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Segment Information, Operations By Geographic Area And Customer Concentration
9 Months Ended
Sep. 30, 2012
Segment Reporting [Abstract]  
Segment Information, Operations By Geographic Area And Customer Concentration
Segment Information, Operations by Geographic Area and Significant Customers

Operating segments are components of an enterprise about which separate financial information is available and is regularly evaluated by management, namely the Chief Operating Decision Maker (“CODM”) of an organization, in order to determine operating and resource allocation decisions. By this definition, the Company operates in three specific business units: retail, commercial, and service provider. The retail business unit consists of high performance, dependable and easy-to-use home networking, storage and digital media products to connect people with the Internet and their content and devices. The commercial business unit consists of business networking, storage and security solutions without the cost and complexity of Big IT. The service provider business unit consists of made-to-order and retail proven, whole home networking solutions sold to service providers for sale to their customers. Each business unit is managed by a Senior Vice President/General Manager. The Company believes this structure enables it to better focus its efforts on the Company’s core customer segments and allows it to be more nimble and opportunistic as a company overall.

In the second quarter of 2012, the CEO began temporarily serving as interim General Manager of the commercial business unit due to the previous general manager's departure from the Company. The CEO will continue to serve as interim general manager until a replacement is established.

The results of the reportable segments are derived directly from the Company’s management reporting system. The results are based on the Company’s method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution income. Segment contribution income includes all product line segment revenues less the related cost of sales, research and development and sales and marketing costs. Contribution income is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Certain operating expenses are not allocated to segments because they are separately managed at the corporate level. These unallocated indirect costs include corporate costs, such as corporate research and development, general and administrative costs, stock-based compensation expenses, amortization of intangibles, acquisition-related integration costs, restructuring costs, litigation reserves and interest and other income (expense), net. The Company does not evaluate operating segments using discrete asset information.
Financial information for each reportable segment and a reconciliation of segment contribution income to income before income taxes is as follows (in thousands, except percentage data):

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2012
 
October 2,
2011
 
September 30,
2012
 
October 2,
2011
Net revenues:
 
 
 
 
 
 
 
Retail
$
123,457

 
$
127,082

 
$
366,258

 
$
352,076

Commercial
79,240

 
91,059

 
234,498

 
247,793

Service provider
112,513

 
83,659

 
360,729

 
271,994

Total net revenues
315,210

 
301,800

 
961,485

 
871,863

Contribution income:
 
 
 
 
 
 
 
Retail
$
17,759

 
$
19,958

 
$
62,590

 
$
60,843

Retail contribution margin
14.4
%
 
15.7
%
 
17.1
%
 
17.3
%
Commercial
19,998

 
23,013

 
52,272

 
56,716

Commercial contribution margin
25.2
%
 
25.3
%
 
22.3
%
 
22.9
%
Service Provider
11,283

 
6,662

 
33,822

 
24,063

Service Provider contribution margin
10.0
%
 
8.0
%
 
9.4
%
 
8.8
%
Total segment contribution income
49,040

 
49,633

 
148,684

 
141,622

Corporate and unallocated costs
(12,866
)
 
(11,994
)
 
(36,430
)
 
(33,986
)
Amortization of intangible assets (1)
(1,354
)
 
(1,064
)
 
(3,317
)
 
(3,610
)
Stock-based compensation expense
(4,019
)
 
(3,454
)
 
(10,806
)
 
(10,334
)
Restructuring and other charges

 

 

 
(2,094
)
Acquisition related compensation

 

 

 
(40
)
Impact to cost of sales from acquisition accounting adjustments to inventory

 

 

 
(609
)
Litigation reserves, net
(269
)
 
(44
)
 
(420
)
 
234

Interest income
109

 
115

 
344

 
350

Other income (expense), net
3,070

 
(267
)
 
2,823

 
(938
)
Income before income taxes
$
33,711

 
$
32,925

 
$
100,878

 
$
90,595

________________________________
(1)
Amount excludes amortization expense related to patents within purchased intangible assets in costs of revenues.

The Company conducts business across three geographic regions: Americas, Europe, Middle-East and Africa (“EMEA”) and Asia Pacific ("APAC'). Net revenue by geography comprises gross revenue less such items as end-user customer rebates and other sales incentives deemed to be a reduction of net revenue per the authoritative guidance for revenue recognition, sales returns and price protection. For reporting purposes revenue is attributed to each geographic region based on the location of the customer. The following table shows net revenue by geography for the periods indicated (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2012
 
October 2,
2011
 
September 30,
2012
 
October 2,
2011
United States
$
172,926

 
$
144,969

 
$
495,717

 
$
419,460

Americas (excluding U.S.)
4,721

 
4,040

 
13,723

 
11,022

United Kingdom
45,127

 
38,010

 
141,731

 
124,831

EMEA (excluding U.K.)
59,241

 
81,725

 
205,533

 
227,855

APAC
33,195

 
33,056

 
104,781

 
88,695

Total net revenue
$
315,210

 
$
301,800

 
$
961,485

 
$
871,863


Long-lived assets, comprising fixed assets, are reported based on the location of the asset. Long-lived assets by geographic location are as follows (in thousands):

 
September 30,
2012
 
December 31,
2011
United States
$
10,549

 
$
9,901

Americas (excluding U.S.)
36

 
44

EMEA
668

 
331

China
6,651

 
4,909

APAC (excluding China)
1,023

 
699

 
$
18,927

 
$
15,884


Significant customers as a percentage of net revenues are as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2012
 
October 2,
2011
 
September 30,
2012
 
October 2,
2011
Best Buy Co., Inc. and Affiliates (Retailer)
9
%
 
11
%
 
8
%
 
11
%
Virgin Media Limited and Affiliates (Service Provider)
9
%
 
5
%
 
10
%
 
8
%
Ingram Micro, Inc. and Affiliates (Distributor)
8
%
 
10
%
 
9
%
 
10
%
All others
74
%
 
74
%
 
73
%
 
71
%
 
100
%
 
100
%
 
100
%
 
100
%