Segment Reporting

Federal RegisterJul 1, 1998

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 240 and 249

[Release Nos. 33-7549; 34-40126; File No. S7-17-98]

RIN 3235-AH43

Segment Reporting

AGENCY: Securities and Exchange Commission.

ACTION:Proposed Rules.

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SUMMARY: The Commission today proposes technical amendments to conform

our reporting requirements with the Financial Accounting Standards

Board's (``FASB'') recently adopted Statement of Financial Accounting

Standards (``SFAS'') No. 131, governing disclosures relating to a

business enterprise's operating segments.

DATES:We should receive comments by July 31, 1998.

ADDRESSES:Please send three copies of your comment letter to Jonathan

G. Katz, Secretary, U.S. Securities and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549. Interested persons also may

submit comments electronically at the following e-mail address: rule-

[email protected]. All comment letters should refer to File No. S7-17-

98; please include this file number in the subject line if you use e-

mail. Anyone can inspect and copy the comment letters in our public

reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. We

will post electronically submitted comment letters on the Commission's

Internet Web Site (www.sec.gov).

FOR FURTHER INFORMATION CONTACT: James R. Budge, Special Counsel,

Division of Corporation Finance, at (202) 942-2950, Louise M. Dorsey,

Assistant Chief Accountant, Division of Corporation Finance, at (202)

942-2960, or Robert F. Lavery, Assistant Chief Accountant, Office of

the Chief Accountant, at (202) 942-4400, U.S. Securities and Exchange

Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The Commission today proposes technical

amendments to Rules 3-03 \1\ and 12-16 \2\ of Regulation S-X,\3\ Items

101 \4\ and 102 \5\ of Regulation S-K,\6\ and Schedule 14A \7\ in order

to conform our reporting requirements with the FASB's recently adopted

SFAS No. 131. We also propose to make consistent changes to Form 20-F

\8\ and to Sections 501.06 and 503 of the Codification of Financial

Reporting Policies (``CFRP'').

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\1\ 17 CFR 210.3-03.

\2\ 17 CFR 210.12-16.

\3\ 17 CFR Part 210.

\4\ 17 CFR 229.101.

\5\ 17 CFR 229.102.

\6\ 17 CFR Part 229.

\7\ 17 CFR240.14a-101.

\8\ 17 CFR249.220f.

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I. Background

In 1976, the FASB issued SFAS No. 14, ``Financial Reporting for

Segments of a Business Enterprise.'' SFAS No. 14 required corporations

to disclose certain financial information by ``industry segment'' as

defined in the statement and by geographic area. In December 1977, we

adopted amendments to our rules to integrate the information to be

furnished under SFAS No. 14 with the narrative and financial

disclosures required in various disclosure forms.\9\

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\9\ Release No. 33-5893 (December 23, 1977) [42 FR 65554].

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After extensive deliberations, including solicitation of public

comments, the FASB adopted a number of fundamental changes to its

standards for segment reporting by publishing SFAS No. 131 in June of

1997. SFAS No. 131 superseded SFAS No. 14 and established standards for

reporting information about ``operating segments'' of an enterprise

rather than following the ``industry segment'' standards that were in

place previously. The Commission today proposes a number of technical

changes to its reporting requirements to accommodate these recent

modifications. This is in keeping with our long-standing position that

we will look to the private sector for the promulgation of generally

accepted accounting principles (``GAAP''),\10\ and furthers our goal of

integrating existing accounting information into the narrative

disclosure in documents mandated by the federal securities laws. This

release explains in detail the proposed changes.

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\10\ Section 101 of the Codification of Financial Reporting

Policies. The Commission initially issued its administrative policy

concerning financial statements in 1938 and updated it in 1973 to

recognize the establishment of the FASB.

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II. Proposed Rule Changes

A. Operating Segment Disclosure

SFAS No. 14 required, and the Commission's current rules and forms

require, disclosure along ``industry segment'' lines. An ``industry

segment,'' as defined by SFAS No. 14, was ``a component of an

enterprise engaged in providing a product or service or a group of

related products and services primarily to unaffiliated customers * * *

for a profit.'' \11\ Recognizing that businesses often evaluate their

operations using criteria not necessarily related to the products or

services offered to the public, the FASB replaced the industry segment

reporting standard with one that requires businesses to report

financial information on the basis of ``operating segments.'' Under the

new accounting standard, an operating segment is a component of a

business, for which separate financial information is available, that

management regularly evaluates in deciding how to allocate

[[Page 35887]]

resources and assess performance.\12\ Specifically, SFAS No. 131 states

that an operating segment is a component of a business:

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\11\ SFAS No. 14, para. 10.a.

\12\ We refer to this below as the ``management approach.''

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That engages in activities from which it may earn revenues

and incur expenses (including revenues and expenses relating to

transactions with other components of the same business);

Whose operating results are regularly reviewed by the

enterprise's ``chief operating decision maker'' \13\ to make decisions

about resources to be allocated to the segment and assess its

performance; and

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\13\ The term ``chief operating decision maker'' identifies a

function, not a person with that title. This person's function is to

allocate resources to and assess the performance of the company's

segments. A chief operating decision maker frequently might be a

company's chief executive officer or chief operating officer, but it

also could be a group of decision makers, for example, the company's

president, executive vice presidents and others.

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For which discrete financial information is available.

Under SFAS No. 131, a company generally must report separately

information about an operating segment that meets any of the following

thresholds:

Its reported revenue, including both sales to external

customers and intersegment sales and transfers, is 10 percent or more

of the combined revenue of all reported operating segments, whether

generated inside or outside of the company;

Its reported profit or loss is 10 percent or more of the

greater of: (1) the combined reported profit of all operating segments

that did not report a loss or (2) the combined reported loss of all

operating segments that did report a loss; or

Its assets are 10 percent or more of the combined assets

of all operating segments.\14\

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\14\ SFAS No. 131, para. 18.

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SFAS No. 131 not only changed how a business should identify its

segments, it also changed the types of information to be disclosed for

each segment. SFAS No. 14 required an issuer to report its revenues,

operating profit (loss),\15\ and identifiable assets \16\ if a

segment's revenues, operating profit, or identifiable assets were 10%

or more of all the industry segments' revenues, operating profits, or

assets, respectively. Issuers were to reconcile these three items to

the consolidated amounts in the financial statements. In addition, SFAS

No. 14 required issuers to report for each segment depreciation,

depletion and amortization, capital expenditures, equity in net income

of unconsolidated subsidiary or equity-method investee, and the effect

of a change in accounting principle on operating profit (loss).

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\15\ SFAS No. 14 specifically defined segment operating profit

to be revenues less all operating expenses, which included

depreciation and amortization. An issuer was to allocate operating

expenses that were not directly traceable to a particular segment on

a reasonable basis among the segments for whose benefit the expenses

were incurred. The standard required an explanation of the amount

and nature of any unusual or nonrecurring items added or deducted in

determining operating profit of a segment. In addition, the standard

defined any restructuring charges related to a specific segment as

operating expenses of that segment and issuers were to deduct these

charges in calculating that segment's operating profit or loss.

SFAS No. 14 excluded certain items in calculating segment

profit. They were: general corporate expenses; interest expense

(except included for financial institutions, insurance and leasing

operations); equity in income (loss) of unconsolidated subsidiaries

or equity investees; discontinued operations; extraordinary items;

and, the effects of changes in accounting.

\16\ Segment assets included all tangible and intangible assets

used by the segment, including goodwill, other intangibles, and

deferred income and expenses.

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By contrast, SFAS No. 131 requires that a company provide for each

reportable segment quantitative disclosure of two basic items--total

assets and a measure of profit or loss. The new standard defines

neither segment profit (loss) nor assets. Instead, management must

determine what they will report based on how they operate their

business. In addition, companies must disclose the following items for

each segment, but only if management includes them in measuring segment

profit or loss:

Revenues from external customers;

Revenues from other operating segments;

Interest income; \17\

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\17\ Certain enterprises may report segment interest revenue net

of its interest expense. See SFAS 131, para. 27.

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Interest expense; \18\

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\18\ Id.

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Depreciation, depletion and amortization;

Unusual items;

Equity in net income of equity method investees;

Income taxes;

Extraordinary items; and

Significant non-cash items other than depreciation,

depletion, and amortization.

A company also must disclose for each segment the amount of

investment in equity-method investees and total expenditures for

additions to long-lived assets if it includes the amount in its

determination of segment assets.

The company must reconcile the totals of the reportable segments'

amounts for all of these listed items to consolidated amounts. The FASB

required more items to be disclosed per segment under the new standard

because analysts have long wanted more information and most of the

items required should be already available in management reports.

We propose to amend our narrative and financial reporting rules to

conform current segment reporting requirements to the FASB's revised

accounting standards. The proposals would, however, retain certain

requirements relating to disclosure of principal products or services

and major customers that traditionally have differed from the FASB

standards.\19\ We will address below each of the proposals.\20\

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\19\ See Sections II.A.1a. and II.B.2.

\20\ The Commission also is proposing several technical

amendments to update cross references to the new accounting

standard. These revisions would be made to Rules 3-03(e) and 12-16

of Regulation S-X and Item 14(b)(2)(ii)(A)(3)(i) of Schedule 14A.

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1. Description of Business--Item 101

Regulation S-K Item 101(b) \21\ currently requires an issuer to

disclose financial information with respect to its ``industry

segments'' in the business description sections of documents that it

files with the Commission. The proposals would amend Item 101 to

conform its disclosure requirements to current GAAP as defined in SFAS

No. 131, thereby requiring disclosure about an issuer's ``operating

segments'' rather than its ``industry segments.'' \22\ Other proposals

specific to Item 101 follow.

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\21\ 17 CFR 229.101(b).

\22\ We also propose to retain the current provisions allowing

an issuer to refer to other sections of the registration statement

that include the required information in order to avoid duplicative

disclosure.

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a. Principal Products or Services

Item 101 historically has required a discussion, by segment, of the

principal products produced and services rendered by the issuer, as

well as the principal markets for and methods of distribution of each

segment's products and services. On the other hand, GAAP required, and

continues to require, disclosure of principal products and services on

an enterprise-wide basis, without reference to principal markets and

methods of distribution. We continue to believe that the segment

information relating to principal products or services, principal

markets and distribution methods is useful to investors and propose not

to change this provision.

Item 101 further requires registrants to disclose the amounts of

revenues from each class of similar products and services based on

quantitative

[[Page 35888]]

thresholds. Specifically, the issuer must state the amount or

percentage of total revenue contributed by any class of similar

products or services that accounted for 10 percent or more of

consolidated revenue in any of the last three fiscal years, or if total

revenue did not exceed $50,000,000 during any of those three fiscal

years, 15 percent or more of consolidated revenue.\23\ SFAS No. 131

requires disclosure of revenues from external customers for each

product and service or each group of similar products and services

unless it is impracticable to do so. Because SFAS No. 131 requires

disclosure regardless of amount, unless impracticable, it appears that

the new accounting standard may require more disclosure than Item 101.

In light of this, we seek comment as to whether we need to maintain the

quantitative thresholds of Item 101(c)(1)(i). If so, should they be

raised or lowered, or should we simply follow the standard set out in

paragraph 37 of SFAS No. 131, which provides for no quantitative

threshold?

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\23\ 17 CFR 229.101(c)(1)(i).

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b. Retroactive Restatement of Information

Item 101 requires issuers to restate retroactively previously

reported financial information when there has been a material change in

the way they group products or services into industry segments and that

change affects the reported segment information.\24\ By contrast, SFAS

No. 131 provides that if an issuer changes the structure of its

internal organization in a manner that causes the composition of its

reportable segments to change, the issuer must restate the

corresponding information for earlier periods unless it is

impracticable to do so.\25\ We propose to conform the language of Item

101 with the language of SFAS No. 131 regarding when a company must

restate information.

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\24\ 17 CFR 229.101(b)(1)(ii).

\25\ See SFAS No. 131, para. 34.

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c. Appendix A

Item 101 includes an appendix that illustrates how to present the

required industry segment information in tabular form. The Commission

proposes to eliminate this appendix and rely instead on the SFAS No.

131 instructions governing how to present information relating to

operating segments.

2. Property--Item 102

Regulation S-K Item 102 requires descriptions of an issuer's

principal plants, mines, and other ``materially important'' physical

properties. Companies must identify the industry segment(s) that use

the described properties.\26\ We propose to update the item by

substituting the term ``segment'' for ``industry segment.''

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\26\ f17 CFR 229.102.

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3. Management's Discussion and Analysis--Item 303

Regulation S-K Item 303, which requires management to include a

discussion and analysis of an issuer's financial condition and results

of operations, provides:

Where in the registrant's judgment a discussion of segment

information or other subdivisions of the registrant's business would

be appropriate to an understanding of such business, the discussion

shall focus on each relevant, reportable segment or other

subdivision of the business and on the registrant as a whole.\27\

\2\ 17 CFR 229.303(a).

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The Commission historically has relied on the FASB's definition for

segment disclosure in Management's Discussion and Analysis (``MD&A'').

The Commission intends to continue to rely on the FASB's standards,

thereby allowing issuers to use the management approach under SFAS No.

131. No rule change is necessary. Under the language in Item 303, a

multi-segment registrant preparing a full fiscal year MD&A should

analyze revenues, profitability (or losses) and total assets of each

significant segment in formulating a judgment as to whether a

discussion of segment information is necessary to an understanding of

the business.

While we propose no changes to the language of Item 303, we do

propose to amend CFRP 501.06.a, which provides informal guidance about

MD&A. The proposed revisions would accord the Codification's language

with that of SFAS No. 131, and would add a new footnote, that would

read:

Where consistent with the registrant's internal management

reports, SFAS No. 131 permits measures of segment profitability that

differ from GAAP measures of profit on a consolidated basis, or that

exclude items included in the determination of the registrant's net

income. In a note to the financial statements, however, the

registrant must reconcile key segment amounts to the corresponding

items reported in the consolidated financial statements. Similarly,

the Commission expects that the discussion of a segment whose

profitability is determined on a basis that differs from GAAP on a

consolidated basis or that excludes the effects of items

attributable to the segment also will address the applicable

reconciling items. For example, if a material charge for

restructuring or asset impairment relates to a specific segment, but

is not included in management's measure of the segment's operating

profit or loss, registrants would be expected to disclose the

applicable portion of the charge and the circumstances of its

incurrence. Likewise, the Commission expects that the effects of

management's use of non-GAAP measures will be explained in a

balanced and informative manner, and the disclosure will include a

discussion of how that segment's performance has affected the

registrant's GAAP financial statements.

4. Form 20-F

Form 20-F is the registration statement and annual report for

foreign private issuers promulgated under the Securities Exchange Act

of 1934 (``Exchange Act'').\28\ Form 20-F currently permits a foreign

registrant that presents financial statements according to United

States GAAP to omit SFAS No. 14 disclosures if it provides the

information required by Item 1 of the form. We propose replacing the

reference to SFAS No. 14 with one to SFAS No. 131.\29\

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\28\ 15 U.S.C. 78a et seq.

\29\ See proposed Instruction 3 to Item 17 of Form 20-F.

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Item 1 of Form 20-F requires registrants to disclose sales and

revenues by categories of activity and geographical areas, as well as

to discuss each category of activities that provide a disproportionate

contribution to total ``operating profit'' of the registrant. We

contemplate no change to these requirements.

B. Other Reporting Requirements

SFAS No. 14 also set standards for disclosure of certain

enterprise-wide information where the issuer did not provide the

information in the segment disclosure, and Regulation S-K currently

reflects those standards. We propose to update our rules to conform

with the revised requirements of SFAS No. 131, as we explain below.

1. Geographic Areas

Regulation S-K Item 101(d) currently requires an issuer to disclose

for each of the issuer's last three fiscal years the amounts of

revenue, operating profit or loss, and identifiable assets attributable

to each of its geographic areas. It also requires disclosure of the

amount of export sales in the aggregate or by appropriate geographic

area to which the issuer makes sales.

Under SFAS No. 131, issuers must disclose revenues from external

customers deriving from:

The issuer's country of domicile;

All foreign countries in total from which the issuer

derives revenues; and

An individual foreign country, if material.

An issuer also must disclose the basis for attributing revenues

from external customers to individual countries.

[[Page 35889]]

The new accounting standard also requires an issuer to disclose

long-lived assets other than financial instruments, long-term customer

relationships of a financial institution, mortgage and other servicing

rights, deferred policy acquisition costs, as well as deferred tax

assets located in its country of domicile and in all foreign countries,

in total, in which the enterprise holds assets. If assets in an

individual foreign country are material, an issuer must disclose those

assets separately.\30\

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\30\ See SFAS No. 131, para. 38.

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We propose to revise our disclosure requirements to conform

entirely with the new accounting standard. Consequently, we would no

longer require issuers to disclose geographic information relating to:

individual geographic areas (except where information relating to an

individual country is material); profitability; or export sales.\31\

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\31\ The proposed changes would include eliminating Appendix B

of Regulation S-K Item 101, which illustrates how to present the

currently-required information. We also would revise Instruction 2

to Item 101, which provides guidance about materiality analyses

based on ``interperiod comparability,'' to reflect the elimination

of the requirements to disclose the quantitative geographic

information once required by SFAS No. 14.

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2. Major Customers

Since the adoption of SFAS No. 14, GAAP has required disclosure of

revenues from major customers.\32\ SFAS No. 131 now requires issuers to

disclose the amount of revenues from each external customer that

amounts to 10 percent or more of its revenue as well as the identity of

the segment(s) reporting the revenues. The accounting standards,

however, have never required issuers to identify major customers. On

the other hand, Regulation S-K Item 101 historically requires naming a

major customer if sales to that customer equal 10 percent or more of

the issuer's consolidated revenues and if the loss of the customer

would have a material adverse effect on the issuer and its

subsidiaries.\33\ Since we continue to believe that the identity of

major customers is material information to investors, we propose to

retain this Regulation S-K requirement.

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\32\ SFAS No. 30 amended SFAS No. 14 and retained this provision

to disclose revenues from major customers.

\33\ 17 CFR 229.101(c)(1)(vii).

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C. Segment Information Added to Interim Reports

GAAP historically has not required segment reporting in interim

financial statements. In SFAS No. 131, the FASB changed its position.

Under the new accounting standards, issuers must include in condensed

financial statements of interim periods issued to shareholders the

following information about each reportable segment:

Revenues from external customers;

Intersegment revenues;

A measure of segment profit or loss;

Total assets for which there has been a material change

from the amount disclosed in the last annual report;

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; and

A reconciliation of the total of the reportable segments'

measures of profit or loss to the enterprise's consolidated income

before income taxes, extraordinary items, discontinued operations, and

the cumulative effect of changes in accounting principles.\34\

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\34\ See SFAS No. 131para. 33. The FASB also amended Accounting

Principles Board Opinion No. 28 (``APB No. 28''), governing interim

financial reporting, to reflect this change. The stated purpose of

APB No. 28 is ``to clarify the application of accounting principles

and reporting practices to interim financial information, including

interim financial statements and summarized interim financial data

of publicly traded companies issued for external reporting

purposes.'' APB No. 28 para. 1.

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Thus, for the first time, issuers must disclose in their interim

financial statements, including those filed with the Commission,

condensed financial information about the segments they have chosen as

reportable segments for purposes of their annual reports. In making

this change, the FASB explained:

This statement [SFAS No. 131] requires disclosure of limited

segment information in condensed financial statements that are

included in quarterly reports to shareholders. * * * Statement 14

did not apply to those condensed financial statements because of the

expense and the time required for producing segment information

under Statement 14. A few respondents to the Exposure Draft said

that reporting segment information in interim financial statements

would be unnecessarily burdensome. However, users contended that, to

be timely, segment information is needed more often than annually

and that the difficulties of preparing it on an interim basis could

be overcome by an approach like the one in this Statement. Managers

of many enterprises agree and have voluntarily provided segment

information for interim periods.

The Board decided that the condensed financial statements in

interim reports issued to shareholders should include disclosure of

segment revenues from external customers, intersegment revenues, a

measure of segment profit or loss, material changes in segment

assets, differences in the basis of segmentation or the way segment

profit or loss was measured in the previous annual period, and a

reconciliation to the enterprise's total profit or loss. That

decision is a compromise between the needs of users who want the

same segment information for interim periods as that required in

annual financial statements and the costs to preparers who must

report the information. Users will have some key information on a

timely basis. Enterprises should not incur significant incremental

costs to provide the information because it is based on information

that is used internally and therefore already available.\35\

\35\ SFAS No. 131 para. 98 and para. 99.

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SFAS No. 131 is effective for fiscal years beginning after December

15, 1997.\36\ The FASB specified, however, that issuers need not apply

the new provisions to interim financial statements in the initial year

of application, but they must report comparative information for

interim periods in that initial year in financial statements for

interim periods in the second year of application.\37\ Consequently,

through the Rules of General Application of Regulation S-X, which state

that financial statements not prepared in accordance with GAAP will be

presumed to be misleading or inaccurate,\38\ we expect to see

comparative segment information reported in filings containing interim

financial statements for periods ending on or after March 15, 1999. No

changes to our rules are necessary to implement the FASB's changes in

this regard.

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\36\ SFAS No. 131 para. 40.

\37\ Id.

\38\ See 17 CFR 210.4-01(a)(1).

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III. General Request for Comment

The Commission is proposing these amendments to conform its

disclosure requirements to GAAP, as modified by SFAS No. 131. Today we

solicit public comments specifically addressing whether these proposed

changes adequately address the new accounting standards. We also seek

comment about whether other amendments are appropriate for that

purpose.

We request comment on whether the proposed revisions, if adopted,

would have an adverse effect on competition or would impose a burden on

competition that is neither necessary nor appropriate in furthering the

purposes of the Securities Act and the Exchange Act. We will consider

these comments in complying with our responsibilities under Section

23(a)(2) of the Exchange Act.\39\

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\39\ 15 U.S.C. 78w(a)(2).

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Section 2(b) of the Securities Act \40\ and Section 3(f) of the

Exchange Act \41\ require the Commission, when engaged in rulemaking

that requires a public interest finding, to consider, in addition to

the protection of investors, whether

[[Page 35890]]

the action will promote efficiency, competition and capital formation.

Therefore, we solicit comment on what effect the proposed changes, if

adopted, may have on efficiency, competition and capital formation.

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\40\ 15 U.S.C. 77b(b).

\41\ 15 U.S.C. 78c(f).

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Please send three copies of your comment letter to Jonathan G.

Katz, Secretary, U.S. Securities and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549. Interested persons also may

submit comments electronically at the following e-mail address: rule-

[email protected]. All comment letters should refer to File No. S7-17-

98; please include this file number in the subject line if you use e-

mail. Anyone can inspect and copy the comment letters in our public

reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. We

will post electronically submitted comment letters on our Internet Web

Site (www.sec.gov).

IV. Cost-Benefit Analysis

We anticipate that these proposals, if adopted, would not impose

any new regulatory costs on registrants, since the changes would simply

conform our disclosure requirements with current accounting principles,

to which registrants are already subject. To the contrary, if we do not

act to conform our rules to the revised accounting standards, costs

will rise because of the confusion registrants might experience in

determining which set of standards to apply to their disclosure

documents, the standards under SFAS No. 14, as currently codified in

Commission rules, or the revised standards of SFAS No. 131. Some

registrants may determine to resolve the conflict by producing and

providing both sets of information. This duplicative disclosure would

be a wasteful expenditure of business resources that we could avoid by

the adopting the changes proposed today. Commenters should address the

costs and benefits of the proposals, and provide supporting empirical

data for any positions advanced.

V. Summary of Regulatory Flexibility Act Certification

Pursuant to section 605(b) of the Regulatory Flexibility Act,\42\

Arthur Levitt, Chairman of the Commission, certified that the

amendments proposed in this release would not, if adopted, have

significant impact on a substantial number of small entities. The

reason for this certification is that the proposed amendments are

intended to conform rules and forms to GAAP, as recently amended, to

which registrants are already subject. We include the Certification in

this release as Attachment A and encourage written comments relating to

it. Commenters should describe the nature of any impact on small

entities and provide empirical data to support the extent of the

impact.

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\42\ 5 U.S.C. 605(b).

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VI. Paperwork Reduction Act \43\

We anticipate that information collection burden hours would not

change as a result of the technical amendments we propose today.

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\43\ 44 U.S.C. 3501 et seq.

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VII. Codification Update

The ``Codification of Financial Report Policies'' announced in

Financial Reporting Release No. 1 (April 15, 1982) [47 FR 21028] is

proposed to be updated to:

1. Modify Section 501 by revising Section 501.06.a. to read as

follows:

a. Segment Analysis

In formulating a judgment as to whether a discussion of segment

information is necessary to an understanding of the business, a multi-

segment registrant preparing a full fiscal year MD&A should analyze

revenues, profitability, and the cash needs of its significant

segments.\44\ To the extent any segment contributes in a materially

disproportionate way to those items, or where discussion on a

consolidated basis would present an incomplete and misleading picture

of the enterprise, segment discussion should be included. This may

occur, for example, when there are legal or other restrictions upon the

free flow of funds from one segment, subsidiary, or division of the

registrant to others; when known trends, demands, commitments, event,

or uncertainties within a segment are reasonably likely to have a

material effect on the business as a whole; when the ability to dispose

of identified assets of a segment may be relevant to the financial

flexibility of the registrant; and in other circumstances in which the

registrant concludes that segment analysis is appropriate to an

understanding of its business.

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\44\ Where consistent with the registrant's internal management