v2.3.0.11
Segment Information, Operations By Geographic Area And Significant Customers
 6 Months Ended
Jul. 03, 2011
Segment Information, Operations By Geographic Area And Significant Customers  
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 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 which have resulted in changes to the way in which the Chief Operating Decision Maker ("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 chief operating decision maker 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 chief operating decision maker, 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):

 

     Three Months Ended  
     July 3, 2011     June 27, 2010  
     Net
Revenue		      Contribution
Income		      Contribution
Margin		     Net
Revenue		      Contribution
Income		      Contribution
Margin		  

Retail

    $ 107,869       $ 21,007         19.5 %    $ 94,022       $ 15,154         16.1 % 

Commercial

      77,112         16,122         20.9 %      70,913         17,177         24.2 % 

Service Provider

      106,259         9,020         8.5 %      31,014         2,423         7.8 % 
  

 

 

     

 

 

       

 

 

     

 

 

     

Total

    $ 291,240       $ 46,149         15.8 %    $ 195,949       $ 34,754         17.7 % 
  

 

 

     

 

 

       

 

 

     

 

 

     

 

     Six Months Ended  
     July 3, 2011     June 27, 2010  
     Net
Revenue		      Contribution
Income		      Contribution
Margin		     Net
Revenue		      Contribution
Income		      Contribution
Margin		  

Retail

    $ 224,994       $ 40,885         18.2 %    $ 201,654       $ 32,843         16.3 % 

Commercial

      156,734         33,703         21.5 %      136,234         31,523         23.1 % 

Service Provider

      188,335         17,401         9.2 %      69,616         8,202         11.8 % 
  

 

 

     

 

 

       

 

 

     

 

 

     

Total

    $ 570,063       $ 91,989         16.1 %    $ 407,504       $ 72,568         17.8 % 
  

 

 

     

 

 

       

 

 

     

 

 

     

Segment contribution income includes all product line segment revenues less the related cost of sales, research and development, 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     Six Months Ended  
     July 3,
2011		     June 27,
2010		     July 3,
2011		     June 27,
2010		  

Segment contribution income

    $ 46,149      $ 34,754      $ 91,989      $ 72,568   

Corporate and unallocated costs

      (11,380 )      (9,137 )      (21,992 )      (18,382 ) 

Amortization of intangible assets

      (1,189 )      (1,325 )      (2,546 )      (2,626 ) 

Stock-based compensation expense

      (3,508 )      (3,123 )      (6,880 )      (6,264 ) 

Restructuring and other charges

      (2,094 )      81        (2,094 )      68   

Acquisition related compensation

      (20 )      (307 )      (40 )      (646 ) 

Impact to cost of sales from acquisition accounting adjustments to inventory

      (609 )      —          (609 )      —     

Litigation reserves, net

      225        (143 )      278        (211 ) 

Interest income

      106        100        235        170   

Other income (expense), net

      (341 )      132        (671 )      (62 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Income before income taxes

    $ 27,339      $ 21,032      $ 57,670      $ 44,615   
  

 

 

    

 

 

    

 

 

    

 

 

  

 

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      Six Months Ended  
     July 3,
2011		      June 27,
2010		      July 3,
2011		      June 27,
2010		  

United States

    $ 146,727       $ 97,293       $ 274,491       $ 203,711   

Americas (excluding U.S.)

      2,799         6,274         6,982         7,142   

United Kingdom

      40,188         20,785         86,821         40,497   

EMEA (excluding U.K.)

      70,143         47,213         146,130         108,648   

Asia Pacific

      31,383         24,384         55,639         47,506   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total net revenue

    $ 291,240       $ 195,949       $ 570,063       $ 407,504   
  

 

 

     

 

 

     

 

 

     

 

 

  

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):

 

     July 3,      December 31,  
     2011      2010  

United States

    $ 11,546       $ 11,808   

Americas (excluding U.S.)

      49         22   

EMEA

      218         205   

China

      4,055         4,848   

Asia Pacific (excluding China)

      768         620   
  

 

 

     

 

 

  
   $ 16,636       $ 17,503   
  

 

 

     

 

 

  

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

 

     Three Months
Ended		     Six Months
Ended		  
     July 3,     June 27,     July 3,     June 27,  
     2011     2010     2011     2010  

Best Buy Co., Inc. and Affiliates (Retailer)

      10 %      16 %      12 %      16 % 

Ingram Micro, Inc. and Affiliates (Distributor)

      10 %      11 %      10 %      12 % 

Virgin Media Limited and Affiliates (Service Provider)

      9 %      2 %      10 %      1 % 

All others

      71 %      71 %      68 %      71 % 
  

 

 

    

 

 

    

 

 

    

 

 

  
     100 %      100 %      100 %      100 %