Segment Information, Operations By Geographic Area And Customer Concentration

6 Months Ended

Jun. 29, 2014

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, home video monitoring, storage and digital media products. The commercial business unit consists of business networking, storage and security solutions that bring enterprise class functionality down to the small and medium size business at an affordable price. The service provider business unit consists of made-to-order and retail proven, whole home networking hardware and software solutions as well as 4G LTE hotspots sold to service providers for sale to their subscribers. 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 first quarter of 2014, the CEO began temporarily serving as interim General Manager of the retail business unit due to the previous general manager's departure from the Company. As of June 29, 2014, the CEO continues to serve as interim general manager and will do so 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 expenses, corporate marketing expenses, general and administrative costs, stock-based compensation expenses, amortization of intangibles, acquisition-related integration costs, restructuring costs, litigation reserves and interest income and other 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
	June 29, 2014			June 30, 2013			June 29, 2014			June 30, 2013
Net revenue:
Retail	$	110,663		$	117,395		$	228,895		$	243,717
Commercial	75,447			88,446			154,310			159,297
Service provider	151,494			151,878			303,790			248,104
Total net revenue	337,604			357,719			686,995			651,118
Contribution income:
Retail	$	14,726		$	15,761		$	29,409		$	34,379
Retail contribution margin	13.3		%	13.4		%	12.8		%	14.1		%
Commercial	17,129			20,476			36,669			34,287
Commercial contribution margin	22.7		%	23.2		%	23.8		%	21.5		%
Service Provider	15,235			14,090			28,754			23,581
Service Provider contribution margin	10.1		%	9.3		%	9.5		%	9.5		%
Total segment contribution income	47,090			50,327			94,832			92,247
Corporate and unallocated costs	(13,128		)	(13,558		)	(26,884		)	(26,024		)
Amortization of intangible assets (1)	(4,391		)	(4,872		)	(8,781		)	(6,343		)
Stock-based compensation expense	(4,934		)	(4,391		)	(10,064		)	(7,981		)
Restructuring and other charges	12			(1,587		)	(830		)	(1,557		)
Acquisition-related expense	—			(214		)	(8		)	(924		)
Impact to cost of sales from acquisition accounting adjustments to inventory	—			(568		)	—			(568		)
Litigation reserves, net	(68		)	(3,555		)	(185		)	(3,603		)
Interest income	49			95			106			244
Other expense, net	(227		)	(548		)	(335		)	(474		)
Income before income taxes	$	24,403		$	21,129		$	47,851		$	45,017

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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
	June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013
United States	$	182,222	$	196,136	$	372,498	$	349,849
Americas (excluding U.S.)	5,312		4,712		9,815		7,675
United Kingdom	42,574		41,972		83,774		82,830
EMEA (excluding U.K.)	57,862		66,395		123,455		132,662
APAC	49,634		48,504		97,453		78,102
Total net revenue	$	337,604	$	357,719	$	686,995	$	651,118

Property and equipment by geographic location are as follows (in thousands):

	June 29, 2014		December 31, 2013
United States	$	10,641	$	10,273
Canada	4,236		2,132
Americas (excluding U.S. and Canada)	24		28
EMEA	834		914
China	10,676		11,905
APAC (excluding China)	1,740		1,942
	$	28,151	$	27,194

No single customer accounted for greater than 10% of net revenue in the three and six months ended June 29, 2014 and June 30, 2013.