Segment Information, Operations By Geographic Area And Customer Concentration (Notes)

12 Months Ended

Dec. 31, 2015

Segment Reporting [Abstract]

Segment Information, Operations By Geographic Area And Customer Concentration

Segment Information, Operations by Geographic Area and Customer Concentration

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 has identified its CEO as the CODM and 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 security, 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-sized 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 contains leadership focused on the product development efforts, both from a product marketing and engineering standpoint, to service the unique needs of these customer segments. 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.

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 andother 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):

	Year Ended December 31,
	2015			2014			2013
Net revenue:
Retail	$	614,367		$	508,100		$	509,924
Commercial	264,846			305,677			311,261
Service provider	421,482			579,738			548,448
Total net revenues	$	1,300,695		$	1,393,515		$	1,369,633
Contribution income:
Retail	$	85,231		$	76,266		$	73,418
Retail contribution margin	13.9		%	15.0		%	14.4		%
Commercial	53,393			70,810			66,506
Commercial contribution margin	20.2		%	23.2		%	21.4		%
Service Provider	39,151			47,547			51,620
Service Provider contribution margin	9.3		%	8.2		%	9.4		%
Total segment contribution income	177,775			194,623			191,544
Corporate and unallocated costs	(54,501		)	(53,581		)	(51,629		)
Amortization of intangibles (1)	(16,969		)	(17,573		)	(15,217		)
Stock-based compensation expense	(16,825		)	(20,014		)	(17,462		)
Restructuring and other charges	(6,398		)	(2,209		)	(5,335		)
Acquisition-related expense (2)	—			(8		)	(940		)
Impact to cost of sales from acquisition accounting adjustments to inventory	(407		)	—			(568		)
Litigation reserves, net	2,682			1,011			(5,354		)
Goodwill impairment charges	—			(74,196		)	—
Intangibles impairment charges	—			—			(2,000		)
Interest income	295			253			400
Other income (expense), net	(88		)	2,455			(457		)
Income before income taxes	$	85,564		$	30,761		$	92,982

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(1) Amount excludes amortization expense related to patents within purchased intangibles in costs of revenues.

(2) These acquisition-related charges were expensed in the period incurred and reported in the Company's consolidated statements of operations within cost of revenues and operating expense.

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):

	Year Ended December 31,
	2015		2014		2013
United States (U.S.)	$	779,361	$	750,933	$	769,357
Americas (excluding U.S.)	18,385		19,957		19,961
United Kingdom (U.K.)	103,649		154,503		142,729
EMEA (excluding U.K.)	218,065		267,384		269,959
APAC	181,235		200,738		167,627
Total net revenue	$	1,300,695	$	1,393,515	$	1,369,633

Best Buy Co., Inc. and Affiliates accounted for 15% of net revenue, wholly within the retail business unit, in the year ended December 31, 2015. No customers accounted for 10% or more of net revenue in the years ended December 31, 2014 and 2013.

Long-lived assets include purchased intangibles, goodwill and property and equipment. The Company's property and equipment are located in the following geographic locations (in thousands):

	As of
	December 31, 2015		December 31, 2014
United States	$	9,832	$	12,453
Canada	3,586		4,375
EMEA	468		657
China	6,562		10,786
APAC (excluding China)	1,936		1,423
	$	22,384	$	29,694