Segment Information, Operations By Geographic Area And Customer Concentration

6 Months Ended

Jul. 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 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						Six Months Ended
	July 1, 2012			July 3, 2011			July 1, 2012			July 3, 2011
Net revenues:
Retail	$	113,824		$	107,869		242,801			224,994
Commercial	80,626			77,112			$	155,258		$	156,734
Service provider	126,205			106,259			$	248,216		$	188,335
Total net revenues	320,655			291,240			$	646,275		$	570,063
Contribution income:
Retail	$	18,559		$	21,007		$	44,831		$	40,885
Retail contribution margin	16.3		%	19.5		%	18.5		%	18.2		%
Commercial	19,429			16,122			$	32,274		$	33,703
Commercial contribution margin	24.1		%	20.9		%	20.8		%	21.5		%
Service Provider	9,609			9,020			$	22,539		$	17,401
Service Provider contribution margin	7.6		%	8.5		%	9.1		%	9.2		%
Total segment contribution income	47,597			46,149			99,644			91,989
Corporate and unallocated costs	(12,201		)	(11,380		)	(23,564		)	(21,992		)
Amortization of intangible assets (1)	(1,016		)	(1,189		)	(1,963		)	(2,546		)
Stock-based compensation expense	(3,395		)	(3,508		)	(6,787		)	(6,880		)
Restructuring and other charges	—			(2,094		)	—			(2,094		)
Acquisition related compensation	—			(20		)	—			(40		)
Impact to cost of sales from acquisition accounting adjustments to inventory	—			(609		)	—			(609		)
Litigation reserves, net	—			225			(151		)	278
Interest income	116			106			235			235
Other income (expense), net	354			(341		)	(247		)	(671		)
Income before income taxes	$	31,455		$	27,339		$	67,167		$	57,670

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(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				Six Months Ended
	July 1, 2012		July 3, 2011		July 1, 2012		July 3, 2011
United States	$	158,046	$	146,727	$	322,791	$	274,491
Americas (excluding U.S.)	5,392		2,799		9,002		6,982
United Kingdom	47,210		40,188		96,604		86,821
EMEA (excluding U.K.)	70,605		70,143		146,292		146,130
APAC	39,402		31,383		71,586		55,639
Total net revenue	$	320,655	$	291,240	$	646,275	$	570,063

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):

	July 1, 2012		December 31, 2011
United States	$	10,291	$	9,901
Americas (excluding U.S.)	39		44
EMEA	630		331
China	5,340		4,909
APAC (excluding China)	982		699
	$	17,282	$	15,884

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

	Three Months Ended				Six Months Ended
	July 1, 2012		July 3, 2011		July 1, 2012		July 3, 2011
Virgin Media Limited and Affiliates (Service Provider)	10	%	9	%	10	%	10	%
Ingram Micro, Inc. and Affiliates (Distributor)	9	%	10	%	9	%	10	%
Best Buy Co., Inc. and Affiliates (Retailer)	7	%	10	%	8	%	12	%
All others	74	%	71	%	73	%	68	%
	100	%	100	%	100	%	100	%