Segment Information, Operations By Geographic Area And Customer Concentration

9 Months Ended

Sep. 28, 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, 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 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 September 28, 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, corporate marketing expense and general and administrative costs, amortization of intangibles, stock-based compensation expense, restructuring and other charges, acquisition-related expense, impact to cost of sales from acquisition accounting adjustments to inventory, litigation reserves, net, impairment charges, and interest and other income, 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						Nine Months Ended
	September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
Net revenue:
Retail	$	131,341		$	130,301		$	360,236		$	374,018
Commercial	71,974			76,957			226,284			236,254
Service provider	150,023			154,637			453,813			402,741
Total net revenue	353,338			361,895			1,040,333			1,013,013
Contribution income:
Retail	$	21,813		$	19,317		$	51,222		$	53,696
Retail contribution margin	16.6		%	14.8		%	14.2		%	14.4		%
Commercial	15,112			16,903			51,781			51,190
Commercial contribution margin	21.0		%	22.0		%	22.9		%	21.7		%
Service Provider	14,164			12,474			42,918			36,055
Service Provider contribution margin	9.4		%	8.1		%	9.5		%	9.0		%
Total segment contribution income	51,089			48,694			145,921			140,941
Corporate and unallocated costs	(13,544		)	(12,800		)	(40,428		)	(38,824		)
Amortization of intangibles (1)	(4,396		)	(4,439		)	(13,177		)	(10,782		)
Stock-based compensation expense	(5,162		)	(4,511		)	(15,226		)	(12,492		)
Restructuring and other charges	(1,360		)	(400		)	(2,190		)	(1,957		)
Acquisition-related expense	—			—			(8		)	(924		)
Impact to cost of sales from acquisition accounting adjustments to inventory	—			—			—			(568		)
Litigation reserves, net	(69		)	(305		)	(254		)	(3,908		)
Impairment charges	—			(2,000		)	—			(2,000		)
Interest income	68			71			174			315
Other income, net	2,246			511			1,911			37
Income before income taxes	$	28,872		$	24,821		$	76,723		$	69,838

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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				Nine Months Ended
	September 28, 2014		September 29, 2013		September 28, 2014		September 29, 2013
United States (U.S.)	$	188,569	$	214,755	$	561,067	$	564,604
Americas (excluding U.S.)	5,335		5,732		15,150		13,407
United Kingdom (U.K.)	38,933		34,094		122,707		116,924
EMEA (excluding U.K.)	69,488		63,126		192,943		195,788
APAC	51,013		44,188		148,466		122,290
Total net revenue	$	353,338	$	361,895	$	1,040,333	$	1,013,013

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

	As of
	September 28, 2014		December 31, 2013
United States	$	10,810	$	10,273
Canada	4,456		2,132
Americas (excluding U.S. and Canada)	22		28
EMEA	783		914
China	9,964		11,905
APAC (excluding China)	1,594		1,942
	$	27,629	$	27,194