Segment Disclosures

Companies must provide the following disclosures

- Revenues from external customers - Long-lived assets - Info about extent of their reliance on a single external customer with revenues of 10% or more of the company's total revenues

FASB's objective in segment reporting to help users of FS do all of the following:

1. Better understand the public entity's performance 2. Better assess its prospectus for future net cash flows 3. Make more informed judgments about the public entity as a whole

An operating segment MUST be disclosed if it meets any one of the following thresholds:

1. Its reported revenue (including both sales to external customers and inter-segment sales or transfers) is 10% more of the combined revenue (internal and external) of all operating segments 2. The absolute amount of its reported profit or loss is 10% or more of the greater (in absolute amount) of either - The combined reported profit of all operating segments that did not report a loss or - The combined reported loss of all operating segments that did report a loss 3. Its assets are 10% or more of the combined assets of all operating segments

Disclosures relating to geographical concentration of revenues and assets in the US and outside the US:

1. Revenues from external customers attributed to public entity's country of domicile and attributed to all foreign countries in total from which the public entity derives revenues 2. Long-Lived Assets (other than financial instruments), long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets located in the public entity's country of domicile and located in all foreign countries in total in which the public entity holds assets

The SEC

1. SEC Staff frequently questions how registrants identify and aggregate operating segments (comment letters) a. Other disclosures/press releases can spur questions 2. SEC has also been known to focus on the disclosure of: a. External revenues from similar products or services b. Geographic information

Two or more segments may be aggregated if:

1. The segments have similar operating characteristics AND 2. They are similar in each of the following: - Nature of the products and services - Nature of the production process - Type or class of customer for products and services - Methods used to distribute products or provide services - Nature of the regulatory environment, if applicable (ex. banking, insurance, public utilities)

Reconciliations of segment totals to consolidated financial statements

1. The total of reportable segments' revenues to public entity's consolidated revenues 2. Total of reportable segments' measures of profit or loss to the public entity's consolidated income before income taxes, extraordinary items, and discontinued operations 3. Total of the reportable segments' assets to the public entity's consolidated assets 4. Total of reportable segments' amounts for every other significant item of info disclosed to the corresponding consolidated amount

Operating Segments Characteristics

A component of a public company that has ALL of the following characteristics: 1. It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity) 2. Its operating results are regularly reviewed by the public entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance 3. Its discrete financial information is available

Quantitative Threshold - Revenue

Total external revenue reported by operating segments must constitute at least 75% of total consolidated revenue

Typical Disclosures of Segment Financial Data Include

Sales Income (net income, income before extraordinary items, or operating income) Depreciation and Amortization Expense Total Assets Capital Expenditures

Segment Reporting is Covered by

ASC 280

The Management Approach

Approach focuses on financial information that a public entity's decision makers use to make decisions about the public entity's operating matters

FASB's objective of requiring disclosures about segments of a public entity and related information

To provide information about the different types of business activities in which a public entity engages and the different economic environments in which it operates to help users of financial statements.

Prior-Periods

If an operating segment is identified as a reportable segment in the current period due to the quantitative thresholds, prior-period segment data presented for comparative purposes shall be restated to reflect the newly reportable segment... unless it is impracticable to do so

Once In, Always In

If operating segment is identified as a reportable segment in the immediately preceding period to be of continuing significance, information about the segment shall continue to be reported separately in the current period even if it no longer meets the criteria for reportability

Operating Segments

Not every component of a business is necessarily an operating segment Corporate HQ or certain financial dept, such as R&D, may not earn revenues and may not therefore be designated as a segment

Quantitative Thresholds (1 of 3)

Once an operating segment has been identified, it must be disclosed in the footnotes if it meets any one of the three thresholds: 1. Reporting Revenues 2. Absolute Amount of Reported Profit or Loss 3. Assets