Its pretty straightforward Bridge. By and large the non-MRV product lines are still Internet infrastructure that falls into the categories MRV uses for its business segment disclosure. MRV is just like any other multi-national corporation and follows the same accounting principles as IBM or Exxon or Walmart.
Look at footnote 14. There are two categories that are substantial in size and show year over year growth for 2001; “Network physical infrastructure equipment” and “other”. Together they amount to more than $83 million or 25% of net revenues. If you add some “services” to the total it becomes even more obvious that there is significant business here. Where do you think they are going to record revenue from CES or Alcadon??
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These are relevant portions of the financial footnotes from the 2001 10K.
1. Description of Business
MRV Communications, Inc. (a Delaware corporation, MRV or the Company) creates, acquires, finances and operates companies, and through them, designs, develops, manufactures and markets products, which enable high-speed broadband communications. MRV concentrates on companies and products devoted to optical active and passive components, switches and routers, remote device management and network physical infrastructure equipment. MRV's strategy involves creating value for its stockholders and the other minority shareholders of its subsidiaries by helping the companies grow and access the public and private capital markets. [To a certain extent this strategy has been superceded by the business model announced in February but they still acquire and operate European VARs.]
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MRV and its wholly-owned and majority owned subsidiaries. All significant inter-company transactions and accounts have been eliminated. MRV consolidates the financial results of related development stage enterprises when it has effective control, voting control or has provided the entity's working capital. When others invest in these enterprises reducing its voting control below 50 percent, MRV discontinues consolidation and uses the equity method of accounting for these investments.
Transaction Gains or Losses
For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies in to U.S. dollars at the exchange rate prevailing at the balance sheet date. Revenues, expenses and cash flows are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the financial statements.[i.e. swedish kroner, german marks, swiss and french francs and Italian lira] Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss.
Revenue Recognition
MRV generally recognizes product revenue, net of sales discounts, returns and allowances, when persuasive evidence of an arrangement exists, delivery has occurred and all significant contractual obligations have been satisfied, the fee is fixed or determinable and collection is considered probable. Products are generally shipped "FOB shipping point" with no right of return. Sales with contingencies, such as rights of return, rotation rights, conditional acceptance provisions and price protection, are rare and insignificant and are deferred until the contingencies have been satisfied or the contingent period has lapsed. MRV's major revenue generating products consist of: passive and active optical components; switches and routers; remote device management; and network physical infrastructure equipment. Revenue generated through the sales of services and systems support has been insignificant. MRV generally warrants its products against defects in materials and workmanship for one year. The estimated cost of warranty obligations and sales returns and other allowances are recognized at the time of revenue recognition based on contract terms and prior claims experience.
5. Investments in Subsidiaries
The following table presents information regarding investments made by MRV in subsidiaries accounted for under the equity method of accounting or consolidated. Subsidiaries in which MRV owns greater than 50 percent ownership or exercises control have been consolidated in the accompanying consolidated financial statements.
[from footnote 5 to the table in footnote 5 of the financials]
Income and losses from non-consolidated equity method subsidiaries (i.e. less than 50% subs like Tellaire, Red C and Igentica (hyperchannel) are included in "Other income (expense)" in the accompanying consolidated statements of operations. MRV is obligated to provide funding to certain of these investments. As of December 31, 2001 the remaining contractual obligation is $10.6 million.
14. Segment Reporting and Geographical Information
MRV operates under a business model that creates and manages start-up companies and independent business units. These companies fall into two segments: operating entities and development stage enterprises. Segment information is therefore being provided on this basis which differs from prior period presentations. Development stage enterprises that MRV has created or invested in are developing optical components, subsystems and networks and products for the infrastructure of the Internet. Operating entities of MRV design, manufacture and distribute optical components, optical subsystems, optical networking solutions, and Internet infrastructure products. The accounting policies of the segments are the same as those described in the summary of significant accounting polices. MRV evaluates segment performance based on revenues and operating income (loss) of each segment. As such, there are no separately identifiable segment assets nor are there any separately identifiable statements of operations data below operating income.
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