Business Segment Information

9 Months Ended

Sep. 30, 2013

Business Segment Information

16. BUSINESS SEGMENT INFORMATION

The Company conducts its business globally and is managed geographically in three segments: (1)Americas, which consist of North, Central and Latin Americas, (2)Europe, Middle East and Africa (“EMEA”) and (3)Asia Pacific (“APAC”). The segments are determined in accordance with how management views and evaluates the Company’s business and allocates its resources, and based on the criteria as outlined in the authoritative guidance. Effective January1, 2013, the Company began to allocate certain services costs previously reported within the Americas segment into both the EMEA and APAC segments in order to more appropriately align costs among the segments with the associated revenues. As such, all prior periods reported were also reclassified to conform to the current year presentation.

Segment Revenue and Profit

Segment revenues are attributed to a theater based on the ordering location of the customer. A significant portion of each segment’s expenses arise from shared services and infrastructure that Polycom has historically allocated to the segments in order to realize economies of scale and to use resources efficiently. These expenses include information technology services, facilities and other infrastructure costs.

Segment Data

The results of the reportable segments are derived directly from Polycom’s management reporting system. The results are based on Polycom’s method of internal reporting and are not reported in conformity with accounting principles generally accepted in the United States. Management measures the performance of each segment based on several metrics, including contribution margin as defined below. For internal reporting purposes and determination of segment contribution margins, geographic segment revenues may differ slightly from actual geographic revenues due to internal revenue allocations between the Company’s segments. Asset data, with the exception of gross accounts receivable, is not reviewed by management at the segment level.

Financial information for each reportable geographical segment as of September30, 2013 and December31, 2012 and for the three and nine months ended September30, 2013 and 2012, based on the Company’s internal management reporting system and as utilized by the Company’s Interim Chief Executive Officer who is its Chief Operating Decision Maker (“CODM”), is as follows (in thousands):

	Americas				EMEA				APAC				Total
For the three months ended September30, 2013:
Revenue	$	177,285		$		80,015		$		79,161		$		336,461
% of total revenue		53	%			24	%			23	%			100	%
Contribution margin		69,899				34,094				30,281				134,274
% of segment revenue		39	%			43	%			38	%			40	%
For the three months ended September30, 2012:
Revenue	$	170,965		$		78,569		$		85,858		$		335,392
% of total revenue		51	%			23	%			26	%			100	%
Contribution margin		67,438				28,581				34,732				130,751
% of segment revenue		39	%			36	%			40	%			39	%
For the nine months ended September30, 2013:
Revenue	$	523,895		$		248,834		$		247,718		$		1,020,447
% of total revenue		52	%			24	%			24	%			100	%
Contribution margin		207,876				103,703				98,364				409,943
% of segment revenue		40	%			42	%			40	%			40	%
For the nine months ended September30, 2012:
Revenue	$	513,869		$		252,289		$		273,444		$		1,039,602
% of total revenue		50	%			24	%			26	%			100	%
Contribution margin		212,788				98,935				116,637				428,360
% of segment revenue		41	%			39	%			43	%			41	%
As of September30, 2013: Gross accounts receivable	$	97,314		$		61,540		$		58,734		$		217,588
% of total gross accounts receivable		45	%			28	%			27	%			100	%
As of December31, 2012: Gross accounts receivable		100,494				67,529				71,128				239,151
% of total gross accounts receivable		42	%			28	%			30	%			100	%

Segment contribution margin includes all geographic segment revenues less the related cost of sales and direct sales and marketing expenses. Management allocates some infrastructure costs such as facilities and IT costs in determining segment contribution margin. Contribution margin 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 costs include corporate manufacturing costs, sales and marketing costs other than direct sales and marketing expenses, research and development expenses, general and administrative costs, such as legal and accounting, stock-based compensation costs, acquisition-related costs, amortization of purchased intangibles, restructuring costs and interest and other income (expense), net.

The reconciliation of segment information to Polycom consolidated totals is as follows (in thousands):

	Three Months Ended							Nine Months Ended
	September30, 2013			September30, 2012				September30, 2013				September30, 2012
Segment contribution margin	$	134,274		$	130,751		$		409,943		$		428,360
Corporate and unallocated costs		(110,640	)		(106,718	)			(323,645	)			(314,247	)
Stock-based compensation		(17,202	)		(24,823	)			(53,300	)			(65,071	)
Effect of stock-based compensation cost on warranty expense		(120	)		(169	)			(421	)			(541	)
Acquisition-related costs		(39	)		(6,334	)			(3,411	)			(11,793	)
Amortization of purchased intangibles		(3,735	)		(4,421	)			(11,279	)			(13,044	)
Restructuring costs		(24,887	)		(6,171	)			(34,639	)			(21,829	)
Interest and other income (expense), net		(1,634	)		(230	)			(2,777	)			(3,010	)
Loss from continuing operations before provision for (benefit from) income taxes	$	(23,983	)	$	(18,115	)	$		(19,529	)	$		(1,175	)

	September30, 2013			December31, 2012
Gross accounts receivables	$	217,588		$	239,151
Returns and related reserves		(39,643	)		(41,576	)
Allowance for doubtful accounts		(2,722	)		(2,921	)
Total trade receivables, net	$	175,223		$	194,654

The following table summarizes the Company’s revenues by groups of similar products and services as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September30, 2013		September30, 2012			September30, 2013			September30, 2012
Net Revenues:
UC group systems	$	221,370	$	225,780	$		686,795	$		717,982
UC personal devices		56,920		45,731			157,014			134,095
UC platform		58,171		63,881			176,638			187,525
Total	$	336,461	$	335,392	$		1,020,447	$		1,039,602

During both the three and nine months ended September30, 2013, one customer from the Americas segment, ScanSource Communications (“ScanSource”), accounted for 17% of the Company’s revenues. During both the three and nine months ended September 30, 2012, ScanSource accounted for 14% of the Company’s revenues. At September30, 2013, ScanSource accounted for 13% of total gross accounts receivable and no single customer accounted for more than 10% of gross accounts receivable at December 31, 2012.