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Disclosures are required by ASC 280 for each period for which an income statement is presented, except for reconciliations of balance sheet amounts (which are required for each year that a balance sheet is presented). Although a suggested format is presented in ASC 280-10-55-48, the guidance allows for flexibility. The segment disclosures follow the management approach, meaning they show the measures used by the CODM to assess performance and allocate resources. As such, adjustments, eliminations, and allocations that are made in the preparation of information for use by the CODM should be included in the reported segment information.
ASC 280 requires disclosure of certain general information related to segments. This includes information about the factors used to identify reportable segments, the types of products and services from which reportable segments generate revenues, and whether operating segments have been aggregated.
In addition, ASC 280 requires disclosure of the following:
  • Information about profit or loss and assets
    As discussed in ASC 280-10-50-22 through ASC 280-10-50-24, this includes disclosures of the asset and certain income statement captions, including the performance measures regularly reviewed by the CODM.
  • Information about investments and expenditures
    As discussed in ASC 280-10-50-25, this includes disclosures about investments in equity method investees and expenditures for additions to long-lived assets.
  • Information about the measurement of segment profit or loss and assets
    As discussed in ASC 280-10-50-27 through ASC 280-10-50-29, this includes disclosures about transactions between segments, differences between segments, changes from prior year measurements, and asymmetrical segment allocations.
  • Reconciliations
    As discussed in ASC 280-10-50-30 and ASC 280-10-50-31, this includes disclosures of reconciliations of the specific segment information to the amounts included in the consolidated financial statements.
  • Entity-wide information
    As discussed in ASC 280-10-50-38, this includes disclosures of financial and other qualitative information categorized based on products and services, geographic areas, and customers, if not already provided elsewhere in the segment disclosures.

25.7.1 Segment disclosures—general information

ASC 280-10-50-21 provides the requirements for general segment information disclosures.

Excerpt from ASC 280-10-50-21

A public entity shall disclose the following general information:

  1. Factors used to identify the public entity’s reportable segments, including the basis of organization (for example, whether management has chosen to organize the public entity around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated)
  2. Types of products and services from which each reportable segment derives its revenues.

If a reporting entity combines non-reportable operating segments into an “all other” category, the types of products and services within the “all other” category should also be disclosed.

25.7.2 Segment disclosures—information about profit or loss and assets

ASC 280-10-50-22 through ASC 280-10-50-24 provides the required disclosures for segment profit or loss and assets.

Excerpt from ASC 280-10-50-22

A public entity shall report a measure of profit or loss and total assets for each reportable segment. A public entity also shall disclose all of the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss:

  1. Revenues from external customers
  2. Revenues from transactions with other operating segments of the same public entity
  3. Interest revenue
  4. Interest expense
  5. Depreciation, depletion, and amortization expense
  6. Unusual items as described in paragraph 220-20-45-1
  7. Equity in the net income of investees accounted for by the equity method
  8. Income tax expense or benefit
  9. Subparagraph superseded by Accounting Standards Update No. 2015-01
  10. Significant noncash items other than depreciation, depletion, and amortization expense.
A public entity shall report interest revenue separately from interest expense for each reportable segment unless a majority of the segment’s revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and make decisions about resources to be allocated to the segment. In that situation, a public entity may report that segment’s interest revenue net of its interest expense and disclose that it has done so.

ASC 280-10-50-23

Disclosure of interest revenue and interest expense included in reported segment profit or loss is intended to provide information about the financing activities of a segment.

ASC 280-10-50-24

If a segment is primarily a financial operation, interest revenue probably constitutes most of segment revenues and interest expense will constitute most of the difference between reported segment revenues and reported segment profit or loss. If the segment has no financial operations or only immaterial financial operations, no information about interest is required.

Any of the segment information specified in ASC 280-10-50-22 that is regularly provided to the CODM would need to be disclosed, even if the performance measure used by the CODM does not include such items. For example, if operating income is the measure of segment profitability used by the CODM to assess performance but segment interest expense is regularly reported to the CODM, segment interest expense should be disclosed because interest expense is one of the specific items identified for disclosure in ASC 280-10-50-22.
As noted in ASC 280, the disclosures are required at the reportable segment level. However, a reporting entity is not precluded from disclosing this information at a more detailed level if the more detailed presentation meets the objectives of ASC 280. For example, a reportable segment with three different but similar external revenue streams can choose to voluntarily provide disclosure of the different revenue streams.
Example FSP 25-7 provides an illustration of when a reporting entity may need to separately report information that is not individually reported to the CODM but included in the performance measure used by the CODM.
EXAMPLE FSP 25-7
Disclosing depreciation and amortization expense
FSP Corp internally reports the following discrete financial information to its CODM: revenue, operating income, total assets, volumes, and various industry statistics. Depreciation and amortization expense are components of both (1) cost of sales and (2) selling, general, and administrative expense, none of which are identified and reported separately to the CODM, but are included in operating income. Operating income is the measure of segment profitability used by the CODM to assess performance and allocate resources of the segments.
Is FSP Corp required to disclose depreciation and amortization expense for its reportable segments?
Analysis
Yes. ASC 280-10-50-22 requires the disclosure of specified items that are included in the measurement of segment profit or loss that is reviewed by the CODM, notwithstanding the fact that the individual items may not be separately identified for the CODM. Therefore, separate disclosure of depreciation and amortization expense by reportable segment is required since depreciation and amortization are components of operating income (i.e., the measure of profit or loss used by the CODM).
In addition, if the measure of segment profit or loss regularly reviewed by the CODM did not include depreciation and amortization, but depreciation and amortization were provided separately to the CODM, then the amounts would still need to be disclosed.

Operating segment-level asset information provided to the CODM is required to be disclosed and included in the 10% asset test calculation consistent with ASC 280-10-55-12 through ASC 280-10-55-15, which indicates that items required by paragraph ASC 280-10-50-22 and ASC 280-10-50-25 that are regularly provided to the CODM must be disclosed. In some instances, a reporting entity’s CODM may not receive total assets information for each segment. For example, the CODM may only receive select asset data, such as inventory and accounts receivable. In this instance, total assets need not be disclosed for each reportable segment but, rather, the sum of inventory and accounts receivable must be disclosed. This total should be disclosed as “segment assets,” and the total segment assets should be reconciled to the reporting entity’s total consolidated assets. A reporting entity should also disclose the composition of “segment assets.”
Ratios or a combination of financial information may be regularly reviewed by the CODM. For example, a reporting entity’s CODM may review net working capital but not its gross components (i.e., current assets and current liabilities). Although working capital has an asset component, the current asset component is not what is used by the CODM to assess performance and allocate resources. Therefore, the asset information is not required to be reported, nor is working capital required to be disclosed. Nonetheless, a reporting entity could elect to voluntarily report net working capital by reportable segment if it meets the objectives and basic principles of ASC 280. If it does so, the total of all reportable segments’ working capital should be reconciled to total consolidated working capital.
If no asset information is disclosed for a reportable segment, the fact and reason should be disclosed. Example FSP 25-8 provides an illustration of segment reporting considerations when asset information is not provided to the CODM.
EXAMPLE FSP 25-8
Reporting considerations when asset information is not provided to the CODM
FSP Corp internally reports the following financial information to its CODM for each of its operating segments: revenues, operating income, net income, volumes, and various industry statistics. Asset and other balance sheet information are not reported to the CODM.
Is FSP Corp still required to disclose asset information for its reportable segments since that information is not reported to the CODM?
Analysis
No. Because asset information is not provided to the CODM, the reporting entity would not be required to report segment asset information. In addition, when identifying reportable segments, the reporting entity cannot perform the asset-based 10% test. ASC 280-10-50-27 states that “only those assets that are included in the measure of the segment’s assets that is used by the chief operating decision maker shall be reported for that segment.” If asset information is not reported, the fact and the reasons for not providing the information should be disclosed.
However, the disclosure of long-lived assets by geographic area is required pursuant to the entity-wide disclosure requirements of ASC 280-10-50-41, even if such information is not provided to the CODM. See FSP 25.7.6.

25.7.3 Segment disclosures about investments and expenditures

ASC 280-10-50-25 provides the required segment disclosures for investments in equity method investees and expenditures for additions to long-lived assets.

Excerpt from ASC 280-10-50-25

A public entity shall disclose both of the following about each reportable segment if the specified amounts are included in the determination of segment assets reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in the determination of segment assets:

  1. The amount of investment in equity method investees
  2. Total expenditures for additions to long-lived assets other than any of the following:
    1. Financial instruments
    2. Long-term customer relationships of a financial institution
    3. Mortgage and other servicing rights
    4. Deferred policy acquisition costs
    5. Deferred tax assets.

ASC 280 requires these investment and expenditure disclosures because they improve a financial statement user’s ability to estimate the cash-generating potential and cash requirements of reportable segments.
An example disclosure is included in ASC 280-10-55-48, which illustrates a suggested format for certain disclosures required by ASC 280-10-50-22 and ASC 280-10-50-25.

25.7.4 Information about measurement of segment profit/loss and assets

ASC 280-10-50-29 provides the disclosure requirements for information about the measurement of segment profit or loss and assets.

Excerpt from ASC 280-10-50-29

A public entity shall provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. At a minimum, a public entity shall disclose all of the following:

  1. The basis of accounting for any transactions between reportable segments.
  2. The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income before income taxes and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information.
  3. The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information.
  4. The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss.
  5. The nature and effect of any asymmetrical allocations to segments. For example, a public entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.

In instances in which the measure of segment profitability is not consistent across operating segments, the reporting entity should provide a description of how segment profitability is measured for each reportable segment.
In addition, if the CODM uses more than one measure to assess performance and allocate resources, the reporting entity should determine which measure is most consistent with that presented in the consolidated financial statements and disclose that measure as the reported segment profitability measure. For example, assume a CODM uses both operating income and pretax income to assess performance and allocate resources. Segment operating profit is determined based on the same measurement principles that are used in the determination of consolidated operating profit. However, segment pretax income includes certain internal cost-of-capital charges that are eliminated in consolidation. In this situation, segment operating profit should be the measure reported externally because operating profit most closely aligns with the measure reported in the consolidated financial statements. However, if segment pretax income was determined based on the same measurement principles as consolidated pretax income, then segment pretax income would be the measure reported externally because this is the measure that is most similar to consolidated pretax income, which is the measure ASC 280-10-50-30(b) requires to be reconciled to segment profit/loss. See FSP 25.7.5 and Question FSP 25-10 for more information about the reconciliations required by ASC 280-10-50-30 and ASC 280-10-50-31.
In either case, disclosures should be made for interest income and expense because that information is included in the pretax income measure provided to the CODM (consistent with ASC 280-10-55-12 through ASC 280-10-55-15). The disclosure requirements specific to segment interest income and expense are discussed in FSP 25.7.2.
Question FSP 25-9 addresses the impact on reported segment information when internal reporting is on a non-GAAP basis.
Question FSP 25-9
Because the premise of the management approach is that external segment reporting should correspond to a reporting entity’s internal reporting, would segment information need to be modified if a reporting entity’s internal reporting is not in conformity with US GAAP?
PwC response
No. ASC 280 requires information to be reported on the same basis it is reported internally, even if the segment information is not in conformity with US GAAP or the accounting policies used in the consolidated financial statements. Examples of such situations include segment information reported on a cash basis or on a local US GAAP basis for segments comprised of foreign subsidiaries, or when management uses EBITDA as its measure of segment profitability. The reporting entity should disclose the nature of any differences between the reportable segment’s measurements of profit or loss and assets and those measurements used in the consolidated financial statements for each reportable segment as prescribed by ASC 280-10-50-29.

25.7.5 Segment disclosures—reconciliations

Certain information included in the segment disclosures must be reconciled to the reporting entity’s consolidated financial measures. ASC 280-10-50-30 and ASC 280-10-50-31 provide the requirements for these reconciliations.

Excerpt from ASC 280-10-50-30 and ASC 280-10-50-31

A public entity shall provide reconciliations of all of the following:

  1. The total of the reportable segments’ revenues to the public entity’s consolidated revenues.
  2. The total of the reportable segments’ measures of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items.
  3. The total of the reportable segments’ assets to the public entity’s consolidated assets.
  4. The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount. For example, a public entity may choose to disclose liabilities for its reportable segments, in which case the public entity would reconcile the total of reportable segments’ liabilities for each segment to the public entity’s consolidated liabilities if the segment liabilities are significant.
All significant reconciling items shall be separately identified and described. For example, the amount of each significant adjustment to reconcile accounting methods used in determining segment profit or loss to the public entity’s consolidated amounts shall be separately identified and described.

Reconciliations related to segment revenue and profit measures are required for each year an income statement is presented, and reconciliations of balance sheet amounts are required for each year that a balance sheet is presented. An example is included in ASC 280-10-55-49, which illustrates the disclosures required by ASC 280-10-50-30(a) through ASC 280-10-50-30(c).
Question FSP 25-10 addresses the income statement reconciliation requirements.
Question FSP 25-10
If a reporting entity’s measure of segment profitability is net income, should the segment’s total net income be reconciled to consolidated net income or to consolidated pretax income?
PwC response
ASC 280-10-50-30(b) allows a reporting entity whose measure of segment profitability is below the pretax income line (e.g., net income) to reconcile that measure, in aggregate for its reportable segments, to the corresponding consolidated total or the consolidated pretax total. In this case, we believe that the more meaningful presentation would be a reconciliation of the total of segment net income to the total consolidated net income.
ASC 280-10-50-30(b) requires that measures of segment profitability that are above the pretax line (e.g., operating profit) be reconciled to consolidated pretax income.

Question FSP 25-11 addresses the reconciliation of a non-GAAP profitability measure.
Question FSP 25-11
Can a reporting entity reconcile a non-GAAP measure of segment profitability (e.g., EBITDA) to the reporting entity’s consolidated EBITDA if that measure is further reconciled to pretax income?
PwC response
No. The following presentation of consolidated EBITDA would not be appropriate.
Reportable segment 1 EBITDA
$200
Reportable segment 2 EBITDA
150
Reportable segment 3 EBITDA
100
Subtotal reportable segments
450
Unallocated corporate overhead
(50)
Unallocated pension expense
(20)
Consolidated EBITDA
$380
Depreciation and amortization
(30)
Interest
(50)
Consolidated pretax income
$300
Under SEC rules, it is not appropriate to present the “Consolidated EBITDA” amount (i.e., $ 380), while it would be acceptable to present the “Subtotal reportable segments” amount (i.e., $450). S-K 10(e)(1)(ii)(C) precludes non-GAAP measures in the financial statements or financial statement footnotes. The rule indicates that non-GAAP measures exclude financial measures required to be disclosed by US GAAP. As such, the prohibition is not applicable to the measures of reportable segment EBITDA, as these amounts are required to be disclosed under ASC 280. However, this rule would preclude use of consolidated EBITDA, because such disclosure is not required by US GAAP. Rather, ASC 280-10-50-30 generally requires reconciliation to consolidated pretax income. In addition, if the reporting entity only has one reportable segment, similar prohibitions would apply. For additional guidance, refer to questions 104.01 through 104.06 of the SEC staff’s Compliance and Disclosure Interpretations on the use of non-GAAP financial measures.

25.7.6 Entity-wide segment disclosures

ASC 280-10-50-38 through ASC 280-10-50-42 require certain entity-wide disclosures, which include information about a reporting entity’s products and services, geographic areas, and major customers.
In some cases, these requirements may already be met through other disclosures in the standard. ASC 280 requires these entity-wide disclosures even if this information is not reviewed by the CODM, and even if the reporting entity has only one reportable segment. The entity-wide disclosures are only required in annual financial statements.
Question FSP 25-12 addresses materiality considerations for entity-wide disclosures.
Question FSP 25-12
Is there a threshold at which entity-wide disclosures can be considered immaterial?
PwC response
Unlike reportable segment disclosures, there is no quantitative threshold for determining when entity-wide disclosures are required. Assessing what is material is a matter of judgment. Both qualitative and quantitative factors should be considered. We believe that, when assessing entity-wide disclosures from a quantitative perspective, it would be reasonable to apply a threshold similar to the 10% tests provided in ASC 280-10-50-12. For example, a reporting entity would disclose revenues from external customers attributed to an individual foreign country if revenues from that country are greater than 10% of consolidated revenues. However, qualitative factors may indicate that information is material even if it does not exceed 10% of the consolidated total.

25.7.6.1 Entity-wide segment information about products and services

ASC 280-10-50-40 requires entity-wide disclosures related to products and services.

ASC 280-10-50-40

A public entity shall report the revenues from external customers for each product and service or each group of similar products and services unless it is impracticable to do so. The amounts of revenues reported shall be based on the financial information used to produce the public entity’s general-purpose financial statements. If providing the information is impracticable, that fact shall be disclosed.

Some reporting entities have segment revenues that are derived from a broad range of different products and services. These reporting entities are still required to provide revenue information for the entity-wide disclosures related to its products and services, even if there is only one reportable segment.
Missing or inadequate disclosures of revenues from external customers for each product and service is a common area for SEC staff questions. The SEC staff may also question entity-wide disclosures that are not consistent with how products are described or grouped in other sections of the reporting entity’s filings (e.g., Form 10-K, Item 1, Business, ASC 606 disaggregated revenue disclosure) or other external communications.
When determining the level at which products and services should be reported, it may be helpful to consider whether a majority of the characteristics described in ASC 280-10-50-11 for determining whether segments can be aggregated are met. For example, if all products have similar production processes, classes of customers, and economic characteristics as evidenced by similar rates of profitability, similar degrees of risk, and similar opportunities for growth, a reporting entity may conclude that all of its products are similar and that no additional disclosures by product type are necessary.
Question FSP 25-13 addresses how the aggregation of operating segments impacts entity-wide disclosures.
Question FSP 25-13
If a reporting entity has two operating segments based on products and services, and the two operating segments meet all of the criteria required for aggregation into a single reportable segment, must the entity-wide disclosures related to products and services be presented under ASC 280-10-50-40?
PwC response
It depends. Since the two operating segments meet the aggregation criteria, the nature of the products and services in each operating segment could be similar, and therefore the entity-wide disclosures related to products and services need not be provided. However, if the two segments each sold a range of products and services, the reporting entity would be required to present the entity-wide products and services-related disclosures.

Question FSP 25-14 address whether entity-wide disclosures are applicable for single segment companies.
Question FSP 25-14
If a reporting entity has one operating segment, and therefore one reportable segment, must the information required for entity-wide disclosures related to products and services be presented under ASC 280-10-50-40?
PwC response
It depends. A reporting entity may have only one operating segment (and thus only one reportable segment) that sells a range of products and services. In this case, the reporting entity would be required to present the entity-wide products and services-related disclosures. However, the reporting entity may conclude the entity-wide products and services-related disclosures are not necessary if it can demonstrate that its products and services are essentially similar using the aggregation criteria in ASC 280-10-50-11.

25.7.6.2 Entity-wide segment information about geographic areas

One of the purposes of entity-wide disclosures is to provide information about the geographic areas in which the reporting entity generates its revenues and holds its long-lived assets. ASC 280-10-50-41 provides the entity-wide disclosure requirements for geographic areas.

Excerpt from ASC 280-10-50-41

A public entity shall report the following geographic information unless it is impracticable to do so:

  1. Revenues from external customers attributed to the public entity’s country of domicile and attributed to all foreign countries in total from which the public entity derives revenues. If revenues from external customers attributed to an individual foreign country are material, those revenues shall be disclosed separately. A public entity shall disclose the basis for attributing revenues from external customers to individual countries.
  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. If assets in an individual foreign country are material, those assets shall be disclosed separately.
The amounts reported shall be based on the financial information that is used to produce the general-purpose financial statements. If providing the geographic information is impracticable, that fact shall be disclosed. A public entity may wish to provide, in addition to the information required by the preceding paragraph, subtotals of geographic information about groups of countries.

An example is included in ASC 280-10-55-51 that illustrates the disclosures required by ASC 280-10-50-41. In addition to disclosure of material revenues and long-lived assets by country, a reporting entity may wish to provide subtotals of revenues and long-lived assets based on groups of countries in a geographic region, such as Europe, Asia, or North America. The guidance in ASC 280-10-55-22 allows for flexibility in determining how revenue can be attributed to geographic areas. Reporting entities may choose to attribute revenue on the basis of (1) the location of the customer, (2) the location to which the product is shipped (which may differ from the location where the customer resides), or (3) the location where the sale originated. The attribution method should be reasonable and consistently applied, and a reporting entity must disclose the basis it has selected for attributing revenue to geographic areas.
One of the reasons for requiring disclosure of long-lived assets (rather than total assets) in geographic areas is that long-lived assets are potentially at greater risk than current assets because they are difficult to move and relatively illiquid. ASC 280-10-55-23 indicates that a reporting entity can exercise judgment in defining long-lived assets but also indicates that the phrase “long-lived assets” implies tangible assets that cannot be readily removed, which would exclude intangible assets. Accordingly, goodwill and other intangible assets should not be included in the entity-wide disclosure of long-lived assets.
Example FSP 25-9 provides an illustration of determining long-lived asset disclosures by geographic area.
EXAMPLE FSP 25-9
Reporting long-lived assets by geographic area
FSP Corp, a US-domiciled reporting entity with operations in 25 countries, has determined that it has two reportable segments (US and International) and that its long-lived assets located in two individual foreign countries (England and China) are material.
For which geographic areas should FSP Corp disclose tangible long-lived assets?
Analysis
FSP Corp should separately disclose tangible long-lived assets for the US, England, China, and all other foreign countries combined. Although the long-lived assets in the US may not be material, the guidance requires disclosure related to the reporting entity’s country of domicile.

Question FSP 25-15 addresses how materiality impacts the entity-wide disclosure requirements.
Question FSP 25-15
If a reporting entity has reportable segments represented by the geographic areas US, Canada, and Asia, would the reporting entity be required to disclose revenue and long-lived asset information for each country in Asia, if material?
PwC response
Yes. Revenue and long-lived assets must be disclosed for each country in which such amounts are material. The individual country disclosures are required even if the Asian operations are not managed on an individual country basis (i.e., even if the CODM does not review or assess performance on an individual country basis).
To the extent that it is impracticable to provide the individual country information, that fact should be disclosed. These circumstances are expected to be rare.

Question FSP 25-16 addresses whether the disclosure of long-lived assets by geography should include right-of-use (ROU) assets related to a lease.
Question FSP 25-16
Should the ROU asset be included in the disclosure of long-lived assets by geography required by ASC 280-10-50-41?
PwC response
In many circumstances, an ROU asset would be included within the long-lived assets disclosure. An ROU asset is within the scope of ASC 360 and is similar to a tangible asset. While ASC 280-10-55-23 does not define what is required to be included in long-lived assets and allows an entity to apply judgment. The phrase “long-lived” implies tangible assets that are not readily removed, which will apply to some ROU assets (e.g., buildings). The reasons for requiring disclosure of long-lived assets (rather than total assets) in geographic areas is that long-lived assets are potentially at greater risk than current assets because they are difficult to move and relatively illiquid.

25.7.6.3 Entity-wide segment information about major customers

ASC 280-10-50-42 provides the entity-wide disclosure requirements for major customers.

Excerpt from ASC 280-10-50-42

A public entity shall provide information about the extent of its reliance on its major customers. If revenues from transactions with a single external customer amount to 10 percent or more of a public entity’s revenues, the public entity shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The public entity need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer. For purposes of this Subtopic, a group of entities known to a reporting public entity to be under common control shall be considered as a single customer, and the federal government, a state government, a local government (for example, a county or municipality), or a foreign government each shall be considered as a single customer.

One of the objectives of disclosing information about major customers is to provide a measure of the concentration of credit risk to the reporting entity. Neither the identity of a major customer or the amount of revenues that each segment reports from that customer is required to be disclosed.
ASC 280-10-55-52 includes an example that illustrates the disclosures required by ASC 280-10-50-42.

25.7.7 Interim period segment information

Reduced disclosures are permitted in condensed financial statements of interim periods. However, if a complete set of financial statements is presented in an interim period, then the full disclosure requirements of ASC 280 apply.
ASC 280-10-50-32 and ASC 280-10-50-33 provide the disclosure requirements for condensed financial statements of interim periods.

ASC 280-10-50-32

A public entity shall disclose all of the following about each reportable segment in condensed financial statements of interim periods:

  1. Revenues from external customers
  2. Intersegment revenues
  3. A measure of segment profit or loss
  4. Total assets for which there has been a material change from the amount disclosed in the last annual report
  5. A description of differences from the last annual report in the basis of segmentation or in the basis of measurement of segment profit or loss
  6. A reconciliation of the total of the reportable segments’ measures of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items. Significant reconciling items shall be separately identified and described in that reconciliation.

ASC 280-10-50-33

Interim disclosures are required for the current quarter and year-to-date amounts. Paragraph 270-10-50-1 states that when summarized financial data are regularly reported on a quarterly basis, the information in the previous paragraph with respect to the current quarter and the current year-to-date or the last 12 months to date should be furnished together with comparable data for the preceding year.

Entity-wide disclosures, including disclosures about major customers, are not required in interim periods. However, if a reporting entity were to transact a significant amount of business with a new (or previously insignificant) customer during an interim period that was expected to continue in future periods, management should consider providing the disclosures required by ASC 280-10-50-42.
During an interim period, a reporting entity may change its organizational structure, or a previously immaterial segment may become material. See FSP 25.7.8.2 for guidance.

25.7.8 Revision of information for changes in segments

When reporting entities change the structure of their internal organization, the information regularly reviewed by the CODM may change. This could result in changes to operating segments and changes to the determination of reportable segments. If a reporting entity’s reportable segments change in the current period, corresponding information for earlier periods should be revised and disclosed in the current period financial statements, including information for interim periods, so that all segment disclosures are comparable. This requirement applies to all disclosures unless it is impracticable to do so. A change in reportable segments should be accompanied by disclosure of the reasons for the change and, when appropriate, that the change has been reflected retrospectively.
ASC 280 does not specify how to analyze organizational changes to determine when a change in operating or reportable segments is necessary. However, the determination of operating segments is based on the information regularly reviewed by the CODM. As a result, if there are changes in how the CODM allocates resources and assesses performance, or there are changes to how the information is presented to the CODM, a reporting entity will likely need to reassess its operating and reportable segments.
When determining whether there has been a change that could impact the determination of its operating segments, the reporting entity may consider whether there has been a change in the following:
  • The CODM
  • The information regularly reviewed by the CODM
  • The organizational structure
  • The individuals who regularly meet with the CODM
  • The budgeting process or level at which budgets are reviewed by the CODM
  • The information regularly reported to the board of directors
  • The information the reporting entity communicates to external parties such as investors, creditors, and customers
A reporting entity may choose to change its measure of segment profit and loss (e.g., from operating income to EBITDA). In contrast to an organizational change that causes a change to segment reporting, a change in a segment performance measure may not require revision to previously reported segment disclosures. However, additional disclosure is required if prior years’ information is not revised, as described in ASC 280-10-50-36.

ASC 280-10-50-36

Although restatement is not required to reflect a change in measurement of segment profit and loss, it is preferable to show all segment information on a comparable basis to the extent it is practicable to do so. If prior years’ information is not restated, paragraph 280-10-50-29(d) nonetheless requires disclosure of the nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss.

Example FSP 25-10 provides an illustration of a change in segment performance measures.
EXAMPLE FSP 25-10
Change in segment performance measures
FSP Corp has five operating segments, which are also its reportable segments. Historically, the internal reporting package reviewed by the CODM included certain unallocated items, such as interest income/expense and pension costs. These unallocated items were disclosed in FSP Corp’s footnotes as part of its reconciliation of total segment profits/losses to consolidated net income. The CODM recently requested that pension costs be allocated to the five operating segments based on employee head count as the CODM believes pension cost should be considered in assessing segment performance and in making resource allocation decisions. The internal reporting package for the period reflected this change.
How should FSP Corp reflect this in its segment disclosures?
Analysis
The change in allocation represents a change in the measure of segment performance. FSP Corp should reflect this new segment measure in the period the change occurred. Because this is not a change in the identified reportable segments, FSP Corp is not required to revise prior periods to reflect this change, but may elect to do so. In either case, FSP Corp should disclose the nature of the change in the segment performance measure and the effect the change has on the measure of segment profit or loss, as required by ASC 280-10-50-29(d).

While the entity-wide disclosure provisions of ASC 280 do not discuss the revision of entity-wide disclosures, we believe that the entity-wide information from period to period should be comparable. Accordingly, we believe that the guidance contained in ASC 280-10-50-16 and ASC 280-10-50-17, as well as the revision provisions of ASC 280-10-50-34 and ASC 280-10-50-35, should be applied to entity-wide disclosures.
ASC 280 also requires revision of prior period segment information (unless impracticable) when a previously insignificant operating segment becomes significant (i.e., the operating segment meets one of the 10% tests).
Example FSP 25-11 illustrates an analysis of segments when their relative significance changes year over year.
EXAMPLE FSP 25-11
Change in segment significance
FSP Corp has eight operating segments, none of which qualify for aggregation. Five of the segments were disclosed as reportable segments in 20X1, based on the 10% tests. The aggregate external revenues of these reportable segments exceeded 75% of FSP Corp’s consolidated revenues. The remaining three operating segments were combined in an “all other” category. In 20X2, one of the three operating segments that was included in the “all other” category in 20X1 became quantitatively material (i.e., it exceeded the threshold for one of the 10% tests). Also, in 20X2, one of the five 20X1 reportable segments was no longer quantitatively material.
How should FSP Corp reflect these changes in its segment disclosures?
Analysis
The operating segment that is now material should be presented as a reportable segment. Pursuant to ASC 280-10-50-17, when FSP Corp presents prior period segment data in the 20X2 financial statements, segment data for all prior periods must be revised to reflect the new reportable segment as a separate reportable segment, unless it would be impracticable to do so.
For the operating segment that no longer meets the quantitative thresholds (assuming the operating segment is not considered to be of continuing significance), disclosure of its individual results need not be made in 20X2. In this case, prior period segment disclosures could also be revised to conform to the current period presentation (provided the threshold for the 75% revenue test is met for all periods). In accordance with ASC 280-10-50-16, if management views the segment to be of continuing significance, that segment’s disclosures should continue to be made.

Example FSP 25-12 provides an illustration of factors to consider in assessing whether to revise previous periods’ segment information when a reporting entity changes its internal financial reporting without changing its organizational structure.
EXAMPLE FSP 25-12
Consideration of changes in internal financial reporting without changes in organizational structure
FSP Corp has four operating segments. It has decided to move one of its product lines from one operating segment (Segment X) to another (Segment Z) for internal reporting purposes. FSP Corp did not change its management structure, and has determined that it still has the same four operating segments. The only change to the CODM package as a result of the internal financial reporting change is the inclusion of the respective product line’s financial information within Segment Z reporting and its removal from Segment X reporting as of the date of the change.
How should this change in internal financial reporting be considered in FSP Corp’s segment assessment?
Analysis
If the changes to the segment assets and operating results as a result of reclassifying the assets, liabilities, and results of operations materially affect the trend in asset balances and/or the reported results, FSP Corp should consider revising its previously disclosed segment information. If, however, the segment information does not materially change the segments’ financial information, generally a reporting entity is not expected to revise the previously reported segment information.
In determining whether the change to the Segment X and Z financial information is material, FSP Corp might consider, among other things, whether the CODM package (or other information regularly reviewed by the CODM) has been adjusted retrospectively or whether the product line is considered a separate asset group (as defined in ASC 360). If the product line is a separate asset group, this may indicate that the composition of the segments has changed significantly and prior period segment information should be revised.

25.7.8.1 When to reflect changes in segment reporting

Changes in reportable segments as a result of changes in organization, the information regularly reviewed by the CODM, the significance of an operating segment (from immaterial to material), or the aggregation of operating segments should only be reflected when the financial statements include the period in which the change occurred. Changes in reportable segments arising after a reporting entity’s period-end but before the issuance of the reporting entity’s financial statements should be treated as an unrecognized (i.e., “Type II”) subsequent event (see FSP 28.6). However, the reporting entity should disclose that a change in reportable segments will occur in subsequent periods and the reasons for the change.
Example FSP 25-13 and Example FSP 25-14 provide illustrations of the timing of disclosure of segment reporting changes.
EXAMPLE FSP 25-13
Change in segment structure subsequent to year end
In the fourth quarter of 20X1, FSP Corp’s management determined that it will change the way it manages and operates the reporting entity and is in the process of modifying FSP Corp’s information system to produce financial information to support the new structure. The changes will require FSP Corp to revise its segment reporting. It is anticipated that the modification to the system will be completed in the first quarter of 20X2, at which point management will reorganize its operations and reporting structure and begin to manage its operations under its new segment structure.
How should this planned change affect FSP Corp’s 20X1 segment disclosures?
Analysis
FSP Corp should disclose its 20X1 reportable segment information under the reporting structure in place during 20X1. It should not revise its segment disclosure using the new reporting structure until the first quarter of 20X2, the period in which management changes the way it manages and operates the business.
EXAMPLE FSP 25-14
Changing operating segments for financial reporting purposes prior to changing the CODM package
FSP Corp manufactures watches in three product lines: low-, medium-, and high-end. Each of these product lines has two distinct watch types (sport and formal). FSP Corp identified each product line as an operating segment. Each of the product lines has a vice president who reports to the CEO, who is the CODM. Monthly meetings are held between the vice presidents of the three product lines and the CODM to discuss the results for each product line. The CODM package and information reviewed at the monthly meetings consists of revenue and expenses by product line.
During 20X1, the existing CEO retired and the new CEO became the new CODM. The new CODM changed certain aspects of FSP Corp’s internal reporting roles and marketing strategy and began meeting with the product managers to assess performance of each of the watch types (sport and formal) within each product line in order to gain better insight into how the business is operating. In addition, the CODM implemented a new marketing campaign which focused on the sport and formal type watches versus the previous marketing campaign, which focused only on the three distinct product lines. The new CODM began allocating resources at the watch-type level (sport and formal) rather than at the product-line level (low-, medium-, and high-end). Although no changes have yet been made to the CODM reporting package, the CODM is now regularly receiving watch-type operating profitability information through regular meetings with the six product managers. The product managers oversee the financial results of each watch type and provide additional reports to the CODM. In the first quarter of 20X2, FSP Corp intends to change the formal CODM package to reflect the information on the six distinct businesses that the new CEO is reviewing, rather than just the three that the previous CEO reviewed.
What impact should the change in information being reviewed by the CODM have on FSP Corp’s determination of operating segments?
Analysis
The change in the CODM warrants a review of the operating segments given the new CODM’s different management style and regular review of new or different information when assessing performance and allocating resources. In order to support a change in operating segments prior to a formal change in the CODM package, FSP Corp would need to demonstrate that significant changes have been made in how the CODM is managing the business.
In this example, FSP Corp changed the manner in which operating results are regularly reviewed by the CODM in 20X1. In addition to meeting with the vice presidents of the three distinct product lines, the new CODM now also meets with the product managers of the six individual watch types. Additionally, FSP Corp changed the way that it markets its products, and the CODM is using more disaggregated financial information to manage the business. FSP Corp does not view these changes as temporary and intends to make the change to the CODM package in the near future to reflect the way the new CODM views the business.
Based on these factors, it would appear appropriate to conclude that FSP Corp had a change in its operating segments during 20X1.

25.7.8.2 Changes of reportable segments during an interim period

As discussed in ASC 280-10-50-34, a reporting entity may change its organizational structure during an interim period. Alternatively, a previously immaterial segment may become material. If that change results in a change in reportable segment information in the interim period, the financial statements should be prepared on the basis of the new segments that were created during the current interim period. The previously issued interim financial statements are not required to be amended. However, the interim information for those previously filed quarters will need to be revised (unless it is immaterial or impracticable) when the quarters are presented for comparative purposes in the following year’s interim filings.
Question FSP 25-17 addresses how interim changes in the management reporting structure impact segment reporting.
Question FSP 25-17
If changes in a reporting entity’s internal management reporting structure changes its basis for segment reporting during an interim period, must full footnote disclosure be provided in the interim period condensed financial statements as if the revision had been reported in a complete set of annual financial statements included in the Form 10-K?
PwC response
No. Full footnote disclosures are not required. However, ASC 280-10-50-34 and ASC 280-10-50-35 require that the limited interim period information be revised and provided in the quarterly report. ASC 280-10-50-32(e) also requires the interim financial statements to describe differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the last annual report. Certain line items required for the annual footnote disclosure by ASC 280-10-50-22 and ASC 280-10-50-25 may be omitted from the condensed financial statements included in the interim period quarterly report.

25.7.9 Revision of prior period segment information is impracticable

ASC 280-10-50-35 provides guidance for additional disclosures in situations when retrospective application of changes to segment information is impracticable.

ASC 280-10-50-35

If a public entity has changed the structure of its internal organization in a manner that causes the composition of its reportable segments to change and if segment information for earlier periods, including interim periods, is not restated to reflect the change, the public entity shall disclose in the year in which the change occurs segment information for the current period under both the old basis and the new basis of segmentation unless it is impracticable to do so.

ASC 280-10-50-17 states that “information is impracticable to present if the necessary information is not available and the cost to develop it would be excessive.” We expect such situations to be rare as it is usually possible to obtain the necessary prior period information. The SEC staff has been skeptical that revising prior periods is impracticable.
Similar to changes to reportable segments made during annual periods, if prior year interim segment information is not revised, then the current period segment disclosures should be presented on both the old basis and new basis, unless it would prove impracticable to do so.

25.7.10 Case study—applying ASC 280

Example FSP 25-15 is a case study in how to apply the provisions of ASC 280. It also provides example disclosures based on the outcome of the case study.
EXAMPLE FSP 25-15
Illustrative application of ASC 280 and related disclosures
The following example provides general background information relating to FSP Corp, a fictitious consumer products company. The general background is followed by an analysis regarding the determination of FSP Corp’s CODM, its operating segments, the operating segments that qualify for aggregation, and which operating segments or aggregated operating segments are reportable segments. An example footnote is also provided.
General background
FSP Corp’s operations include manufacturing, marketing, and distribution of luggage and related accessories. The products consist of four types of branded luggage, as well as handbags, briefcases, sports bags, and storage cases (i.e., other accessories). FSP Corp is a global organization with sales in Europe, Asia, and the Americas. FSP Corp is organized as 12 marketing units, each with its own Vice President who is accountable for unit sales and performance. These marketing units are grouped into three divisions, and the Vice Presidents of the 12 marketing units report to their respective Division President. Approximately 50% of sales are from the four marketing units that compose the “Luggage Americas Division.” Approximately 30% of sales come from the four marketing units that comprise the “International Division.” The remaining 20% of sales are from the four marketing units that compose the “Other Accessories Americas Division.”
FSP Corp produces its luggage products through a network of six owned manufacturing facilities. The other accessories are produced by various independent suppliers. Other Accessories Americas Division is primarily a domestic operation, although the accessories are also sold internationally through the International Division’s marketing units. FSP Corp’s product lines are sold primarily to retailers who, in turn, sell the items to individual customers. FSP Corp also owns eight handbag retail locations in the US that sell handbag products directly to customers (handbags are also sold through third-party retailers). The results of these locations are included in the handbag marketing unit.
FSP Corp does not have any investments accounted for under the equity method and has a December 31 year-end.
The following is an organization chart for FSP Corp:
FSP Corp organization chart
The CEO allocates resources and assesses the performance of FSP Corp primarily based on the results of each marketing unit. The CEO regularly receives information from the three Division Presidents, as well as the Corporate Officers (Chief Financial Officer, General Counsel, and Vice President of Human Resources) who report directly to the CEO.
Information reported to the CODM
Each marketing unit prepares a monthly “Operating Report,” which is sent to the applicable Division President. It reflects the marketing unit’s current-month and year-to-date sales; gross margin; EBITDA; and working capital. EBITDA is the single most important measurement used by the marketing unit Vice Presidents, Divisional Presidents, and CEO to assess performance of the marketing units, divisions, and FSP Corp as a whole. Most incentive compensation is based on EBITDA at the marketing unit level.
The monthly Operating Reports are reviewed by the Division Presidents. Divisional results are prepared for each division and sent to the Division Presidents and CEO. The Operating Reports are also made available to the CEO, who may not review these reports in as much detail as the Division Presidents, but finds it useful to have the disaggregated information available to analyze specific performance questions.
Additionally, the CEO is apprised of each marketing unit’s performance by:
  • A monthly all-day meeting with the Division Presidents and marketing unit Vice Presidents that is devoted to a discussion of recent operating results. The marketing unit Operating Reports and the consolidated division level reports are typically used as information sources during these meetings.
  • Frequent phone calls with the Division Presidents
  • Quarterly strategy meetings with marketing unit Vice Presidents, at which forecasts, business issues, opportunities, and competitors are discussed.
Each quarter, the board of directors is provided with a report that summarizes sales, operating income, EBITDA, and working capital for each of the Divisions.
The following tables represent information reported in the Operating Reports.
LUGGAGE AMERICAS DIVISION
Information reported as of and for the year ended December 31, 20X2
($ in thousands)
Brand A
Brand B
Brand C
Brand D
Division total
Sales
$420
$220
$180
$100
$920
Gross margin
$126
$69
$57
$32
$284
Percentage of sales
30%
31%
32%
32%
EBITDA
$80
$40
$32
$18
$170
EBITDA margin
19%
18%
18%
18%
Working capital
$200
$200
$150
$60
$610
OTHER ACCESSORIES AMERICAS DIVISION
Information reported as of and for the year ended December 31, 20X2
($ in thousands)
Handbags
Briefcases
Sports bags
Storage cases
Division total
Sales
$100
$80
$75
$75
$330
Gross margin
$41
$31
$29
$19
$120
Percentage of sales
41%
39%
39%
25%
EBITDA
$25
$20
$20
$15
$80
EBITDA margin
25%
25%
27%
20%
Working capital
$20
$20
$15
$15
$70
View table
INTERNATIONAL DIVISION
Information reported as of and for the year ended December 31, 20X2
($ in thousands)
Brand A Europe
Other Luggage Europe
Other Europe
Asia
Division total
Sales
$300
$160
$100
$50
$610
Gross margin
$93
$51
$20
$7
$171
Percentage of sales
31%
32%
20%
14%
EBITDA
$60
$33
$15
$6
$114
EBITDA margin
20%
21%
15%
12%
Working capital
$150
$60
$20
$10
$240
View table
CONSOLIDATED
Information reported as of and for the year ended December 31, 20X2
($ in thousands)
Total divisions before
eliminations
Eliminations
Consolidated
Sales
$1,860
$(60)
$1,800
Gross margin
$575
$(10)
$565
Percentage of sales
31%
17%
31%
EBITDA
$364
$(10)
$354
Working capital
$920
$920
View table
Segment Analysis
Determination of the CODM
The CODM of FSP Corp is the CEO. Although the Division Presidents and Corporate Officers assist in the decision-making process, the CEO has historically made and is expected to continue to make the overall decisions about FSP Corp’s resource allocation. The CEO also assesses the performance of FSP Corp’s segments.
Determination and identification of operating segments
FSP Corp’s operating segments are its 12 marketing units. Based on the preceding tables that reflect FSP Corp’s internal reporting, each marketing unit recognizes revenue, incurs expenses, and has discrete financial information readily available. In addition, the monthly Operating Reports are provided to and reviewed by the CODM. The CEO uses the information related to all 12 marketing units as the basis for assessing the marketing units’ performance and deciding what resources are to be allocated to them.
Determination of reportable segments
Assessing which operating segments meet all of the aggregation criteria
Since FSP Corp aligns its business by division, management first considers whether the marketing units within each division met all of the required aggregation criteria. Management prepares a long-term economic analysis for each marketing unit using gross margin, EBITDA, sales growth, and operating cash flows for the last three years plus forecasted results for the next three years. The impacts of foreign currency are also considered for the international operating segments.
Based on the analysis of past, current, and future expected results considering the guidance outlined in FSP 25.5.1, management concludes the operating segments representing the marketing units (Brands A, B, C, and D) of the Luggage Americas Division are quantitatively similar. Management assesses the similarity of the qualitative characteristics as follows.
  • The nature of the products and services
    All of these operating segments market luggage and, in many cases, the same types of soft shell luggage (the points of difference tend to be the price of the products, style, and external material).
  • The nature of the production processes
    The nature of the production processes is similar across all four operating segments. The production of the different brands uses common machinery and equipment in FSP Corp’s owned US facilities. In many cases, raw materials are sourced from the same suppliers and used across brands, and some piece parts are produced centrally for different operating segments in the same manufacturing facility. There are no significant technology differences in the production processes across brands.
  • The type or class of customer for their products and services
    Each brand shares similar classes of customers, which are primarily US retail department stores. US retail department stores usually carry many of FSP Corp’s brands.
  • The methods used to distribute their products or provide their services
    Each brand shares similar distribution methods, which primarily involve shipments to retail department stores by common carriers directly from FSP Corp’s manufacturing facilities.
  • The nature of the regulatory environment
    There are no specific differences in the regulatory environment for any of the four operating segments.
Management determines the operating segments meet all of the qualitative aggregation criteria. FSP Corp will aggregate the four operating segments in the Luggage Americas Division to produce a reportable segment called “Luggage Americas.”
Based on the analysis of past, current, and future expected results, considering the guidance outlined in FSP 25.5.1, management concludes the Brand A Europe and the Other Luggage Europe marketing units of the International Division are quantitatively similar. Management assesses the similarity of the qualitative characteristics as follows.
  • The nature of the products and services
    These operating segments market luggage and, in many cases, the same types of soft shell luggage (the points of difference tend to be the price of the products, style, and external material).
  • The nature of the production processes
    The nature of the production processes is similar for both segments. The luggage is manufactured in the same US plants as those described in the “Luggage Americas” reportable segment.
  • The type or class of customer for their products and services
    Each brand shares similar classes of customers, which are primarily European retail department stores.
  • The methods used to distribute their products or provide their services
    Each brand shares similar distribution methods, which primarily involve shipments to retail department stores by common carriers directly from FSP Corp’s manufacturing facilities.
  • The nature of the regulatory environment
    Although the marketing units operate in different countries, there are no significant differences in the regulatory environment.
Management determines these operating segments meet all of the qualitative aggregation criteria. FSP Corp will aggregate the Brand A Europe and the Other Luggage Europe operating segments to produce a reportable segment called “Luggage Europe.”
Although some of the other marketing units share similar economic characteristics with each other, none of the other marketing units meet all of the aggregation criteria listed in ASC 280-10-50-11. Therefore, no other operating segments are aggregated with each other.
Quantitative thresholds
FSP Corp next performs the quantitative assessments necessary to determine which of its operating segments or aggregated operating segments are required to be presented separately as reportable segments in its segment disclosures. The quantitative threshold tests should be based on the combined total of FSP Corp’s operating segments. In this example, the total is not adjusted for intersegment items that are otherwise eliminated in consolidation, since the operating segments’ results are reported to the CODM inclusive of such items (i.e., segment performance measures used to assess marketing unit performance include intercompany transactions).
Assessments of the 10% tests are as follows:
A. 10% test – revenue
($ in thousands)
Luggage
Americas
Luggage
Europe
Handbags
Briefcases
Sports
bags
Storage
cases
Other
Europe
Asia
Total
External sales
$860
$460
$100
$80
$75
$75
$100
$50
$1,800
Total sales, excluding eliminations
$920
$460
$100
$80
$75
$75
$100
$50
$1,860
Percentages
External sales
48%
26%
5.5%
4%
4%
4%
5.5%
3%
100%
Total sales, excluding eliminations
49%
25%
5.5%
4%
4%
4%
5.5%
3%
100%
View table
Only the Luggage Americas and Luggage Europe reportable segments meet the 10% revenue test that requires separate presentation in FSP Corp’s segment disclosures.
B. 10% test - profit (EBITDA)
($ in thousands)
Luggage
Americas
Luggage
Europe
Handbags
Briefcases
Sports
bags
Storage
cases
Other
Europe
Asia
Total
EBITDA
$170
$93
$25
$20
$20
$15
$15
$6
$364
Percentage
47%
26%
7%
5%
5%
4%
4%
2%
100%
View table
The Luggage Americas and the Luggage Europe reportable segments are the only segments that meet the 10% segment profit test requiring separate presentation in FSP Corp’s segment disclosures.
C. 10% test - assets
Because a measure of operating segment assets is not reported to FSP Corp’s CODM, the 10% asset test is not applicable.
Immaterial operating segments which meet the majority of the aggregation criteria
Following aggregation of operating segments that meet all of the aggregation criteria in ASC 280-10-50-11 and the application of the 10% tests, FSP Corp determines which remaining immaterial operating segments share similar long-term economic characteristics and meet the majority of the qualitative criteria in ASC 280-10-50-11.
Based on the analysis of past, current, and future expected results considering the guidance outlined in FSP 25.5.1, management concludes Handbags, Briefcases, and Sports Bags marketing units have similar long-term economic characteristics and assesses the similarly of the qualitative characteristics as follows.
  • The nature of the products and services
    The Handbags, Briefcases, and Sports Bags operating segments all represent a similar type of product (personal accessories) and the points of difference tend to be the type and style of accessory.
  • The nature of the production processes
    The nature of the production processes across the operating segments is dissimilar. Handbags are sourced from several independent suppliers. The majority of the Handbags are produced in factories; however, several lines of handbags are entirely handmade. The production process for Sports Bags is primarily through an external supplier factory. The raw materials for Sports Bags primarily consist of synthetic fabrics and zippers. Briefcases are entirely handmade by a number of different independent family businesses. The raw materials for handbags primarily consist of leather, silver, and brass, all of which have had significant price fluctuations in recent years.
  • The type or class of customer for their products and services
    Each of the operating segments shares similar classes of customers, which are primarily retail department stores. The Handbag segment, however, does operate some retail locations which sell products directly to the end customers.
  • The methods used to distribute their products or provide their services
    Each brand shares similar distribution methods, which primarily involve shipments to retail department stores by common carriers.
  • The nature of the regulatory environment
    There are no significant differences in the regulatory environment for any of these operating segments.
Management determines the operating segments meet a majority of the aggregation criteria. Based on this analysis, FSP Corp will aggregate the Handbags, Briefcases, and Sport Bags segments to produce a reportable segment “Other Accessories.”
D. The 75% revenue test
Because the Luggage Americas reportable segment represents 48% of consolidated sales, the Luggage Europe reportable segment represents 26% of consolidated sales, and the Other Accessories reportable segment represents an additional 14% of external sales, total revenues of all identified reportable segments exceeds the 75% threshold. No further reportable segments are required to be disclosed. However, if the 75% threshold was not reached, FSP Corp would need to identify which of the operating segments, which otherwise would have been included in the “All Other” category, to present as a separate reportable segment until the 75% threshold was achieved.
All Other
Management analyzes the remaining operating segments (Storage Cases, Other Europe, and Asia) and concludes that none of these segments warrants separate presentation as a reportable segment as they would not provide additional useful information to the readers of the financial statements. Therefore, the remaining segments are aggregated into an “All Other” category.
Accordingly, FSP Corp has three reportable segments (Luggage Americas, Luggage Europe, and Other Accessories) and an additional All Other category, which account for 100% of FSP Corp’s total consolidated revenues.
Measurement
FSP Corp’s measure of segment profitability that is most relied upon by management is EBITDA. Thus, EBITDA will be reported as the measure of segment profit in the segment disclosure. In accordance with ASC 280-10-50-30, it must reconcile aggregate EBITDA for the reportable segments to consolidated income before income taxes.
Information about profit or loss and assets
EBITDA is the primary measure of segment profitability regularly reviewed by the CODM. No segment-level disclosure is required of interest expense, depreciation and amortization, unusual charges, income tax expense/benefit, and extraordinary items since these amounts are not included in EBITDA nor separately provided to the CODM. Further, FSP Corp does not have any investments accounted for under the equity method.
Since asset information by operating or reportable segment is not reported to the CODM, the individual asset disclosures described in ASC 280-10-50-22 are not applicable to FSP Corp.
Entity-wide disclosures
A. Information about products and services
The CODM has access to and regularly reviews internal financial reporting by marketing unit, which are primarily organized by product. Furthermore, operating segments are aggregated into reportable segments based on similar products. Therefore, entity-wide disclosures of information about products and services are not required.
B. Information about geographic areas
Other than the US, Germany, and Italy, no other country’s revenues from external customers are significant enough to require separate disclosure. FSP Corp will disclose remaining revenues from external customers as a single line for its other foreign operations. For this disclosure, FSP Corp determines that foreign sales will be reported by the country in which the legal subsidiary is domiciled.
As FSP Corp has no assets in an individual foreign country that are significant enough to require separate disclosure, FSP Corp will disclose long-lived assets from its United States and foreign operations.
C. Information about major customers
FSP Corp has no single customer representing greater than 10% of its consolidated revenues, and therefore this disclosure is not required.
Example Footnote
Segment Information
FSP Corp is organized primarily on the basis of products and operates 3 divisions which comprise 12 separate marketing units. These 12 marketing units are our operating segments, and each of these segments is led by a Vice President. Resources are allocated and performance is assessed by our CEO, whom we have determined to be our Chief Operating Decision Maker (CODM).
Certain of our operating segments have been aggregated as they contain similar products managed within the same division, are economically similar, and share similar types of customers, production, and distribution. Four of our marketing units have been aggregated to form the “Luggage Americas” reportable segment, and two of our marketing units have been aggregated to form the “Luggage Europe” reportable segment. Three of our otherwise non-reportable marketing units have been aggregated to form the “Other Accessories” reportable segment, and the remaining three marketing units have been combined and included in an “All Other” category. The following is a brief description of our reportable segments and a description of business activities conducted by All Other.
Luggage Americas — Segment operations consist of product design, manufacturing, marketing, and sales of soft shell luggage in the US
Luggage Europe — Segment operations consist of manufacturing, marketing, and sales of soft shell luggage in Europe.
Other Accessories — Segment operations consist of product design, marketing, and sales of handbags, briefcases, and sports bags, primarily in the US
All Other — Operations consist of marketing and sales of luggage and accessories in certain international markets and the design, marketing, and sales of storage cases.
The accounting policies of the segments are the same as those described in the “Summary of Significant Accounting Policies” for FSP Corp. FSP Corp evaluates the performance of its segments and allocates resources to them based on earnings before interest, taxes, depreciation, and amortization (EBITDA). Segment EBITDA includes intersegment revenues, as well as a charge allocating all corporate headquarters costs.
The table below presents information about reported segments for the years ending December 31:
20X2
($ in thousands)
Luggage
Americas
Luggage
Europe
Other accessories
All other
Total
Sales
$920
$460
$255
$225
$1,860
EBITDA
$170
$93
$65
$36
$364
View table
20X1
($ in thousands)
Luggage
Americas
Luggage
Europe
Other accessories
All other
Total
Sales
$885
$425
$230
$202
$1,742
EBITDA
$164
$86
$58
$32
$340
View table
A reconciliation of total segment sales to total consolidated sales and of total segment EBITDA to total consolidated income before income taxes, for the years ended December 31, 20X2 and 20X1, is as follows:
Sales
($ in thousands)
20X2
20X1
Total segment sales
$1,860
$1,742
Elimination of intersegment revenue
(60)
(40)
Consolidated sales
$1,800
$1,702
EBITDA
20X2
20X1
Total segment EBITDA
$364
$340
Depreciation and amortization
(50)
(45)
Intersegment profit
(15)
(11)
Interest
(80)
(70)
Consolidated income before income taxes
$219
$214
The following tables present sales and long-lived asset information by geographic area for the years ended December 31, 20X2 and 20X1. Asset information by segment is not reported internally or otherwise regularly reviewed by the CODM.
Sales
 ($ in thousands)
20X2
20X1
United States
$1,260
$1,191
Germany
177
170
Italy
180
175
All Other Foreign
183
166
$1,800
$1,702
Long-lived Assets
 ($ in thousands)
20X2
20X1
United States
$1,090
$1,035
Foreign
260
245
$1,350
$1,280
View table
Foreign revenue is based on the country in which the legal subsidiary is domiciled.
1 Note: For this illustrative example, only two years of segment results are presented. SEC registrants typically require the presentation of three years of segment results.
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