Segment Information, Operations By Geographic Area And Customer Concentration

3 Months Ended

Apr. 01, 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 operated in one segment through the first fiscal quarter of 2011, which comprised the development, marketing and sale of networking products for the commercial business and home markets.

In the second fiscal quarter of 2011, the Company made organizational changes that resulted in changes to the way in which the CODM manages and evaluates the business. The Company’s business is now managed 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. There is no change in the CODM before and after the reorganization of the segments.

The Company believes this new 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. The business units are determined in accordance with how management views and evaluates the Company’s business and based on the criteria as outlined in the authoritative guidance. As a result, beginning in the second fiscal quarter of 2011, the Company changed its segment reporting accordingly, and revised its prior period presentation to conform to the new segments.

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. Refer to the reconciliation of segment information to the Company’s consolidated totals below to see the reconciliation of segment data to earnings prepared in conformity with accounting principles generally accepted in the United States.

Asset data is not reviewed by the Company’s CODM at the segment level and therefore is not presented. Discrete financial information on individual products and services within the respective segments is not reviewed by the Company’s CODM, and therefore a separate disclosure of similar classes of products and services below the segment level is not presented. 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
	April 1, 2012			April 3, 2011
Net revenues:
Retail	$	128,977		$	117,125
Commercial	74,632			79,622
Service provider	122,011			82,076
Total net revenues	325,620			278,823
Contribution income:
Retail	$	26,272		$	19,878
Retail contribution margin	20.4		%	17.0		%
Commercial	12,845			17,581
Commercial contribution margin	17.2		%	22.1		%
Service Provider	12,930			8,381
Service Provider contribution margin	10.6		%	10.2		%
Total segment contribution income	52,047			45,840
Corporate and unallocated costs	(11,363		)	(10,612		)
Amortization of intangible assets (1)	(947		)	(1,357		)
Stock-based compensation expense	(3,392		)	(3,372		)
Acquisition related compensation	—			(20		)
Litigation reserves, net	(151		)	53
Interest income	119			129
Other income (expense), net	(601		)	(330		)
Income before income taxes	$	35,712		$	30,331

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(1) Excludes amortization related to patents.

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 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
	April 1, 2012		April 3, 2011
United States	$	164,745	$	127,764
Americas (excluding U.S.)	3,610		4,183
United Kingdom	49,394		46,633
EMEA (excluding U.K.)	75,687		75,987
APAC	32,184		24,256
Total net revenue	$	325,620	$	278,823

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):

	April 1, 2012		December 31, 2011
United States	$	8,988	$	9,901
Americas (excluding U.S.)	41		44
EMEA	343		331
China	4,729		4,909
APAC (excluding China)	615		699
	$	14,716	$	15,884

Significant customers as a percentage of net revenues are as follows:

	Three Months Ended
	April 1, 2012		April 3, 2011
Virgin Media Limited and Affiliates (Service Provider)	11	%	10	%
Ingram Micro, Inc. and Affiliates (Distributor)	9	%	10	%
Best Buy Co., Inc. and Affiliates (Retailer)	9	%	13	%
All others	71	%	67	%
	100	%	100	%