Segment Reporting, Geographic Information and Major Customers

6 Months Ended

Jun. 30, 2012

Segment Reporting, Geographic Information and Major Customers

12. Segment Reporting, Geographic Information and Major Customers

ASC Topic 280 — Segment Reporting (“ASC 280”) establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operating decisions and assessing financial performance. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses and about which separate financial information is available. The Company’s chief operating decision makers (“CODM”) are considered to be its CEO and CFO.

The Company operates in two business segments that reflect its current organizational structure and focus on providing secure identification solutions. The Company’s reportable segments are “Identity Management Solutions & Services” (“Identity Management”) and “Identification Products & Components” (“ID Products”).

• In the Identity Management segment the Company designs, supplies and manages solutions, systems and services that enable the secure management of credentials in diverse markets. These credentials are used for the identification of people and the granting of rights and privileges based on defined policies. The Company’s Identity Management offerings include integrated physical and logical (i.e., PC, network or cyber) access systems, integrated ID solutions, cashless payment solutions and cloud-based credential management systems, all of which are designed to enable organizations to enhance security and better meet compliance and regulatory requirements while providing the benefits of ease of use and convenience. The Company sells its Identity Management solutions under the Hirsch Identive, idOnDemand and Multicard brands, as well as additional country or market specific brands. The Company’s Identity Management end customers operate in the government, education, enterprise and commercial markets and can be found in multiple vertical market segments including healthcare, banking, industrial, retail and critical infrastructure. Business units in the Identity Management segment include Hirsch Identive, idOnDemand and Multicard (which includes payment solution) and these business units were aggregated based on similar economic characteristics and products offerings as well as type of customers.

• In the ID Products segment the Company designs and manufactures both standard and highly specialized radio frequency identification (“RFID”) and smart card technology-based products and components, including NFC products and components, that are used in the government, enterprise and consumer markets for a number of identity-based and related applications, including logical access, physical access, eHealth, eGovernment, citizen ID, mobile payments, loyalty schemes, and transportation and event ticketing. The Company’s ID Infrastructure products include readers and terminals based on both contact and contactless smart card technology and its Transponder products include RFID inlays, inlay-based RFID tags, labels, stickers and cards. The ID Products segment includes the results of the Company’s ID Infrastructure (formerly SCM Microsystems) and Transponder business units and these business units were aggregated based on similar economic characteristics and distribution channels as well as type of customers. The Company’s ID Infrastructure and Transponder products are primarily sold under the Identive brand.

The CODM reviews financial information and business performance for each operating segment and also at the Identity Management and ID Products reportable segment. The Company evaluates the performance of its segments at the revenue and gross margin level. The CODM does not review operating expenses or asset information for purposes of assessing performance or allocating resources.

Summary information by segment is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Identity Management:
Revenues from external customers	$	14,183		$	14,476		$	26,888		$	27,100
Intersegment revenue		16			259			3			317
Total Identity Management revenue		14,199			14,735			26,891			27,417
Elimination of intersegment revenues		(16	)		(259	)		(3	)		(317	)
Total revenue	$	14,183		$	14,476		$	26,888		$	27,100
Gross profit	$	6,294		$	6,329		$	12,181		$	12,155
Gross profit %		44	%		44	%		45	%		45	%
ID Products:
Revenues from external customers	$	9,673		$	11,136		$	18,174		$	20,932
Intersegment revenue		161			1,690			174			3,709
Total ID Products revenue		9,834			12,826			18,348			24,641
Elimination of intersegment revenues		(161	)		(1,690	)		(174	)		(3,709	)
Total revenue	$	9,673		$	11,136		$	18,174		$	20,932
Gross profit	$	3,306		$	3,885		$	6,157		$	7,439
Gross profit %		34	%		35	%		34	%		36	%
Total:
Net revenue	$	23,856		$	25,612		$	45,062		$	48,032
Gross profit	$	9,600		$	10,214		$	18,338		$	19,594
Gross profit %		40	%		40	%		41	%		41	%

Geographic net revenue is based on selling location. Information regarding net revenue by geographic region is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net Revenues:
Americas	$	12,619		$	12,058		$	22,825		$	21,792
Europe		7,842			9,113			15,374			18,645
Asia-Pacific		3,395			4,441			6,863			7,595
Total	$	23,856		$	25,612		$	45,062		$	48,032
% of net Revenues:
Americas		53	%		47	%		51	%		45	%
Europe		33	%		36	%		34	%		39	%
Asia-Pacific		14	%		17	%		15	%		16	%
Total		100	%		100	%		100	%		100	%

No customers exceeded 10% of total revenue during the three or six months ended June 30, 2012 or 2011. One customer in the ID Management segment accounted for $1.7 million, or 12.1% of the Company’s accounts receivable balance at June 30, 2012. No customer represented 10% of the Company’s accounts receivable balance at December 31, 2011.

The Company tracks assets by physical location. Long-lived assets by geographic location are as follows (in thousands):

	June 30, 2012		December 31, 2011
Property and equipment, net:
Americas	$	622	$	656
Europe		2,695		3,970
Asia-Pacific		606		2,073
Total (1)	$	3,923	$	6,699

(1) Amounts shown are net of impairment charges.