Segment Information, Operations By Geographic Area And Significant Customers

9 Months Ended

Oct. 02, 2011

Segment Information, Operations By Geographic Area And Significant Customers [Abstract]

Segment Information, Operations By Geographic Area And Significant Customers

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

In the three months ended July 3, 2011, the Company made organizational changes that have 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 products sold to service providers with retail proven, whole home networking solutions for 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 the Company 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 three months ended July 3, 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 is as follows (in thousands, except percentage data):

	Three Months Ended
	October 2, 2011							October 3, 2010
	Net Revenue		Contribution Income		Contribution Margin			Net Revenue		Contribution Income		Contribution Margin
Retail	$	127,082	$	19,958		15.7	%	$	115,165	$	18,346		15.9	%
Commercial		91,059		23,013		25.3	%		75,532		16,910		22.4	%
Service Provider		83,659		6,662		8.0	%		45,320		997		2.2	%
Total	$	301,800	$	49,633		16.4	%	$	236,017	$	36,253		15.4	%
	Nine Months Ended
	October 2, 2011							October 3, 2010
	Net Revenue		Contribution Income		Contribution Margin			Net Revenue		Contribution Income		Contribution Margin
Retail	$	352,076	$	60,843		17.3	%	$	316,819	$	51,189		16.2	%
Commercial		247,793		56,716		22.9	%		211,766		48,433		22.9	%
Service Provider		271,994		24,063		8.8	%		114,936		9,199		8.0	%
Total	$	871,863	$	141,622		16.2	%	$	643,521	$	108,821		16.9	%

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 reconciliation of segment information to the Company's consolidated totals is as follows (in thousands):

	Three Months Ended						Nine Months Ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
Segment contribution income	$	49,633		$	36,253		$	141,622		$	108,821
Corporate and unallocated costs		(11,994	)		(10,226	)		(33,986	)		(28,608	)
Amortization of intangible assets		(1,064	)		(1,344	)		(3,610	)		(3,970	)
Stock-based compensation expense		(3,454	)		(2,947	)		(10,334	)		(9,211	)
Restructuring and other charges		—			8			(2,094	)		76
Acquisition related compensation		—			(20	)		(40	)		(666	)
Impact to cost of sales from acquisition accounting adjustments to inventory		—			—			(609	)		—
Litigation reserves, net		(44	)		—			234			(211	)
Interest income		115			132			350			302
Other income (expense), net		(267	)		(326	)		(938	)		(388	)
Income before income taxes	$	32,925		$	21,530		$	90,595		$	66,145

The Company's corporate headquarters and a significant portion of its operations are located in the United States. The Company also conducts sales, marketing, customer service activities and certain distribution center activities through several small sales offices in Europe, the Middle-East and Africa ("EMEA") and Asia as well as outsourced distribution centers.

In the three months ended April 3, 2011, in order to achieve operational efficiencies, the Company combined its North American, Central American and South American sales forces to form the Americas territory. Previously, North America was its own geographic region and the Central American and South American territories were categorized within the Asia Pacific geographic region. Following this change, the Company is organized into the following three geographic territories: Americas, EMEA and Asia Pacific. The Company has reclassified the disclosure of net revenue by geography for prior periods to conform to the current period's presentation. The change did not result in material differences from what was previously reported. 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
	October 2, 2011		October 3, 2010		October 2, 2011		October 3, 2010
United States	$	144,969	$	120,063	$	419,460	$	323,774
Americas (excluding U.S.)		4,040		1,345		11,022		8,487
United Kingdom		38,010		30,590		124,831		71,087
EMEA (excluding U.K.)		81,725		58,975		227,855		167,623
Asia Pacific		33,056		25,044		88,695		72,550
Total net revenue	$	301,800	$	236,017	$	871,863	$	643,521

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):

	October 2, 2011		December 31, 2010
United States	$	10,531	$	11,808
Americas (excluding U.S.)		46		22
EMEA		321		205
China		4,411		4,848
Asia Pacific (excluding China)		770		620
	$	16,079	$	17,503

Significant customers are as follows (as a percentage of net revenue):

	Three Months Ended						Nine Months Ended
	October 2, 2011			October 3, 2010			October 2, 2011			October 3, 2010
Best Buy Co., Inc. and Affiliates (Retailer)		11	%		16	%		11	%		16	%
Ingram Micro, Inc. and Affiliates (Distributor)		10	%		11	%		10	%		12	%
All others		79	%		73	%		79	%		72	%
		100	%		100	%		100	%		100	%