If you have attended one of our seminars or workshops, you know we always discuss the SEC’s Comment focus areas. We do this so that potential problems and issues can be addressed before they become serious.
In our blog, we thought we would reinforce this with a semi-regular “Comment of the Week” entry.
And what would be a better topic to start with than reporting segments! The SEC always mentions this area when they speak, and they continue to write comments about segments. Here are two examples from letters issued this year:
1. We reference the disclosure on page 66 that you operate and account for your results in one reportable segment, the design, development, manufacture and market of high performance semiconductor products. Please tell us how you considered the guidance in FASB ASC 280-10-50-1 through 9. In this regard, we note that you have five major focused product groups, each of which has a Senior Vice President and General Manager that oversees its operations and may be considered a segment manager. Please clarify why these product groups do not represent segments or aggregated segments under FASB ASC 280.
7. You disclose your business is classified by management into three reporting segments. Further, we note your 2014 first quarter earnings transcript where you state, “[I]n terms of sales comparisons geographically, for the first quarter, the better performing regions in the U.S. were in the Southeast, Midwest, and Texas. Internationally, in local currencies, the better performing countries were Canada, Mexico, and Australia.” Please provide us with your analysis under ASC 280 that supported disclosing all operations as three reportable segments.
Please include the following information in your response:
- The operating segments you have identified in accordance with ASC 280- 10-50-1 through 50-9.
- If applicable, the basis for aggregating identified operating segments into three reportable segments given the aggregation criteria in ASC 280-10-50-11 and quantitative thresholds in ASC 280-10-50-12.
- How the aggregation of all of your operations into three reportable segments complies with the aggregation criteria.
- The process through which your chief operating decision maker reviews information to make decisions about resources to be allocated to your segments and assess their performance.
Why does the SEC consistently, year after year focus on this area? As a reminder, check out the enforcement case against Sony, where their segments masked an issue in their movie business.
http://www.sec.gov/litigation/admin/3440305.txt
Or more recently, check out the enforcement case against Paccar, a Fortune 200 company that, among other issues, presented one reportable segment. As a result, the aggregation of two operating segments into one masked sizable losses in their largest segment.