The SEC staff frequently questions how registrants have identified operating segments and aggregated them into reportable segments, often due to events reported by companies in press releases or Form 8-K disclosures. The SEC staff may expect to see changes in segments when the company has disclosed significant acquisitions or dispositions, changes in organizational structure, or changes in key personnel. The SEC staff may also consider other disclosures made by companies on their websites or on earnings calls when commenting about segments. To resolve segment questions, the SEC staff may request a copy of the reporting package or other documents utilized by the chief operating decision maker to evaluate the support for management’s reporting conclusions.
The SEC staff has also commented on segment profit or loss measures. For example, the staff has reminded registrants to use only one measure of segment profit or loss, and has noted that use of the subtotal of a reportable segment’s measure of profit or loss outside of the ASC 280 required reconciliation constitutes a non-GAAP measure. The SEC staff clarified this position at the December 2022 AICPA/SEC Conference, noting that financial information (e.g., segment profit or loss for each reportable segment) that must be disclosed under GAAP is not a non-GAAP measure. Disclosure of total segment profit or loss on a consolidated basis outside of the financial statements (e.g., in MD&A), however, would be considered a non-GAAP disclosure that should comply with the SEC’s non-GAAP guidance.
The lack of entity-wide information required to be disclosed under ASC 280 has also been highlighted by the SEC staff. Specifically, the SEC staff has focused on the required disclosures of:
  • revenues from external customers for each group of similar products and services; and
  • revenues from external customers and long-lived assets attributable to the public entity’s country of domicile and individual foreign countries that are material.
Comment examples (generalized to identify overarching themes, with specific details pertaining to individual companies omitted)
Guidance references
  • We note your disclosure that you have a single reportable operating segment. However, we note from your earnings calls and investor presentations that you tend to discuss the business in terms of several markets. We also note from your website that you currently have a General Manager for each business. It also appears that your recent acquisition expanded your broad markets business. In light of these facts and changes in your business, please tell us how you have evaluated your business for the existence of additional operating segments under the guidance in ASC 280-10-50-1. As part of your response, please provide us the following information:
    • Please tell us the role of the CODM and each of the individuals that report to the CODM;
    • Tell us how often the CODM meets with his/her direct reports, the financial information the CODM reviews to prepare for those meetings, the financial information discussed in those meetings, and who else attends those meetings;
    • Briefly explain your management structure and how your company is organized, and provide an organization chart to facilitate your explanations;
    • Describe the information regularly provided to both the CODM and the Board of Directors, and how frequently it is prepared;
    • Please explain to us the responsibilities of each General Manager of the mobile solutions and broad markets businesses, tell us who they report to, and how they are compensated; and
    • Tell us the types of financial information available for each business, and what costs are allocated or not allocated to each of those businesses.
  • You disclose you have three operating segments. You further indicate you have aggregated these operating segments into one reportable segment based upon their shared customer base and similar economic characteristics. Please explain to us in detail how the customer base is shared and how this meets the applicable criteria for aggregation contained in ASC 280-10-50-11. Likewise, demonstrate how the economic characteristics are similar among the three separate geographic operating segments and how you determined the segments can be expected to essentially have the same future prospects. In your response, tell us the measure(s) you consider to be economically similar and why such measure(s) was selected.
  • Your disclosures appear to indicate that segment operating profit is the segment measure of profit or loss used to assess segment performance; however, we note that you also disclose segment gross profit. If the CODM uses more than one measure of a segment's profit or loss, the reported (single) measure shall be the one that management believes is determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amount in your consolidated financial statements. Refer to ASC 280-10-50-28. Please revise your segment disclosure to report one segment profitability measure.
  • The presentation of the subtotal of Total Segment Income in any context other than the ASC 280 required reconciliation in the footnotes to the financial statements represents the presentation of a non-GAAP measure. Refer to Question 104.04 of the Non-GAAP Compliance and Disclosure Interpretations. Please revise your reconciliation or identify Total Segment Income as a non-GAAP measure.
  • We note that you operate as a single reportable segment, and that your business section discloses that you offer a variety of products. Please revise future filings to provide revenues for each product and service, or each group of similar products and services, or tell us why you believe the disclosures are not required. Refer to ASC 280-10-50-40 to 40-42 and be advised that these entity-wide disclosures requirements apply to all public entities, including those with one segment. If providing the information is impracticable, please disclose that fact.
  • Please disclose revenues from major customers which are 10% or greater of consolidated net sales and the segment where they are reported. Refer to ASC 280-10-50-42.
  • It appears that you have significant revenue from operations within and outside of the United States. Please provide the revenue and long-lived asset by country disclosures required by ASC 280-10-50-41 or explain to us why you do not believe they are required.
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