SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2013

SEGMENT INFORMATION

SEGMENT INFORMATION

13. SEGMENT INFORMATION

During 2012, the Company had a change in its chief operating decision maker (“CODM”), which led to a change in the fourth quarter to what the CODM uses to measure profitability and allocate resources. Accordingly, beginning with the fourth quarter of 2012, the Company is managed in three operating segments—North America Consumer, ROW Consumer and Global Enterprise and Education. These segments also represent the Company’s reportable segments. Concurrent with the change in reportable segments, the Company reviewed the expenses included in segment contribution. The Company identified additional expenses including certain customer care, coaching, finance and sales and marketing costs that directly benefit individual reportable segments and are included in segment contribution. Prior period data has been retrospectively revised to be consistent with the current year presentation.

Segment contribution includes segment revenue and expenses incurred directly by the segment, including material costs, service costs, customer care and coaching costs, and sales and marketing expense. The Company does not allocate expenses beneficial to all segments, which include certain general and administrative expenses, facilities and communication expenses, purchasing expenses and manufacturing support and logistic expenses. These expenses are included in the unallocated expenses section of the table presented below. Revenue from transactions between the Company’s operating segments is not material.

With the exception of goodwill, the Company does not identify or allocate its assets by operating segment. Consequently, the Company does not present assets or liabilities by operating segment.

Operating results by segment for the three and nine months ended September 30, 2013 and 2012 were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
				(As Adjusted)*						(As Adjusted)*
Revenue:
North America Consumer	$	38,699		$	39,878		$	120,018		$	119,881
Rest of World Consumer	7,165			9,903			23,213			30,159
Global Enterprise & Education	15,008			14,498			43,703			44,500
Total Revenue	$	60,872		$	64,279		$	186,934		$	194,540
Segment contribution:
North America Consumer	$	15,266		$	15,490		$	50,746		$	47,843
Rest of World Consumer	(537		)	(622		)	(1,089		)	(2,491		)
Global Enterprise & Education	5,200			6,426			15,488			18,866
Total segment contribution	19,929			21,294			65,145			64,218
Unallocated expenses, net:
Unallocated cost of sales	1,504			1,326			3,005			5,049
Unallocated sales and marketing	3,708			4,512			12,480			12,877
Unallocated research and development	8,797			5,177			25,246			17,945
Unallocated general and administrative	13,420			13,666			39,073			39,297
Unallocated lease abandonment	7			—			835			—
Unallocated non-operating income/(expense)	293			(15		)	(156		)	(69		)
Total unallocated expenses, net	27,729			24,666			80,483			75,099
Income (loss) before provision for income taxes	$	(7,800	)	$	(3,372	)	$	(15,338	)	$	(10,881	)

* Certain amounts have been adjusted for the retrospective change in accounting principle for sales commissions (See Note 2).

Geographic Information

Revenue by major geographic region is based primarily upon the geographic location of the customers who purchase Rosetta Stone products. The geographic locations of distributors and resellers who purchase and resell Rosetta Stone products may be different from the geographic locations of end customers. The information below summarizes revenue from customers by geographic area for the three and nine months ended September 30, 2013 and 2012 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
United States	$	51,013	$	52,167	$	155,966	$	157,892
International	9,859		12,112		30,968		36,648
Total Revenue	$	60,872	$	64,279	$	186,934	$	194,540

The information below summarizes long-lived assets by geographic area as of September 30, 2013 and December 31, 2012 (in thousands):

	September 30,		December 31,
	2013		2012
United States	$	17,402	$	15,986
International	627		1,227
Total	$	18,029	$	17,213