodwill
impairment charges would be presented as a separate line item within the
operating section of the income statement. The nonamortization approach would
apply to previously recorded goodwill as well as goodwill arising from
acquisitions completed after the application of the new standard. Amortization
of the remaining book value of goodwill would cease and the new impairment-only
approach would apply. The FASB expects to release the final statement in June
2001. The provisions of the proposed statement are to be applied at the
beginning of the first fiscal quarter following its issuance for all entities.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including, without limitation, statements regarding the Company's
expectations, objectives, anticipations, plans, hopes, beliefs, intentions or
strategies regarding the future. Forward-looking statements include, without
limitation, the statements regarding (a) the growing demand for standards-based
components such as the Company's semiconductor devices that connect systems
together; (b) the Company's objective to expand its advantages in data transfer
technology, under the heading "Item 1, Business - Overview"; the statements
regarding (a) the Company's objective to continue to expand its market position
as a developer and supplier of I/O connectivity solutions for high-performance
embedded systems, (b) the Company's plan to target those applications where the
Company believes it can attain a leadership position, (c) the Company's belief
that its understanding of I/O technology trends and market requirements allows
it to bring to market more quickly new products that support the latest I/O
technology, under the heading "Item 1, Business - Strategy"; the statements
regarding (a) the Company's belief with respect to the principal factors of
competition in the business, (b) the Company's belief that it competes favorably
with respect to each of those factors, under the heading "Item 1, Business -
Competition"; the statements regarding (a) the Company's belief that providing
customers with comprehensive product support is critical to remaining
competitive in the markets it serves, (b) the Company's belief that its close
contact with customer design engineers provides valuable input into existing
product enhancements and next generation product specifications, under the
heading "Item 1, Business - Sales, Marketing and Technical Support"; the
Company's belief that the transition of its products to smaller geometries will
be important for the Company to remain competitive under the heading "Item 1,
Business - Manufacturing"; the Company's belief that its current facilities will
be adequate through 2000 under the heading "Item 2, Properties"; the statement
regarding the Company's intention to retain earnings for use in its business and
not to pay any cash dividend in the foreseeable future under the heading "Item
5, Market for Registrant's Common Equity and Related Stockholder Matters"; the
Company's belief that its long-term success will depend on its ability to
introduce new products under the heading "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview"; the
statements regarding (a) the Company's expectation that research and development
expenses, selling, general and administrative expenses in absolute dollars will
likely increase in future periods, (b) the Company's expectation to record
amortization of deferred compensation related to the stock grants of
approximately $800,000 per quarter through September 30, 2003; the Company's
belief that its existing resources, together with cash generated from its
operations, will be sufficient to meet its capital requirements for at least the
next twelve months.
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important
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to note that the Company's actual results could differ materially from those
included in such forward-looking statements. These cautionary statements should
be considered in the context of the factors listed below, as well as those
disclosed from time to time in the Company's Reports on Forms 10-Q and 8-K.
Risks and uncertainties that could cause actual results to differ materially
from those described herein include the following:
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO FACTORS WHICH ARE NOT
WITHIN OUR CONTROL
Our quarterly operating results have fluctuated significantly in the
past and are expected to fluctuate significantly in the future based on a number
of factors, many of which are not in our control. Our operating expenses, which
include product development costs and selling, general and administrative
expenses, are relatively fixed in the short-term. If our revenues are lower than
we expect because we sell fewer semiconductor devices, delay the release of new
products or the announcement of new features, or for other reasons, we may not
be able to quickly reduce our spending in response.
Other circumstances that can affect our operating results include:
- our ability to develop, introduce and market new
products and technologies on a timely basis,
- the timing of significant orders, order cancellations
and reschedulings,
- changes in our pricing policies or those of our
competitors or suppliers, including decreases in unit
average selling prices of our products,
- introduction of products and technologies by our
competitors,
- shifts in our product mix toward lower margin products,
- the availability of production capacity at the
fabrication facilities that manufacture our products, and
- the availability and cost of materials to our suppliers.
These factors are difficult to forecast, and these or other factors
could adversely affect our business. Any shortfall in our revenues would have a
direct impact on our business. In addition, fluctuations in our quarterly
results could adversely affect the market price of our common stock in a manner
unrelated to our long-term operating performance.
OUR LENGTHY SALES CYCLE CAN RESULT IN UNCERTAINTY AND DELAYS WITH REGARD TO OUR
EXPECTED REVENUES
Our customers typically perform numerous tests and extensively
evaluate our products before incorporating them into their systems. The time
required for test, evaluation and design of our products into the customer's
equipment can range from six to twelve months or more. It can take an additional
six to twelve months or more before a customer commences volume shipments of
equipment that incorporates our products. Because of this lengthy sales cycle,
we may experience a delay between the time when we increase expenses for
research and development and sales and marketing efforts and the time when we
generate higher revenues, if any, from these expenditures.
In addition, the delays inherent in our lengthy sales cycle raise
additional risks of customer decisions to cancel or change product plans. When
we achieve a design win, there can be no assurance that the customer will
ultimately ship products incorporating our products. Our business could be
materially adversely affected if a significant customer curtails, reduces or
delays orders during our sales cycle or chooses not to release products
incorporating our products.
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RAPID TECHNOLOGICAL CHANGE COULD MAKE OUR PRODUCTS OBSOLETE
The semiconductor industry is characterized by rapidly changing
technology and industry standards, along with frequent new product
introductions. Consequently, our future success depends on our ability to
identify trends in our target markets and to offer new semiconductor devices, as
well as other products and services, that address the changing needs of our
target customers.
WE MUST MAKE SIGNIFICANT RESEARCH AND DEVELOPMENT EXPENDITURES PRIOR TO
GENERATING REVENUES FROM PRODUCTS
To establish market acceptance of a new semiconductor device, we
must dedicate significant resources to research and development, production and
sales and marketing. We incur substantial costs in developing, manufacturing and
selling a new product, which often significantly precede meaningful revenues
from the sale of this product. Consequently, new products can require
significant time and investment to achieve profitability. Prospective investors
should note that our efforts to introduce new semiconductor devices or other
products or services may not be successful or profitable. In addition, products
or technologies developed by others may render our products or technologies
obsolete or noncompetitive.
We record as expenses the costs related to the development of new
semiconductor devices and other products as these expenses are incurred. As a
result, our profitability from quarter to quarter and from year to year may be
adversely affected by the number and timing of our new product launches in any
period and the level of acceptance gained by these products.
OUR INDEPENDENT MANUFACTURERS MAY NOT BE ABLE TO MEET OUR MANUFACTURING
REQUIREMENTS
We do not manufacture any of our semiconductor devices. Therefore,
we are referred to in the semiconductor industry as a "fabless" producer of
semiconductors. Consequently, we depend upon third party manufacturers to
produce semiconductors that meet our specifications. We currently have third
party manufacturers that can produce semiconductors which meet our needs.
However, as the semiconductor industry continues to progress to smaller
manufacturing and design geometries, the complexities of producing
semiconductors will increase. Decreasing geometries may introduce new problems
and delays that may affect product development and deliveries. Due to the nature
of the semiconductor industry and our status as a "fabless" semiconductor
company, we could encounter fabrication related problems that may affect the
availability of our semiconductor devices, may delay our shipments or may
increase our costs.
OUR RELIANCE ON SINGLE SOURCE MANUFACTURERS OF OUR SEMICONDUCTOR DEVICES COULD
DELAY SHIPMENTS AND INCREASE OUR COSTS
None of our semiconductor devices is currently manufactured by more
than one supplier. We place our orders on a purchase order basis and do not have
a long term purchase agreement with any of our existing suppliers. In the event
that the supplier of a semiconductor device was unable or unwilling to continue
to manufacture this product in the required volume, we would have to identify
and qualify a substitute supplier. Introducing new products or transferring
existing products to a new third party manufacturer or process may result in
unforeseen device specification and operating problems. These problems may
affect product shipments and may be costly to correct. Silicon fabrication
capacity may also change, or the costs per silicon wafer may increase.
Manufacturing-related problems may have a material adverse effect on our
business.
INTENSE COMPETITION IN THE MARKETS IN WHICH WE OPERATE MAY REDUCE THE DEMAND FOR
OR PRICES OF OUR PRODUCTS
Competition in the semiconductor industry is intense. If our main
target market, the embedded systems market, continues to grow, the number of
competitors may increase significantly. In addition, new semiconductor
technology may lead to new products that can perform similar functions as our
products. Some of our competitors and other semiconductor companies may develop
and introduce products that integrate into a single semiconductor
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device the functions performed by our semiconductor devices. This would
eliminate the need for our products in some applications.
In addition, competition in our markets comes from companies of
various sizes, many of which are significantly larger and have greater financial
and other resources than we do and thus can better withstand adverse economic or
market conditions. Also, as we start to sell our processor products, we will
compete with established embedded microprocessor companies and others. Many of
these indirect competitors and microprocessor companies have significantly
greater financial, technical, marketing and other resources than PLX. Therefore,
we cannot assure you that we will be able to compete successfully in the future
against existing or new competitors, and increased competition may adversely
affect our business. See "Business -- Competition," and " -- Products."
FAILURE TO HAVE OUR PRODUCTS DESIGNED INTO THE PRODUCTS OF ELECTRONIC EQUIPMENT
MANUFACTURERS WILL RESULT IN REDUCED SALES
Our future success depends on electronic equipment manufacturers
that design our semiconductor devices into their systems. We must anticipate
market trends and the price, performance and functionality requirements of
current and potential future electronic equipment manufacturers and must
successfully develop and manufacture products that meet these requirements. In
addition, we must meet the timing requirements of these electronic equipment
manufacturers and must make products available to them in sufficient quantities.
These electronic equipment manufacturers could develop products that provide the
same or similar functionality as one or more of our products and render these
products obsolete in their applications.
We do not have purchase agreements with our customers that contain
minimum purchase requirements. Instead, electronic equipment manufacturers
purchase our products pursuant to short-term purchase orders that may be
canceled without charge. We believe that in order to obtain broad penetration in
the markets for our products, we must maintain and cultivate relationships,
directly or through our distributors, with electronic equipment manufacturers
that are leaders in the embedded systems markets. Accordingly, we will often
incur significant expenditures in order to build relationships with electronic
equipment manufacturers prior to volume sales of new products. If we fail to
develop relationships with additional electronic equipment manufacturers, to
have our products designed into new embedded systems or to develop sufficient
new products to replace products that have become obsolete, our business would
be materially adversely affected.
LOWER DEMAND FOR OUR CUSTOMERS' PRODUCTS WILL RESULT IN LOWER DEMAND FOR OUR
PRODUCTS
Demand for our products depends in large part on the development and
expansion of the high-performance embedded systems markets including networking
and telecommunications, enterprise storage, imaging and industrial applications.
The size and rate of growth of these embedded systems markets may in the future
fluctuate significantly based on numerous factors. These factors include the
adoption of alternative technologies, capital spending levels and general
economic conditions. Demand for products that incorporate high-performance
embedded systems may not grow.
DEFECTS IN OUR PRODUCTS COULD INCREASE OUR COSTS AND DELAY OUR PRODUCT SHIPMENTS
Our products are complex. While we test our products, these products
may still have errors, defects or bugs that we find only after commercial
production has begun. We have experienced errors, defects and bugs in the past
in connection with new products.
Our customers may not purchase our products if the products have
reliability, quality or compatibility problems. This delay in acceptance can
make it more difficult to retain our existing customers and to attract new
customers. Moreover, product errors, defects or bugs can result in additional
development costs, diversion of technical and other resources from our other
development efforts, claims by our customers or others against us, or the loss
of credibility with our current and prospective customers. In the past, the
additional time required to correct defects has caused delays in product
shipments and resulted in lower revenues. We may have to spend significant
amounts of capital and resources to address and fix problems in new products.
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We must continuously develop our products using new process
technology with smaller geometries to remain competitive on a cost and
performance basis. Migrating to new technologies is a challenging task requiring
new design skills, methods and tools and is difficult to achieve.
FAILURE TO HIRE ADDITIONAL PERSONNEL AND TO IMPROVE OUR OPERATIONS WILL LIMIT
OUR GROWTH
We have experienced rapid growth which places a significant strain
on our limited personnel and other resources. To manage our expanded operations
effectively, we will need to further improve our operational, financial and
management systems. We will also need to successfully hire, train, motivate and
manage our employees. We may not be able to manage our growth effectively, which
could have a material adverse effect on our business. Also, we are seeking to
hire additional skilled development engineers, who are currently in short
supply. Our business could be adversely affected if we encounter delays in
hiring additional engineers.
WE COULD LOSE KEY PERSONNEL DUE TO COMPETITIVE MARKET CONDITIONS AND ATTRITION
Our success depends to a significant extent upon our senior
management and key technical and sales personnel. The loss of one or more of
these employees could have a material adverse effect on our business. We do not
have employment contracts with any of our executive officers.
Our success also depends on our ability to attract and retain
qualified technical, sales and marketing, customer support, financial and
accounting, and managerial personnel. Competition for such personnel in the
semiconductor industry is intense, and we may not be able to retain our key
personnel or to attract, assimilate or retain other highly qualified personnel
in the future. In addition, we may lose key personnel due to attrition,
including health, family and other reasons. We have experienced, and may
continue to experience, difficulty in hiring and retaining candidates with
appropriate qualifications. If we do not succeed in hiring and retaining
candidates with appropriate qualifications, our business could be materially
adversely affected.
A LARGE PORTION OF OUR REVENUES IS DERIVED FROM SALES TO THIRD-PARTY
DISTRIBUTORS WHO MAY TERMINATE THEIR RELATIONSHIPS WITH US AT ANY TIME
We depend on distributors to sell a significant portion of our
products. In 2000, net revenues through distributors accounted for approximately
65% of our net revenues. Some of our distributors also market and sell competing
products. Distributors may terminate their relationships with us at any time.
Our future performance will depend in part on our ability to attract additional
distributors that will be able to market and support our products effectively,
especially in markets in which we have not previously distributed our products.
We may lose one or more of our current distributors or may not be able to
recruit additional or replacement distributors. For example, in March 2001, we
decided to terminate our relationship with Unique, our US distributor that
accounted for 11% of our fiscal year 2000, revenues, and service all of our US
customers directly or through manufacturers representatives. The loss of one or
more of our major distributors could have a material adverse effect on our
business as we may not be successful in servicing our customers directly or
through manufacturers' representatives.
THE DEMAND FOR OUR PRODUCTS DEPENDS UPON OUR ABILITY TO SUPPORT EVOLVING
INDUSTRY STANDARDS
Substantially all of our revenues are derived from sales of
products, which rely on the PCI standard. If the embedded systems markets move
away from this standard and begin using new standards, we may not be able to
successfully design and manufacture new products that use these new standards.
There is also the risk that new products we develop in response to new standards
may not be accepted in the market. In addition, the PCI standard is continuously
evolving, and we may not be able to modify our products to address new PCI
specifications. Any of these events would have a material adverse effect on our
business.
THE SUCCESSFUL MARKETING AND SALES OF OUR PRODUCTS DEPEND UPON OUR THIRD PARTY
RELATIONSHIPS, WHICH ARE NOT SUPPORTED BY WRITTEN AGREEMENTS
When marketing and selling our semiconductor devices, we believe we
enjoy a competitive advantage based on the availability of development tools
offered by third parties. These development tools are used principally for the
design of other parts of the embedded system but also work with our products. We
will lose this advantage if these third party tool vendors cease to provide
these tools for existing products or do not offer them for our future
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products. This event could have a material adverse effect on our business. We
generally have no written agreements with these third parties, and these parties
could choose to stop providing these tools at any time.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION
Our future success and competitive position depend upon our ability
to obtain and maintain proprietary technology used in our principal products.
Currently, we have limited protection of our intellectual property in the form
of patents and rely instead on trade secret protection. Our existing or future
patents may be invalidated, circumvented, challenged or licensed to others. The
rights granted thereunder may not provide competitive advantages to us. In
addition, our future patent applications may not be issued with the scope of the
claims sought by us, if at all. Furthermore, others may develop technologies
that are similar or superior to our technology, duplicate our technology or
design around the patents owned or licensed by us. In addition, effective
patent, trademark, copyright and trade secret protection may be unavailable or
limited in foreign countries where we may need protection. We cannot be sure
that steps taken by us to protect our technology will prevent misappropriation
of the technology.
We may from time to time receive notifications of claims that we may
be infringing patents or other intellectual property rights owned by other third
parties. While there is currently no intellectual property litigation pending
against us, litigation could result in significant expenses to us, adversely
affect sales of the challenged product or technology. This litigation could also
divert the efforts of our technical and management personnel, whether or not the
litigation is determined in our favor. In addition, we may not be able to
develop or acquire non-infringing technology or procure licenses to the
infringing technology under reasonable terms. This could require expenditures by
us of substantial time and other resources. Any of these developments would have
a material adverse effect on our business.
BECAUSE WE SELL OUR PRODUCTS TO CUSTOMERS OUTSIDE OF NORTH AMERICA AND BECAUSE
OUR PRODUCTS ARE INCORPORATED WITH PRODUCTS OF OTHERS THAT ARE SOLD OUTSIDE OF
NORTH AMERICA WE FACE FOREIGN BUSINESS, POLITICAL AND ECONOMIC RISKS
Sales outside of North America accounted for 39%, 35% and 34% of our
revenues in 2000, 1999 and 1998, respectively. We anticipate that these sales
may increase in future periods and may account for an increasing portion of our
revenues. In addition, equipment manufacturers who incorporate our products into
their products, sell their products outside of North America, thereby exposing
us indirectly to foreign risks. Further, most of our semiconductor products are
manufactured outside of North America. Accordingly, we are subject to
international risks, including:
- difficulties in managing distributors,
- difficulties in staffing and managing foreign subsidiary
and branch operations,
- political and economic instability,
- foreign currency exchange fluctuations,
- difficulties in accounts receivable collections,
- potentially adverse tax consequences,
- timing and availability of export licenses,
- changes in regulatory requirements, tariffs and other
barriers,
- difficulties in obtaining governmental approvals for
telecommunications and other products, and
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- the burden of complying with complex foreign laws and
treaties.
Because sales of our products have been denominated to date
exclusively in United States dollars, increases in the value of the United
States dollar will increase the price of our products so that they become
relatively more expensive to customers in the local currency of a particular
country, leading to a reduction in sales and profitability in that country.
INTEGRATION OF SEBRING SYSTEMS MAY BE DIFFICULT TO ACHIEVE, WHICH MAY ADVERSELY
AFFECT OPERATIONS
Our acquisition of Sebring Systems involves risks related to the
integration and management of acquired technology, operations and personnel. The
integration of Sebring Systems with our business has been and will continue to
be a complex, time-consuming and expensive process and may disrupt our business
if not completed in a timely and efficient manner. We must operate as a combined
organization utilizing common information and communications systems, operating
procedures, financial controls and human resources practices. We may encounter
substantial difficulties, costs and delays involved in integrating our
operations, including:
- our ability to bring to market the products in
development;
- potential conflicts between business cultures;
- perceived adverse changes in business focus;
- potential conflicts in distribution, marketing or other
important relationships; and
- the loss of key employees and/or the diversion of
management's attention from other ongoing business concerns.
OUR POTENTIAL FUTURE ACQUISITIONS MAY NOT BE SUCCESSFUL BECAUSE OF OUR LIMITED
EXPERIENCE WITH ACQUISITIONS IN THE PAST
There have been a significant number of mergers and acquisitions in
the semiconductor industry in the past. As part of our business strategy, we
expect to review acquisition prospects that would complement our existing
product offerings, improve market coverage or enhance our technological
capabilities. In May 2000, we acquired Sebring Systems. We have no current
agreements or negotiations underway with respect to any acquisitions, and we may
not be able to locate suitable acquisition opportunities. Future acquisitions
could result in the following:
- potentially dilutive issuances of equity securities,
- large one-time write-offs,
- the incurrence of debt and contingent liabilities or
amortization expenses related to goodwill and other
intangible assets,
- difficulties in the assimilation of operations,
personnel, technologies, products and the information
systems of the acquired companies,
- diversion of management's attention from other business
concerns, and
- risks of entering geographic and business markets in
which we have no or limited prior experience and
potential loss of key employees of acquired
organizations.
Since we have had limited experience with acquisitions in the past,
we are not certain that we will be able to successfully integrate any
businesses, products, technologies or personnel that may be acquired in the
future. Our failure to do so could have a material adverse effect on our
business.
26
28
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS
Our principal stockholders beneficially owned a substantial amount
of our outstanding common stock as of December 31, 2000. Although these
stockholders do not have majority control, they currently have, and likely will
continue to have, significant influence with respect to the election of our
directors and approval or disapproval of our significant corporate actions. This
influence over our affairs might be adverse to the interests of other
stockholders. In addition, the voting power of these stockholders could have the
effect of delaying or preventing a change in control of PLX.
THE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION COULD ADVERSELY
AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
Anti-takeover provisions of Delaware law and our Certificate of
Incorporation may make a change in control of PLX more difficult, even if a
change in control would be beneficial to the stockholders. These provisions may
allow the Board of Directors to prevent changes in the management and control of
PLX. Under Delaware law, our Board of Directors may adopt additional
anti-takeover measures in the future.
One anti-takeover provision that we have is the ability of our Board
of Directors to determine the terms of preferred stock and issue preferred stock
without the approval of the holders of the common stock. Our Certificate of
Incorporation allows the issuance of up to 5,000,000 shares of preferred stock.
Currently, there are no shares of preferred stock outstanding. However, because
the rights and preferences of any series of preferred stock may be set by the
Board of Directors in its sole discretion without approval of the holders of the
common stock, the rights and preferences of this preferred stock may be superior
to those of the common stock. Accordingly, the rights of the holders of common
stock may be adversely affected.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have an investment portfolio of fixed income securities,
including those classified as cash equivalents, short and long-term investments
and restricted cash and investments of approximately $50.2 million at December
31, 2000. These securities are subject to interest rate fluctuations and will
decrease in market value if interest rates increase.
The primary objective of the Company's investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. The Company invests primarily in high-quality,
short-term and long-term debt instruments. A hypothetical 100 basis point
increase in interest rates would result in less than $0.5 million decrease (less
than 1%) in the fair value of the Company's available-for-sale securities.
We are exposed to interest rate risk associated with a promissory
note to borrow $28.5 million in connection with our facility purchase in 2000.
Interest payments on the note are tied to the LIBOR rate. We have evaluated the
changes in the payments arising from hypothetical changes in LIBOR and such
changes would not be material to our results of operations or financial
position.
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in the financial
statements and schedule set forth in Item 14 (a) of this Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no change of accountants nor any disagreements with
accountants on any matter of accounting principles or practices or financial
statement disclosure required to be reported under this Item.
27
29
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
For the following financial information included herein, see Index
on page 28:
Report of Ernst & Young LLP, Independent Auditors.
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Operations for each of the three years in
the period ended December 31, 2000.
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 2000.
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2000.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule
The financial statement schedules of the Company are included in
Part IV of this report:
For the three years ended December 31, 2000--II Valuation and Qualifying
Accounts.
3. Exhibits Index
See Exhibit Index immediately following the signature page for a
list of exhibits filed or incorporated by reference as a part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter ended December 31, 2000.
(c) Exhibits
28
30
The Company hereby files, as exhibits to this Form 10-K, those
exhibits listed in Item 14 (a) (3) above.
29
31
PLX TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors ............................................. 31
Consolidated Balance Sheets as of December 31, 2000 and 1999 .................................. 32
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 2000 ............................................................................. 33
Consolidated Statements of Stockholders' Equity for each of the three years in the period
ended December 31, 2000 ....................................................................... 34
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 2000 ............................................................................. 35
Notes to Consolidated Financial Statements .................................................... 36
30
32
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PLX Technology, Inc.
We have audited the accompanying consolidated balance sheets of PLX
Technology, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of PLX Technology, Inc. as of December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
January 22, 2001
31
33
PLX TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
YEARS ENDED DECEMBER 31,
------------------------
2000 1999
---- ----
Current assets:
Cash and cash equivalents ........................................... $ 16,621 $ 8,636
Short-term investments .............................................. 3,340 20,075
Accounts receivable, less allowance for doubtful
accounts of $318 in 2000 and $240 in 1999 ....................... 4,772 5,439
Inventories ......................................................... 4,521 2,504
Deferred tax assets ................................................. 4,099 1,379
Other current assets ................................................ 1,290 447
--------- ---------
Total current assets .................................................. 34,643 38,480
Goodwill, net of amortization of $2,031 ............................... 11,308 --
Other intangible assets, net of amortization of $506 .................. 2,964 --
Property and equipment, net ........................................... 31,277 1,537
Long-term investments ................................................. -- 11,198
Restricted cash and investments ....................................... 33,146 --
Other assets .......................................................... 141 840
--------- ---------
Total Assets ....................................................... $ 113,479 $ 52,055
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 5,064 $ 1,825
Accrued compensation and benefits ............................... 1,491 1,052
Deferred revenues ............................................... 1,430 1,001
Income tax payable .............................................. 833 847
Accrued commissions ............................................. 345 320
Deferred tax liability .......................................... 1,100 --
Other accrued expenses .......................................... 1,518 608
--------- ---------
Total current liabilities ............................................. 11,781 5,653
Long-term notes payable ............................................... 28,500 --
Commitments
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized--5,000,000 shares: none issued and outstanding .... -- --
Common Stock, $.001 par value: authorized--
30,000,000 shares: issued and outstanding--
23,168,895 in 2000 and 22,008,809 in 1999 .................... 23 22
Additional paid-in capital ...................................... 79,715 36,828
Deferred compensation ........................................... (9,312) (192)
Notes receivable for employee stock purchases ................... (50) --
Accumulated other comprehensive income (loss) ................... 54 (66)
Retained earnings ............................................... 2,768 9,810
--------- ---------
Total stockholders' equity ............................................ 73,198 46,402
--------- ---------
Total liabilities and stockholders' equity ............................ $ 113,479 $ 52,055
========= =========
See accompanying notes to consolidated financial statements.
32
34
PLX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
---- ---- ----
Net revenues ..................................................... $ 65,351 $ 40,699 $ 26,276
Cost of revenues ................................................. 19,368 12,868 9,671
-------- -------- --------
Gross margin ..................................................... 45,983 27,831 16,605
Operating expenses
Research and development ...................................... 16,350 7,268 6,552
Selling, general and administrative ........................... 15,862 10,569 6,670
In process research and development ........................... 14,342 -- --
Amortization of goodwill and purchased intangible assets ...... 2,537 -- --
-------- -------- --------
Total operating expenses ......................................... 49,091 17,837 13,222
-------- -------- --------
Operating income (loss) .......................................... (3,108) 9,994 3,383
Interest income and other, net ................................... 1,966 1,473 75
-------- -------- --------
Income (loss) before provision for income taxes and equity in
net loss of unconsolidated investee ........................... (1,142) 11,467 3,458
Provision for income taxes ....................................... 5,900 3,896 692
-------- -------- --------
Income (loss) before equity in net loss of unconsolidated
investee ...................................................... (7,042) 7,571 2,766
Equity in net loss of unconsolidated investee .................... -- (340) --
-------- -------- --------
Net income (loss) ................................................ $ (7,042) $ 7,231 $ 2,766
======== ======== ========
Basic earnings (loss) per share .................................. $ (0.31) $ 0.43 $ 0.77
-------- -------- --------
Shares used to compute basic per share amounts ................... 22,560 17,007 3,601
======== ======== ========
Diluted earnings (loss) per share ................................ $ (0.31) $ 0.33 $ 0.15
-------- -------- --------
Shares used to compute diluted per share amounts ................. 22,560 21,849 18,405
======== ======== ========
See accompanying notes to consolidated financial statements.
33
35
PLX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------------- -------------------------- PAID IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
----------- ----------- ----------- ----------- ----------- ------------
Balance at January 1, 1998 ............... 4,579,636 $ 5 4,674,416 $ 5 $ 5,500 $ (235)
Repurchase of common stock ............. -- -- (47,773) -- (10) --
Unearned compensation related to
stock options ....................... -- -- -- -- 127 (127)
Amortization of unearned
compensation ........................ -- -- -- -- -- 79
Payments on stockholder notes
receivable .......................... -- -- -- -- -- --
Net income and comprehensive
income .............................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Balance at December 31, 1998 ............. 4,579,636 5 4,626,643 5 5,617 (283)
Issuance of common stock, net of
issuance costs ...................... -- -- 3,795,000 4 30,997 --
Conversion of redeemable
convertible preferred stock to
common stock ........................ (4,579,636) (5) 13,738,908 13 (8) --
Issuance of Stock pursuant to
exercise of stock options ........... -- -- 22,950 -- 106 --
Payments on stockholder notes
receivable .......................... -- -- -- -- -- --
Repurchase of common stock ............. -- -- (174,692) -- (30) --
Compensation related to stock
options issued to non-employees ..... -- -- -- -- 146 --
Amortization of deferred
compensation ........................ -- -- -- -- -- 91
Comprehensive income:
Unrealized loss on investments ..... -- -- -- -- -- --
Net income ......................... -- -- -- -- -- --
Total comprehensive income .............
----------- ----------- ----------- ----------- ----------- ------------
Balance at December 31, 1999 ............. -- -- 22,008,809 22 36,828 (192)
Issuance of common stock related
to acquisition of Sebring Systems ... -- -- 960,931 1 28,867 --
Deferred compensation on options
issued related to acquisition of
Sebring Systems ..................... -- -- -- -- 13,434 (12,310)
Issuance of Stock pursuant to
exercise of stock options ........... -- -- 267,393 -- 1,532 --
Stockholder notes receivable ........... -- -- -- -- -- --
Repurchase of common stock ............. -- -- (68,238) -- (28) --
Reversal of deferred compensation
on options associated with
employee terminations ............... -- -- -- -- (4,409) 4,409
Deferred compensation on stock
options issued to employees ......... -- -- -- -- 3,491 (3,491)
Amortization of deferred
compensation ........................ -- -- -- -- -- 2,272
Comprehensive income:
Unrealized gain on investments ..... -- -- -- -- -- --
Net loss ........................... -- -- -- -- -- --
Total comprehensive income .............
----------- ----------- ----------- ----------- ----------- ------------
Balance at December 31, 2000 ............. -- $ -- 23,168,895 $ 23 $ 79,715 $ (9,312)
=========== =========== =========== =========== =========== ============
NOTES
RECEIVABLE
FOR ACCUMULATED RETAINED
EMPLOYEE OTHER EARNINGS TOTAL
STOCK COMPREHENSIVE (ACCUMULATED STOCKHOLDERS'
PURCHASES INCOME (LOSS) DEFICIT) EQUITY
------------ ------------- ------------ ------------
Balance at January 1, 1998 ............... $ (199) -- $ (187) $ 4,889
Repurchase of common stock ............. -- -- -- (10)
Unearned compensation related to
stock options ....................... -- -- -- --
Amortization of unearned
compensation ........................ -- -- -- 79
Payments on stockholder notes
receivable .......................... 36 -- -- 36
Net income and comprehensive
income .............................. -- -- 2,766 2,766
------------ ------------- ------------ ------------
Balance at December 31, 1998 ............. (163) -- 2,579 7,760
Issuance of common stock, net of
issuance costs ...................... -- -- -- 31,001
Conversion of redeemable
convertible preferred stock to
common stock ........................ -- -- -- --
Issuance of Stock pursuant to
exercise of stock options ........... -- -- -- 106
Payments on stockholder notes
receivable .......................... 163 -- -- 163
Repurchase of common stock ............. -- -- -- (30)
Compensation related to stock
options issued to non-employees ..... -- -- -- 146
Amortization of deferred
compensation ........................ -- -- -- 91
Comprehensive income:
Unrealized loss on investments ..... -- (66) -- (66)
Net income ......................... -- -- 7,231 7,231
------------
Total comprehensive income ............. 7,165
------------ ------------- ------------ ------------
Balance at December 31, 1999 ............. -- (66) 9,810 46,402
Issuance of common stock related
to acquisition of Sebring Systems ... -- -- -- 28,868
Deferred compensation on options
issued related to acquisition of
Sebring Systems ..................... -- -- -- 1,124
Issuance of Stock pursuant to
exercise of stock options ........... -- -- -- 1,532
Stockholder notes receivable ........... (50) -- -- (50)
Repurchase of common stock ............. -- -- -- (28)
Reversal of deferred compensation
on options associated with
employee terminations ............... -- -- -- --
Deferred compensation on stock
options issued to employees ......... -- -- -- --
Amortization of deferred
compensation ........................ -- -- -- 2,272
Comprehensive income:
Unrealized gain on investments ..... -- 120 -- 120
Net loss ........................... -- -- (7,042) (7,042)
------------
Total comprehensive income ............. (6,922)
------------ ------------- ------------ ------------
Balance at December 31, 2000 ............. $ (50) $ 54 $ 2,768 $ 73,198
============ ============= ============ ============
See accompanying notes to consolidated financial statements.
34
36
PLX TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................... $ (7,042) $ 7,231 $ 2,766
Adjustments required to reconcile net income (loss) to cash flows
provided by operating activities:
Depreciation ........................................................ 1,519 933 737
Amortization of deferred compensation ............................... 2,272 91 79
Compensation related to acceleration of stock options ............... 1,124 -- --
Compensation related to stock options issued to non-employees ....... -- 146
Amortization of goodwill and other intangible assets ................ 2,537 -- --
In-process research and development ................................. 14,342 -- --
Equity in net loss of unconsolidated investee ....................... -- 340 --
Changes in operating assets and liabilities:
Accounts receivable .............................................. 667 (3,366) 486
Inventories ...................................................... (2,017) (1,160) (131)
Deferred tax assets .............................................. (2,720) (644) (544)
Other current assets ............................................. (2,284) (115) (281)
Other assets ..................................................... (480) (30) 6
Accounts payable ................................................. 2,875 224 (238)
Accrued compensation and benefits ................................ (3) 328 335
Deferred revenues ................................................ 429 409 300
Income tax payable ............................................... (14) 405 331
Deferred tax liability ........................................... 1,100 -- --
Accrued commissions .............................................. 25 220 (78)
Other accrued expenses ........................................... 884 61 232
-------- -------- --------
Net cash provided by operating activities .............................. 13,214 5,073 4,000
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of short-term investments .................................. (23,733) (20,087) --
Sales of short-term investments ..................................... 6,745 -- --
Maturities of short-term investments ................................ 24,070 -- --
Purchase of long-term investments ................................... (8,149) (11,252) --
Purchase of property and equipment .................................. (30,212) (955) (1,089)
Cash acquired in Sebring acquisition ................................ 33 -- --
Investment in unconsolidated investee ............................... -- (1,021) --
-------- -------- --------
Net cash used in investing activities .................................. (31,246) (33,315) (1,089)
-------- -------- --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from sales of common stock ................................. 1,532 31,107 --
Proceeds from issuance of promissory note ........................... 28,500 -- --
Increase in restricted cash and investments ......................... (4,025) -- --
Repurchases of common stock ......................................... (28) (30) (10)
Repayments of stockholder notes receivable .......................... 38 163 36
-------- -------- --------
Net cash provided by financing activities .............................. 26,017 31,240 26
-------- -------- --------
Increase in cash and cash equivalents .................................. 7,985 2,998 2,937
Cash and cash equivalents at beginning of year ......................... 8,636 5,638 2,701
-------- -------- --------
Cash and cash equivalents at end of year ............................... $ 16,621 $ 8,636 $ 5,638
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes .......................................... $ 7,529 $ 3,785 $ 905
Cash paid for interest .............................................. $ 186 -- --
See accompanying notes to consolidated financial statements.
35
37
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
PLX Technology, Inc. (the Company) develops and markets I/O
interconnectivity solutions that speed the transfer of data in high-performance
embedded systems. The Company's principal products are high performance
semiconductor devices, as well as related software development kits and hardware
design kits. Semiconductor devices account for substantially all of the
Company's net revenues.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All intercompany transactions and
balances have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
The Company accounts for its investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115). Under FAS 115, management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. At
December 31, 2000 and 1999, all debt securities were designated as
available-for-sale. Available-for-sale securities are carried at fair value with
unrealized gains and losses reported in a separate component of stockholders'
equity. The amortized cost of debt securities in this category is adjusted for
the amortization of premiums and the accretion of discounts to maturity. Such
amortization, as well as any interest earned on the securities, is included in
interest income and other, net. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in interest income and other, net. The cost of securities sold is based on the
specific identification method.
The Company invests its excess cash in high quality, short-term and
long-term debt and equity instruments. The following is a summary of the
Company's investments by major security type at December 31, 2000 and December
31, 1999 (in thousands):
36
38
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
2000
Operating Cash $ 2,251 $ -- $ -- $ 2,251
Money market mutual funds 2,794 -- -- 2,794
Certificates of Deposit 1,000 -- -- 1,000
Municipal Bonds 43,013 53 (7) 43,059
Corporate Debt Securities 1,995 1 -- 1,996
U.S. Government & agency securities 2,000 7 -- 2,007
-------- -------- -------- --------
$ 53,053 $ 61 $ (7) $ 53,107
======== ======== ======== ========
1999
Operating Cash $ 274 $ -- $ -- $ 274
Money market mutual funds 1,070 -- -- 1,070
Certificates of Deposit 1,499 1 -- 1,500
Commercial Paper 14,765 -- (6) 14,759
Municipal Bonds 18,865 2 (53) 18,814
Corporate Debt Securities 1,502 -- (2) 1,500
U.S. Government & agency securities 2,000 -- (8) 1,992
-------- -------- -------- --------
$ 39,975 $ 3 $ (69) $ 39,909
======== ======== ======== ========
At December 31, 2000, the fair value of long-term debt investments
which are included in restricted cash and investments due within one to two
years was approximately $5.3 million.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market (net realizable value). Inventories were as follows:
DECEMBER 31,
-----------------
2000 1999
---- ----
(IN THOUSANDS)
Work in Process .............. $ 646 $ 193
Finished goods ............... 3,875 2,311
------ ------
Total .................. $4,521 $2,504
====== ======
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of 39 years for building and three to five years for
equipment, furniture and purchased software. Leasehold improvements are
amortized using the straight-line method over the shorter of the useful lives of
the assets or the terms of the leases.
Reviews are regularly performed to determine whether facts and
circumstances exist which indicate that the carrying amount of assets may not be
recoverable. The recoverability of the carrying amount of property and equipment
is assessed based on estimated future undiscounted cash flows and if impairment
exists a charge to operations is measured as the excess of the carrying amount
over the fair value of the assets. Based upon this method of assessing
recoverability, no asset impairment occurred in any of the years presented.
Property and equipment are as follows:
37
39
DECEMBER 31,
------------------------
2000 1999
---- ----
(IN THOUSANDS)
Land .............................. $ 8,550 $ --
Building .......................... 19,333 --
Equipment and furniture ........... 4,589 2,471
Purchased software ................ 3,544 1,521
-------- --------
36,016 3,992
Accumulated depreciation .......... (4,739) (2,455)
-------- --------
Net property and equipment ........ $ 31,277 $ 1,537
======== ========
GOODWILL AND OTHER INTANGIBLES
Goodwill is recorded when the consideration paid for acquisitions
exceeds the fair value of identifiable net tangible and intangible assets
acquired. Goodwill and other acquisition-related intangibles are amortized on a
straight-line basis over 4 years. Goodwill and other intangibles are reviewed
for recoverability periodically or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The carrying amount is
compared to the undiscounted cash flows of the businesses acquired. Should the
review indicate that these intangibles are not recoverable, their carrying
amount would be reduced by the estimated shortfall of those cash flows. No
impairment has been indicated to date.
STOCK-BASED COMPENSATION
The Company accounts for its stock option and stock grant plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB Opinion No. 25), and has elected to follow the
disclosure-only alternative permitted by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
REVENUE RECOGNITION
Sales to original equipment manufacturers are generally recognized
at the time of title passage. Recognition of sales to distributors, including
international distributors, is deferred until the product is resold by the
distributors to end users. Net revenues from the sale of software development
kits is insignificant for all years presented.
ADVERTISING
The Company accounts for advertising costs as expenses in the period
in which they are incurred. Advertising expenses for 2000, 1999 and 1998 were
$280,000, $77,000 and $70,000, respectively.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," the Company capitalizes eligible computer software costs
upon achievement of technological feasibility subject to net realizable value
considerations. The Company has defined technological feasibility as completion
of a working model. The period between the achievement of technological
feasibility and release of the Company's software products has been of short
duration. As of December 31, 2000, 1999 and 1998 such costs were insignificant.
Accordingly, the Company has charged all such costs to research and development
expenses in the accompanying consolidated statements of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
38
40
and accompanying notes. Actual results could differ from those estimates and
such differences may be material to the financial statements.
COMPREHENSIVE INCOME (LOSS)
The Company's comprehensive income (loss) is comprised of net income
(loss) and unrealized holding gains (losses) on marketable equity securities and
investments. The accumulated other comprehensive income (loss) within the
stockholders' equity section of the balance sheet is comprised entirely of
unrealized gains (losses) from marketable equity securities and investments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities" (SFAS 133"), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133, as amended, is required to be
adopted by the Company effective January 1, 2001, and is not anticipated to have
an impact on the Company's results of operations or financial position when
adopted, as the Company holds no derivative financial instruments and does not
currently engage in hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition",
which provides guidance on the recognition, presentation and disclosure of
revenue in the financial statements. SAB 101 outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. SAB 101 was effective for the Company in fiscal
2000. The adoption of SAB 101 did not have a material affect on our financial
position or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving
Stock Compensation -- an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of APB Opinion No. 25 and among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequence of various modifications to
the terms of the previously fixed stock options or awards; and the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
was effective July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN 44 did not have a material impact on the Company's financial
position or results of operations.
On February 14, 2001, the Financial Accounting Standards Board
issued a limited revision of its September 7, 1999 exposure Draft, "Business
Combinations and Intangible Assets", that proposes to significantly change the
accounting for goodwill acquired in a purchase business combination. Under the
revised proposal, goodwill would not be amortized but would be reviewed for
impairment, using a complex methodology different from the original proposal,
when an event occurs indicating the potential for impairment. Goodwill
impairment charges would be presented as a separate line item within the
operating section of the income statement. The nonamortization approach would
apply to previously recorded goodwill as well as goodwill arising from
acquisitions completed after the application of the new standard. Amortization
of the remaining book value of goodwill would cease and the new impairment-only
approach would apply. The FASB expects to release the final statement in June
2001. The provisions of the proposed statement are to be applied at the
beginning of the first fiscal quarter following its issuance for all entities.
2. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period that are not subject to repurchase. Diluted net income (loss) per share
is calculated using the weighted average number of outstanding shares of common
stock plus dilutive common stock equivalents.
39
41
A reconciliation of shares used in the calculation of basic and
diluted net income (loss) per share is as follows:
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss) ..................................................... $ (7,042) $ 7,231 $ 2,766
======== ======== ========
Weighted average shares of common stock outstanding ................... 22,636 17,548 4,657
Less weighted average shares of common stock subject to repurchase .... (76) 541 (1,056)
-------- -------- --------
Shares used in computing basic net income (loss) per share ............ 22,560 17,007 3,601
======== ======== ========
Net income (loss) per share -- Basic .................................. $ (0.31) $ 0.43 $ 0.77
======== ======== ========
Shares used in computing basic net income (loss) per share ............ 22,560 17,007 3,601
Effect of dilutive securities:
Stock options ................................................... -- 763 9
Unvested restricted stock ....................................... -- 541 1,056
Redeemable convertible preferred stock .......................... -- 3,538 13,739
-------- -------- --------
Shares used in computing diluted net income (loss) per share .......... 22,560 21,849 18,405
======== ======== ========
Net income (loss) per share -- diluted ................................ $ (0.31) $ 0.33 $ 0.15
======== ======== ========
3. CONCENTRATIONS OF CREDIT, CUSTOMER AND SUPPLIER RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments, long-term investments and trade receivables. The Company generally
invests its excess money in money market funds, commercial paper of corporations
with high credit ratings, municipal bonds, and treasury bills. The Company has
not experienced any significant losses on its cash equivalents or short and
long-term investments. The Company performs ongoing credit evaluations of its
customers and generally requires no collateral. Through fiscal 2000, a
relatively small number of customers and resellers accounted for a significant
percentage of the Company's revenues. The Company analyzes the need for reserves
for potential credit losses and records reserves when necessary.
Currently, the Company relies on single source suppliers of
materials 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.
4. BUSINESS COMBINATION
On May 19, 2000, the Company purchased Sebring Systems Inc., a
development stage company, that was developing the SebringRing(TM), a silicon
switch fabric interconnect solution, for an aggregate purchase price, including
assumed liabilities of $32.3 million. The transaction was accounted for using
purchase accounting. Prior to the purchase, we owned approximately 16% of the
outstanding shares of Sebring, which was accounted for using the equity method
of accounting.
The financial results for the year ended December 31, 2000 reflect
the acquisition from the date the transaction was closed.
40
42
The purchase price of the Sebring Systems acquisition is summarized
below:
(in thousands)
Net previous investment in Sebring .......... $ 681
Fair value of common stock issued ........... 24,196
Fair value of options assumed ............... 4,672
Assumed liabilities ......................... 2,242
Acquisition costs ........................... 525
-------
Total consideration ......................... $32,316
=======
The Company issued an aggregate of 960,931 shares of its common
stock valued at $24.2 million. The stock options were valued using the
Black-Scholes valuation model. Additionally, the Company incurred $0.5 million
in professional fees, including legal, valuation and accounting fees related to
the acquisition, which were capitalized as part of the purchase price of the
transaction.
The allocation of the Company's purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed is summarized
below.
The allocation was based on an independent appraisal and estimate of
fair value.
(in thousands)
Net tangible assets ......................... $ 1,165
In-process technology ....................... 14,342
Goodwill and other intangible assets:
Goodwill ................................. 13,339
Acquired employees ....................... 983
Tradename ................................ 355
Patents .................................. 2,132
-------
16,809
-------
Net assets acquired ........................ $32,316
=======
The net tangible assets acquired were comprised primarily of
property and equipment and accrued liabilities. The acquired in-process
technology was written-off in the second quarter of fiscal 2000. The estimated
weighted average useful life of the intangible assets for patents, tradenames,
and the residual goodwill, created as a result of the acquisition of Sebring
Systems is approximately four years.
Additionally, PLX recorded $12.3 million in deferred compensation on
options granted to employees below fair market value related to the acquisition
of Sebring. Deferred compensation is being amortized over the vesting period of
three years.
The $14.3 million allocation of the purchase price to the acquired
in-process technology was determined by identifying research projects in areas
for which technological feasibility had not been established and no alternative
future uses existed. PLX acquired technology consisting of silicon switch fabric
interconnect solutions. The value was determined by estimating the expected cash
flows from the project once commercially viable, discounting the net cash flows
to their present value, and then applying a percentage of completion to the
calculated value as defined below.
The net cash flows from the identified project utilized were based
on estimates of revenues, cost of sales, research and development costs,
selling, general and administrative costs, royalty costs and income taxes from
the project. These estimates were based on assumptions mentioned below. The
research and development costs excluded costs to bring the acquired in-process
project to technological feasibility.
The estimated revenues were based on management projections of the
acquired in-process project. The business projections were compared with and
found to be in line with industry analysts' forecasts of growth in substantially
all of the relevant markets. Estimated total revenues from the acquired
in-process technology product were assumed to peak in fiscal 2003 and decline in
fiscal 2004 as other new products were expected to become available. These
projections were based on estimates of market size and growth, expected trends
in technology, and the nature and expected timing of new product introductions,
by the Company and its competitors.
Discounting the net cash flows back to their present value was
based on the cost of capital for well managed venture capital funds which
typically have similar risks and returns on investments. The cost of capital
used in discounting the net cash flows from acquired in-process technology was
25%.
The percentage of completion was determined using costs incurred by
Sebring prior to the acquisition date compared to the remaining research and
development to be completed to bring the project to technological feasibility.
The Company estimated, as of the acquisition date, the project was 85% complete.
41
43
As of December 31, 2000, the Company estimates that the project was
95% complete. However, the development of this project remains a significant
risk to the Company due to the remaining effort to achieve technical
feasibility, integration of Sebring and the Company, employee retention, rapidly
changing customer markets and significant competitive threats from numerous
companies. Failure to bring these products to market in a timely manner could
adversely impact sales and profitability of the Company in the future.
Additionally, the value of the intangible assets acquired may become impaired.
UNAUDITED PRO FORMA FINANCIAL RESULTS
The unaudited pro forma financial information combines the
historical statements of operations of PLX Technology, Inc. and Sebring Systems,
Inc. for the years ended December 31, 2000 and 1999 and gives effect to the
transaction, including the amortization of goodwill and other intangible assets
and the recognition of deferred compensation, as if they occurred at the
beginning of each period presented. The amount of the aggregate purchase price
allocated to purchased in-process research and development has been excluded
from the pro forma information, as it is a non-recurring item.
The unaudited pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred if the transactions had been consummated at the dates
indicated, nor is it necessarily indicative of future operating results of the
combined companies and should not be construed as representative of these
amounts for any future periods.
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---- ----
(UNAUDITED)
(in thousands, except per share amounts)
Net revenues $ 65,351 $ 41,074
Net income (loss) $ 1,848 $ (4,745)
Net income (loss) per share -- basic and diluted $ 0.08 $ (0.26)
Number of shares used in per share calculations - basic 22,560 17,968
Number of shares used in per share calculations - diluted 23,550 17,968
5. EMPLOYEE STOCK PLANS
At December 31, 2000, 4,145,559 shares of the Company's common stock
were reserved for future issuance.
On May 7, 1986 the Board of Directors of the Company approved a form
of Restricted Stock Purchase Agreement to be used to sell restricted shares of
the Company's common stock (the "Restricted Stock") to its employees, officers
and consultants. There was no formal, written plan. From time to time, the Board
of Directors reserved shares of its common stock for grant under the program. At
December 31, 2000, a total of 4,164,726 shares of Restricted Stock were issued
and outstanding pursuant to the program. The shares were issued at fair market
value as determined by the Board of Directors. The repurchase price of the
restricted shares is the original sales price. The shares are subject to a
repurchase option in favor of the Company (the "Repurchase Option") that expires
over a period of four years from the date of issuance. Under the program's
standard vesting schedule, the number of shares subject to the Repurchase Option
is reduced as follows: (i) on the first anniversary of the date of issuance, the
number of shares subject to the Repurchase Option is reduced by 25%; and (ii)
each month thereafter, the number of shares subject to the Repurchase Option is
reduced by 2.083% of the total Restricted Stock issued. As consideration for the
issuance of such Restricted Stock, each of the officers has paid 20% of the
aggregate purchase price of the Restricted Stock issued to him in cash and
executed a promissory note (each, a "Note") for the remaining 80% of the
aggregate purchase price. The Notes accrued interest at a rate of 6% per annum.
The notes were full recourse. All outstanding notes were repaid during 1999. The
program was terminated upon adoption of our 1998 Incentive Stock Plan on January
15, 1998. As of December 31, 2000 there were 75,730 shares subject to
repurchase.
The Company's 1998 Stock Incentive Plan (the "1998 Plan") was
approved by the Board of Directors on January 15, 1998. The 1998 Plan provides
for the grant of both incentive and nonqualified stock options. A total of
1,500,000 shares of common stock have been reserved for issuance under the 1998
Plan. The Company's 1999 Stock Incentive Plan (the "1999 Plan") was approved by
the Board of Directors on January 25, 1999. The 1999 Plan
42
44
provides for the grant of both incentive and nonqualified stock options. A total
of 2,500,000 shares of common stock have been reserved for issuance under the
1999 Plan. The maximum term of any stock option granted under the 1998 and 1999
Plans is ten years, except that with respect to incentive stock options granted
to a person possessing more than 10% of the combined voting power of the Company
(a 10% stockholder), the term of such stock options shall be for no more than
five years. The exercise price of incentive stock options granted under the 1998
and 1999 Plan must be at least 100% of the fair market value of the common stock
on the grant date except that the exercise price of incentive stock options
granted to a 10% stockholder must be at least 110% of such fair market value on
the date of grant. The options generally vest over a period of three to four
years.
Activity under the 1998 and 1999 Plans is summarized as follows:
OPTIONS OUTSTANDING
---------------------------------------------------------
OPTIONS WEIGHTED
AVAILABLE FOR NUMBER OF AGGREGATE AVERAGE EXERCISE
GRANT OPTIONS EXERCISE PRICE PRICE
----- ------- -------------- -----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Balance at January 1, 1998 ........... -- -- $ -- $ --
Options authorized .............. 800,000 -- -- $ --
Options granted ................. (660,250) 660,250 3,246,250 $ 4.92
Options canceled ................ 15,000 (15,000) (75,000) $ 5.00
----------- ---------- ---------------
Balance at December 31, 1998 ......... 154,750 645,250 3,171,205 $ 4.91
Options authorized .............. 1,700,000 --
Options granted ................. (964,000) 964,000 10,966,138 $ 11.38
Options exercised ............... -- (22,950) (105,750) $ 4.61
Options canceled ................ 88,542 (88,542) (691,023) $ 7.80
----------- ---------- ---------------
Balance at December 31, 1999 ......... 979,292 1,497,758 13,340,615 $ 8.91
Options authorized .............. 1,500,000 --
Options granted ................. (1,735,113) 2,159,774 39,165,122 $ 18.13
Options assumed ................. -- 204,989 625,374 $ 3.05
Options exercised ............... -- (267,393) (1,532,701) $ 5.73
Options canceled ................ 505,053 (698,801) (10,375,251) $ 14.85
----------- ---------- ---------------
Balance at December 31, 2000 ......... 1,249,232 2,896,327 41,223,159 $ 14.23
=========== ========== ===============
Options assumed of 204,989 represent options related to the May 2000
acquisition of Sebring Systems. Options assumed from Sebring Systems are no
longer available for grant once canceled. As of December 31, 2000 there were
154,493 of these options vested at a weighted average exercise price of $2.87.
The following table summarizes the information about options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- -------------- ----------- --------------
$1.84 - $3.00 ................ 373,602 8.67 years $ 2.51 373,602 $ 2.51
$5.00 ........................ 399,459 7.37 years $ 5.00 399,459 $ 5.00
$6.33 ........................ 131,614 9.67 years $ 6.33 131,614 $ 6.33
$8.00 ........................ 35,000 8.25 years $ 8.00 35,000 $ 8.00
$9.00 - $9.21 ................ 464,186 8.26 years $ 9.01 464,186 $ 9.01
$15.13 - $21.06 .............. 874,314 9.18 years $ 19.33 874,314 $ 19.33
$23.00 - $40.00 .............. 618,152 9.49 years $ 26.04 618,152 $ 26.04
--------- ---------
Total ........................ 2,896,327 8.79 years $ 14.23 2,896,327 $ 14.23
========= =========
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As of December 31, 2000, 1999 and 1998, there were 992,469, 316,310
and 60,134 stock options vested at weighted average exercise prices of $7.58 per
share, $5.34 per share and $4.94 per share, respectively.
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its stock grants since the alternative fair
market value accounting provided for under FAS 123 requires use of grant
valuation models that were not developed for use in valuing stock grants. Under
APB Opinion No. 25, as the exercise price of the Company's stock grants and
options equals the deemed fair value of the underlying stock on the date of
grant, no compensation expenses are recognized.
During the year ended December 31, 2000 and December 31, 1998, the
Company recorded aggregate deferred compensation of $15.8 million and $127,000,
respectively, representing the difference between the grant price and the deemed
fair value of the Company's common stock options granted during this period. The
amortization of deferred compensation is charged to operations and is amortized
on a straight-line basis over the vesting period of the options, which is
typically three years. For the years ended December 31, 2000, 1999 and 1998,
amortization expense was $2,272,000, $91,000 and $79,000, respectively.
Pro forma information regarding net income (loss) is required by FAS
123, which also requires that the information be determined as if the Company
has accounted for grants subsequent to December 31, 1994 under a method
specified by FAS 123. The fair value of options granted in 1998 was estimated at
the date of grant using the minimum value method. Options granted in 2000 were
estimated using the Black-Scholes valuation model. The following weighted
average assumptions were used for 2000, 1999 and 1998:
YEARS ENDED DECEMBER 31,
--------------------------
2000 1999 1998
---- ---- ----
Volatility ............................. 0.84 0.59 --
Expected life of options (in years) .... 4.00 4.00 4.00
Dividend yield ......................... 0.00% 0.00% 0.00%
Risk-free interest rate ................ 6.29% 5.26% 4.95%
If compensation cost for the Company's stock-based compensation
plans had been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of FAS 123, then the Company's net
income (loss) per share would have been reduced to the pro forma amounts
indicated below:
YEARS ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net income (loss) as reported ............... $ (7,042) $ 7,231 $ 2,766
Pro forma net income (loss) ................. $(12,257) $ 6,187 $ 2,642
Net income (loss) per share as reported
Basic ................................. $ (0.31) $ 0.43 $ 0.77
Diluted ............................... $ (0.31) $ 0.33 $ 0.15
Pro forma net income per share
Basic ................................. $ (0.54) $ 0.36 $ 0.74
Diluted ............................... $ (0.54) $ 0.28 $ 0.14
The weighted average grant date fair value of options granted during
2000, 1999 and 1998 was $21.90, $5.76 and $0.86, respectively.
44
46
For purposes of pro forma disclosures, the value of the stock grants and stock
options is deemed amortized over the grant or option vesting period. Because FAS
123 is applicable only to stock grants subsequent to December 31, 1994, the pro
forma effect was not fully reflected until 1998.
6. RETIREMENT SAVINGS PLAN
The Company has a retirement savings plan, commonly known as a
401(k) plan, that allows all full-time employees to contribute from 1% to 15% of
their pretax salary, subject to IRS limits. Beginning in 1996, the Company made
a matching contribution calculated at 50 cents on each dollar of the first 6% of
participant contributions. The Company's contributions to the 401(k) plan were
$255,000, $187,000 and $124,000 for 2000, 1999 and 1998, respectively.
7. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Federal:
Current ............ $ 6,650 $ 3,806 $ 1,235
Deferred ........... (1,461) (487) (544)
------- ------- -------
5,189 3,319 691
State:
Current ............ 870 734 1
Deferred ........... (159) (157) --
------- ------- -------
711 577 1
------- ------- -------
Total ....... $ 5,900 $ 3,896 $ 692
======= ======= =======
The provision (benefit) for income taxes differs from the amount of
income taxes determined by applying the U.S. statutory federal income tax rate
as follows:
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Tax (benefit) at the U.S. statutory rate ....... $ (400) $ 4,013 $ 1,210
State taxes (net of federal benefit) ........... 462 375 --
Tax exempt interest income ..................... (157) -- --
Non-deductible in-process R&D write off ........ 5,020 -- --
Non-deductible amortization of goodwill and
purchased intangible assets .............. 888 -- --
Research and development credit ................ (305) (266) (226)
Adjustment of the valuation allowance .......... -- -- (337)
Other individually immaterial items ............ 392 (226) 45
------- ------- -------
$ 5,900 $ 3,896 $ 692
======= ======= =======
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Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
YEARS ENDED DECEMBER 31,
------------------------
2000 1999
---- ----
(IN THOUSANDS)
Deferred tax assets:
Accrued expenses and reserves ....... $ 2,052 $ 991
Net operating loss carryforwards .... 1,100 --
Other ............................... 947 388
------- -------
Total deferred tax assets ........... 4,099 1,379
Deferred tax liabilities:
Acquisition related intangibles ..... (1,100) --
------- -------
Net deferred tax assets ............. $ 2,999 $ 1,379
======= =======
At December 31, 2000, the Company had net operating loss
carryforwards for federal and state purposes of approximately $2,700,000. These
carryforwards will expire beginning in 2002, if not utilized.
Utilization of the net operating loss carryforwards may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
loss carryforwards before utilization.
8. COMMITMENTS
The Company leases certain of its facilities under noncancelable
operating lease agreements. Rental expense for all leases aggregated
approximately $767,000, $664,000 and $641,000 for the years ended December 31,
2000, 1999 and 1998, respectively. Future minimum lease payments at December 31,
2000 are as follows:
(IN THOUSANDS)
2001 .............................. $ 588
2002 .............................. 544
2003 .............................. 486
2004 .............................. 458
2005 .............................. --
Thereafter ........................ --
------
Total minimum lease payments ...... $2,076
======
9. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company has one operating segment, the sale of semiconductor
devices. The President has been identified as the Chief Operating Decision Maker
(CODM) because he has final authority over resource allocation decisions and
performance assessment. The CODM does not receive discrete financial information
about individual components of the Company's business.
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Revenues by geographic region based on customer location were as
follows:
YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Revenues:
United States ............ $39,658 $26,527 $17,379
France ................... 7,232 3,945 2,890
Europe-excluding France .. 9,858 5,676 3,393
Asia ..................... 8,603 4,551 2,614
------- ------- -------
Total ......................... $65,351 $40,699 $26,276
======= ======= =======
For the year ended December 31, 2000, two customers accounted for
10% or more of net revenues. Unique Technologies, our U.S. distributor (see Note
13) , and A2M, a European distributor, accounted for 25% and 11% of net
revenues, respectively. For the year ended December 31, 1999, Unique
Technologies and A2M accounted for 25% and 10% of net revenues, respectively.
For the year ended December 31, 1998, Unique Technologies and A2M accounted for
22% and 11% of revenues, respectively. No other customers accounted for more
than 10% of net revenues in any period presented.
10. DEBT
On October 25, 2000, the Company signed a promissory note to borrow
$28.5 million in connection with its purchase of a facility. The loan is
collaterized by cash, short-term and long-term investments of approximately
$33.1 million, which is classified as restricted cash. The loan agreement
includes covenants regarding profitability and bears interest at the LIBOR rate
plus 0.45% (7.14% at December 31, 2000). The loan requires monthly interest
payments with the outstanding principal balance due and payable on November 6,
2005. At December 31, 2000, the Company was in compliance with all covenants.
11. RELATED PARTY TRANSACTIONS
The Company and a customer are related parties because the chairman
of the Company's Board of Directors also serves on the customer's Board of
Directors. For the years ended December 31, 2000, 1999 and 1998, net revenues,
which were transacted at arms' length prices, to the customer were approximately
$994,000, $896,000 and $330,000, respectively.
12. QUARTERLY SUMMARIES
(In thousands, except per share amounts, unaudited)
Three Months Ended
Mar 31, 2000 Jun 30, 2000 Sep 30, 2000 Dec 31, 2000
------------ ------------ ------------ ------------
Net revenues $ 14,542 $ 16,090 $ 18,409 $ 16,310
Gross profit 10,122 11,538 13,163 11,160
Net income (loss) 3,375 (12,732) 1,980 335
Net income (loss) per basic share $ 0.16 $ (0.57) $ 0.09 $ 0.01
Net income (loss) per diluted share $ 0.15 $ (0.57) $ 0.08 $ 0.01
Three Months ended
Mar 31, 1999 Jun 30, 1999 Sep 30, 1999 Dec 31, 1999
------------ ------------ ------------ ------------
Net revenues $ 8,908 $ 9,413 $ 10,597 $ 11,781
Gross profit 5,656 6,191 7,591 8,393
Net income 1,085 1,582 2,128 2,436
Net income per basic share $ 0.28 $ 0.08 $ 0.10 $ 0.11
Net income per diluted share $ 0.06 $ 0.07 $ 0.09 $ 0.11
47
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13. SUBSEQUENT EVENTS (UNAUDITED)
In January 2001, the Board of Directors of the Company approved a
stock repurchase program whereby up to 2,000,000 shares of its common
stock may be purchased in the open market or in privately negotiated
transactions.
In March 2001, the Company decided to terminate its relationship
with Unique, its US distributor, and service all of its US customers
directly or through manufacturer's representatives.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE ADDITIONS DEDUCTIONS
AT CHARGED TO AMOUNTS BALANCE
BEGINNING COSTS AND WRITTEN AT END OF
OF PERIOD EXPENSES OFF/RECOVERED PERIOD
--------- -------- ------------- ------
Year ended December 31, 2000
Allowance for doubtful accounts ..... $240 $150 $(72) $318
Year ended December 31, 1999
Allowance for doubtful accounts ..... $173 $ 70 $ (3) $240
Year ended December 31, 1998
Allowance for doubtful accounts ..... $158 $ -- $ 15 $173
48
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
April 2, 2001 PLX Technology, Inc.
by: /s/ MICHAEL J. SALAMEH
-----------------------------------------
Name: Michael J. Salameh
Title: President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael J. Salameh and Rafael Torres, and
each of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Name and Signature Title(s) Date
------------------ -------- ----
/s/ MICHAEL J. SALAMEH President and Director April 2, 2001
- --------------------------------- (Principal Executive Officer)
Michael J. Salameh
/s/ RAFAEL TORRES Vice President, Chief Financial Officer April 2, 2001
- --------------------------------- (Principal Financial and Accounting Officer)
Rafael Torres
/s/ D. JAMES GUZY Director and Chairman of the Board of April 2, 2001
- --------------------------------- Directors
D. James Guzy
Director
- ---------------------------------
Eugene Flath
/s/ TIMOTHY DRAPER Director April 2, 2001
- ---------------------------------
Timothy Draper
/s/ YOUNG K. SOHN Director April 2, 2001
- ---------------------------------
Young K. Sohn
Director
- ---------------------------------
John H. Hart
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1(2) Agreement and Plan of Merger dated April 19, 2000
by and among PLX Technology, Inc., OKW Technology
Acquisition Corporation and Sebring Systems, Inc.
3.11(1) Amended and Restated Certificate of Incorporation
of the Registrant.
3.2(1) Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibit 3.1.
10.1(1) Form of Indemnification Agreement between PLX and
each of its Officers and Directors.
10.2(1)(4) 1998 Stock Incentive Plan.
10.3(1)(4) 1999 Stock Incentive Plan.
10.4(1) Lease Agreement dated December 20, 1995 by and
between Aetna Life Insurance Company as Landlord
and PLX as Tenant.
10.5(1) Lease Agreement dated October 17, 1997 between The
Arrillaga Foundation and The Perry Foundation as
Landlords and PLX as Tenant, as amended.
10.6(1)(4) Form of Restricted Stock Purchase Agreement used
in connection with the 1986 Restricted Stock
Purchase Program.
10.7(1)(4) Form of Pledge Agreement used in connection with
the 1986 Restricted Stock Purchase Program.
10.8(1)(4) Form of Promissory Note used in connection with
the 1986 Restricted Stock Purchase Program.
10.9(1) PLX Technology, Inc. Stock Restriction,
Information Rights and Registration Rights
Agreement dated April 19, 1989.
10.10(1) PLX Technology, Inc. Stock Restriction,
Information Rights and Registration Rights
Agreement dated July 3, 1991.
10.11(3) Loan Agreement dated October 25, 2000 between
Wells Capital Management and PLX.
21.1 Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, Independent
Auditors.
- ----------------
(1) Incorporated by reference to the same numbered exhibit previously filed
with the Company's Registration Statement on Form S-1 (Registration No.
333-71795).
(2) Incorporated by reference to Exhibit 2.1 to Form 8-K as filed June 2,
2000.
(3) Incorporated by reference to Exhibit 10.11 to the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 2000.
(4) Management contract or compensatory plan or arrangement.
50