11. Concentration of Risk and Segment Data

a. Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company maintains cash and cash equivalents with various domestic and foreign financial institutions. Deposits held with the financial institutions may exceed the amount of insurance provided on such deposits, but may generally be redeemed upon demand. The Company performs periodic evaluations of the relative credit standing of the financial institutions and attempts to limit exposure with any one institution. With respect to trade receivables, the Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains an allowance for potential credit losses on trade receivables. As the Company is a provider of electronic manufacturing services and solutions and products are built based on customer specifications, it is impracticable to provide revenues from external customers for each product and service.

Sales of the Company’s products are concentrated among specific customers. For fiscal year 2013, the Company’s five largest customers accounted for approximately 53% of its net revenue and 58 customers accounted for approximately 90% of its net revenue. Sales to the following customers who accounted for 10% or more of the Company’s net revenues, expressed as a percentage of consolidated net revenue, and the percentage of accounts receivable for each customer, were as follows:


	Percentage of Net Revenue Fiscal Year Ended August 31,									Percentage of Accounts Receivable August 31,
	2013			2012			2011			2013			2012
Apple, Inc.		19	%		13	%		*			20	%		17	%
BlackBerry Limited⁽¹⁾		12	%		10	%		15	%		*			*
Cisco Systems, Inc.		*			10	%		13	%		*			*

*	Amount was less than 10% of total

(1)

During the fourth quarter of fiscal year 2013, Research in Motion Limited changed its name to BlackBerry Limited. The Company is currently in ongoing discussions with BlackBerry Limited regarding the termination or substantial winding down of the business relationship. No reserve has currently been established regarding the termination or winding down of the customer relationship as a loss is not considered probable. The reduction in business could include restructuring and related expenses, which are still being determined and could have a material adverse effect on results of operations.

Sales to the above customers were reported in the DMS, E&I and HVS operating segments.

The Company procures components from a broad group of suppliers. Almost all of the products manufactured by the Company require one or more components that are available from only a single source.

b. Segment Data

Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.

The Company derives its revenue from providing comprehensive electronics design, production and product management services. The chief operating decision maker evaluates performance and allocates resources on a segment basis. The Company’s operating segments consist of three segments – DMS, E&I and HVS.

The DMS segment is composed of dedicated resources to manage higher complexity global products in regulated and other industries and introduce materials and process technologies including design and aftermarket services to global customers. The E&I and HVS segments offer integrated global manufacturing and supply chain solutions designed to provide cost effective solutions for certain customer groups. The E&I segment is focused on customers primarily in the computing, storage, networking and telecommunication sectors. The HVS segment is focused on the particular needs of the consumer products industry, including mobility, display, set-top boxes and peripheral products such as printers and point of sale terminals.

Net revenue for the operating segments is attributed to the segment in which the service is performed. An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net revenue less cost of revenue, segment selling, general and administrative expenses, segment research and development expenses and an allocation of corporate manufacturing expenses and selling, general and administrative expenses, and does not include distressed customer charge, stock-based compensation expense and related charges, amortization of intangibles, restructuring and related charges, impairment of notes receivable and related charges, acquisition costs and purchase accounting adjustments, settlement of receivables and related charges, loss on disposal of subsidiaries, other expense, interest income, interest expense, income tax expense or adjustment for net income attributable to noncontrolling interests. Total segment assets are defined as accounts receivable, inventories, net customer-related machinery and equipment, intangible assets net of accumulated amortization and goodwill. All other non-segment assets are reviewed on a global basis by management. Transactions between operating segments are generally recorded at amounts that approximate arm’s length.

The following table sets forth operating segment information (in thousands):


	Fiscal Year Ended August 31,
	2013		2012		2011
Net revenue
DMS	$	8,182,104	$	7,476,730	$	6,018,332
E&I		5,528,406		5,080,417		5,180,011
HVS		4,626,384		4,594,794		5,320,484

	$	18,336,894	$	17,151,941	$	16,518,827


	Fiscal Year Ended August 31,
	2013			2012			2011
Segment income and reconciliation of income before income tax
DMS	$	440,743		$	455,596		$	389,188
E&I		147,001			105,583			199,731
HVS		133,318			175,000			126,275

Total segment income	$	721,062		$	736,179		$	715,194
Reconciling items:
Distressed customer charge		—			(16,014	)		—
Stock-based compensation expense and related charges		(68,383	)		(81,409	)		(76,230	)
Amortization of intangibles		(16,154	)		(16,825	)		(22,051	)
Restructuring and related charges		(89,453	)		—			(628	)
Impairment of notes receivable and related charges		(25,597	)		—			—
Acquisition costs and purchase accounting adjustments		(10,037	)		—			—
Settlement of receivables and related charges		—			—			(13,607	)
Loss on disposal of subsidiaries		—			—			(23,944	)
Other expense		(6,213	)		(8,943	)		(2,986	)
Interest income		1,901			2,041			3,132
Interest expense		(121,062	)		(106,129	)		(97,693	)

Income before income tax	$	386,064		$	508,900		$	481,187


	August 31,
	2013		2012
Total assets
DMS	$	4,131,973	$	3,002,982
E&I		1,110,458		1,157,464
HVS		1,031,911		970,819
Other non-allocated assets		2,879,439		2,671,876

	$	9,153,781	$	7,803,141

The Company operates in 31 countries worldwide. Sales to unaffiliated customers are based on the Company’s location that maintains the customer relationship and transacts the external sale. The following tables set forth external net revenue, net of intercompany eliminations, and long-lived asset information where individual countries represent a material portion of the total (in thousands):


	Fiscal Year Ended August 31,
	2013		2012		2011
External net revenue:
Mexico	$	4,105,274	$	3,658,873	$	3,876,239
Singapore		3,297,523		2,030,492		938,381
China		3,273,599		3,425,641		3,343,669
U.S.		2,571,969		2,466,079		2,314,098
Hungary		1,315,548		1,430,180		1,794,869
Malaysia		1,243,808		1,148,899		1,167,594
Brazil		547,690		661,676		710,863
Other		1,981,483		2,330,101		2,373,114

	$	18,336,894	$	17,151,941	$	16,518,827


	August 31,
	2013		2012
Long-lived assets:
China	$	1,108,471	$	718,970
U.S.		1,084,450		339,409
Mexico		216,248		191,388
Taiwan		122,904		110,610
Singapore		101,946		121,291
Malaysia		91,591		132,027
Hungary		78,092		78,841
Poland		78,045		83,978
Other		254,286		216,712

	$	3,136,033	$	1,993,226

Total foreign source net revenue was approximately $15.8 billion, $14.7 billion and $14.2 billion for fiscal years 2013, 2012 and 2011, respectively. Total long-lived assets related to the Company’s foreign operations were approximately $2.1 billion and $1.7 billion for fiscal years 2013 and 2012, respectively.