Netgear 2013 Annual Report Download - page 105

Table of Contents NETGEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
networking, home video monitoring, 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 size 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 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.
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, 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 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):
________________________________
102
Year Ended December 31,
2013
2012 2011
Net revenues:
Retail
$
509,924
$
504,797
$
481,795
Commercial
311,261
307,945
331,439
Service provider
548,448
459,179
367,784
Total net revenues
$
1,369,633
$
1,271,921
$
1,181,018
Contribution income:
Retail
$
73,418
$
86,808
$
81,589
Retail contribution margin
14.4
%
17.2
%
16.9
%
Commercial
66,506
67,826
74,746
Commercial contribution margin
21.4
%
22.0
%
22.6
%
Service Provider
51,620
40,794
32,797
Service Provider contribution margin
9.4
%
8.9
%
8.9
%
Total segment contribution income
191,544
195,428
189,132
Corporate and unallocated costs
(51,629
)
(47,766
)
(43,301
)
Amortization of intangible assets (1)
(15,217
)
(4,763
)
(4,658
)
Stock-based compensation expense
(17,462
)
(14,372
)
(13,762
)
Restructuring and other charges
(5,335
)
(1,190
)
(2,094
)
Acquisition-related expense (2)
(940
)
(833
)
(40
)
Impact to cost of sales from acquisition accounting adjustments to inventory
(568
) — (
609
)
Litigation reserves, net
(5,354
)
(390
)
201
Impairment of intangibles
(2,000
) — —
Interest income
400
498
477
Other income (expense), net
(457
)
2,670
(1,136
)
Income before income taxes
$
92,982
$
129,282
$
124,210
(1)
Amount excludes amortization expense related to patents within purchased intangible assets in costs of revenues.