NOTE 6 – SEGMENT INFORMATION

Our sales are primarily comprised of training and consulting services. During the first quarter of fiscal 2018, we reorganized our operations into two new divisions: the Enterprise Division and the Education Division. The Enterprise Division consists of sales channels that are primarily focused on sales of the All Access Pass and related services to both corporate and governmental entities. Paul S. Walker was named President of the Enterprise Division during the quarter ended November 30, 2017. The Education Division is focused on sales to educational institutions, including elementary schools, middle schools, high schools, and colleges and universities. M. Sean Covey was appointed President of the Education Division during the quarter ended November 30, 2017. Our internal reporting structure was revised to reflect these changes and is now comprised of three operating segments and a corporate services group. The former Strategic Markets operating segment was absorbed by the Direct Office operating segment since their target customers and sales methodologies are essentially identical. The remaining operating segments were determined to be reportable segments under the applicable accounting guidance. The following is a brief description of our reportable segments:

Direct Offices – This group includes our sales personnel that serve the United States and Canada; our international sales offices located in Japan, China, the United Kingdom, and Australia; our governmental sales channel; and our public program operations.

Education Practice – This group includes our domestic and international Education practice operations, which are focused on sales to educational institutions.

International Licensees – This division is primarily comprised of our international licensees’ royalty revenues. The international licensees are included in the Enterprise Division.

Corporate and Other – Our corporate and other information includes leasing operations, shipping and handling revenues, and certain corporate administrative expenses.

We determined that the Company’s chief operating decision maker continues to be the CEO, and the primary measurement tool used in business unit performance analysis is Adjusted EBITDA, which may not be calculated as similarly titled amounts disclosed by other companies. For reporting purposes, our consolidated Adjusted EBITDA may be calculated as our income or loss from operations excluding stock-based compensation, depreciation expense, amortization expense, and certain other charges such as restructuring charges, impaired asset charges, and adjustments for changes in the fair value of contingent liabilities from business acquisitions. Prior period segment financial information was reclassified to conform to our current reporting and operating structure.

Our operations are not capital intensive and we do not own any manufacturing facilities or equipment. Accordingly, we do not allocate assets to the divisions for analysis purposes. Interest expense and interest income are primarily generated at the corporate level and are not allocated. Income taxes are likewise calculated and paid on a corporate level (except for entities that operate in foreign jurisdictions) and are not allocated for analysis purposes.

We account for the following segment information on the same basis as the accompanying condensed consolidated financial statements (in thousands).



		Sales to
Quarter Ended		External				Adjusted
November 30, 2017		Customers		Gross Profit		EBITDA

Direct offices	$	34,197	$	24,561	$	3,078
Education practice		9,176		5,430		(670)
International licensees		3,320		2,503		1,412
Total		46,693		32,494		3,820
Corporate and eliminations		1,239		374		(3,218)
Consolidated	$	47,932	$	32,868	$	602

Quarter Ended
November 26, 2016

Direct offices	$	26,383	$	16,937	$	(1,761)
Education practice		8,743		5,024		233
International licensees		3,431		2,652		1,308
Total		38,557		24,613		(220)
Corporate and eliminations		1,230		695		(2,599)
Consolidated	$	39,787	$	25,308	$	(2,819)

As a result of the change in our segments, all of the goodwill previously included in the Strategic Markets segment was reassigned to the Direct Office segment. As of November 30, 2017, our goodwill balances were $16.8 million in the Direct Offices segment, $2.3 million in the Education Practice segment, and $5.1 million in the International Licensee segment. In conjunction with the change in reportable segments, we evaluated goodwill in the Direct Offices and Strategic Markets reportable segments for impairment, both before and after the segment change, and determined that goodwill was not impaired.

A reconciliation of our consolidated Adjusted EBITDA to consolidated net loss is provided below (in thousands).



	Quarter Ended
		November 30,		November 26,
		2017		2016
Enterprise Adjusted EBITDA	$	3,820	$	(220)
Corporate expenses		(3,218)		(2,599)
Consolidated Adjusted EBITDA		602		(2,819)
Stock-based compensation expense		(956)		(1,214)
Reduction (increase) in contingent
consideration liabilities		(176)		1,013
China office start-up costs		-		(479)
ERP system implementation costs		(426)		(288)
Depreciation		(901)		(866)
Amortization		(1,395)		(722)
Loss from operations		(3,252)		(5,375)
Interest income		61		116
Interest expense		(549)		(620)
Loss before income taxes		(3,740)		(5,879)
Income tax benefit		1,348		1,921
Net loss	$	(2,392)	$	(3,958)