SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 240 and 249

[Release Nos. 33-7620; 34-40884; FR54; File No. S7-17-98]

RIN 3235-AH43

Segment Reporting

AGENCY: Securities and Exchange Commission

ACTION: Final Rules

SUMMARY: The Commission today is adopting technical amendments

to conform our reporting requirements with the Financial

Accounting Standards Board’s ("FASB") Statement of Financial

Accounting Standards ("SFAS") No. 131, governing disclosures

relating to a business enterprise’s operating segments.

DATES: Effective Date: The rules will become effective on

[insert date 30 days following publication in the Federal

with the revised rules before the effective date.

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 adopts

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 are

making consistent changes to Form 20-F[8] and to Section 501.06

of the Codification of Financial Reporting Policies ("CFRP").

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]

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 SFAS No. 131 superseded SFAS No. 14 and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.

On June 25, 1998, the Commission proposed for comment a

number of technical changes to its reporting requirements to

accommodate these modifications.[10] Twelve commenters responded

to the solicitation for public views on the proposed approach.

Generally, the commenters were supportive of our efforts to

conform our rules with the FASB standards. We have determined to

adopt the rules essentially as proposed. We believe that this

action is in keeping with our long-standing policy to look to the

private sector for the promulgation of generally accepted

accounting principles ("GAAP").[11] It also furthers our goal of

integrating existing accounting information into the narrative

disclosure in documents mandated by the federal securities laws.

This release explains the new reporting requirements.

II. RULE CHANGES

A. Operating Segment Disclosure

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

have required, 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."[12] 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."[13] 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 resources and assess performance.[14]

Specifically, SFAS No. 131 states that an operating segment is a

component of a business:

* 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"[15] to make
decisions about resources to be allocated to the segment and
assess its performance; and

* 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;[16]
*
* 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.[17]

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),[18] and

identifiable assets[19] 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).

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;[20]
* interest expense;[21]
* 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.[22]

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.

Today we are amending our narrative and financial reporting

rules to conform their segment reporting requirements to the

FASB’s revised accounting standards. We retain, however,

certain requirements relating to disclosure of principal products

or services and major customers that traditionally have differed

from the FASB standards.[23] We address below each of the rule

changes.[24]

1. Description of Business - Item 101

In the past, Regulation S-K Item 101(b)[25] required issuers

to disclose in the business description sections of documents

that they filed with the Commission financial information based

on GAAP’s old "industry segment" standard. Under revised Item

101, registrants will report segment information in accordance

with GAAP’s new operating segment standard.[26] Other changes to

Item 101 follow.

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 the types of products and services from which each segment

derives its revenues, without reference to principal markets and

methods of distribution. We continue to believe that information

relating to principal markets and distribution methods is useful

to investors; consequently we are retaining this provision.

Item 101 further requires registrants to disclose the

amounts of revenues from each class of similar products and

services based on quantitative 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.[27] 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.

Consequently, we sought public comment as to whether we needed to

maintain the quantitative thresholds of Item 101(c)(1)(i).

Several commenters advocated eliminating the quantitative

thresholds and simply relying on the GAAP standard, which they

said implied a materiality standard for minimum disclosure. We

believe that SFAS No. 131 will result in disclosure of a range of

amounts of products and services, depending upon how a company

defines a class of related products or services. In fact, SFAS

No. 131 may require disclosure of amounts below the existing 10%

threshold of Item 101. We believe a clearly stated minimum

threshold for disclosure is desirable to eliminate any possible

ambiguity that may result from attempts to apply an unwritten

materiality threshold to small amounts of reportable revenues and

is in keeping with the 10% threshold used to report segments

under SFAS No. 131. We therefore have retained these Item 101

thresholds.

b. Retroactive restatement of information

Item 101 has required 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. 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.[28] In the

final rule we conform the language of Item 101 with the language

of SFAS No. 131 regarding when a company must restate

information.

c. Appendix A

Item 101 has included an appendix illustrating how to

present the required industry segment information in tabular

form. As proposed, we are eliminating this appendix and will

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.[29] We are

updating the item to reflect the new financial statement

reporting requirements, as proposed.

3. Management’s Discussion & 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.[30]

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 are not adopting changes to the language of Item

303, we are amending CFRP 501.06.a, which provides informal

guidance about MD&A. The revisions conform the Codification’s

language with that of SFAS No. 131, and adds a new footnote, that

reads:

Where consistent with the registrant’s internal management
reports, SFAS No. 131 permits measures of segment
profitability that differ from consolidated operating profit
as defined by GAAP, or that exclude items included in the
determination of the registrant’s net income. Under SFAS
No. 131, a registrant also must reconcile key segment
amounts to the corresponding items reported in the
consolidated financial statements in a note to the financial
statements. Similarly, the Commission expects that the
discussion of a segment whose profitability is determined on
a basis that differs from consolidated operating profit as
defined by GAAP or that excludes the effects of items
attributable to the segment also will address the applicable
reconciling items in Management’s Discussion and Analysis.
For example, if a material charge for restructuring or
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 discuss in
Management’s Discussion and Analysis the applicable portion
of the charge, the segment to which it relates and the
circumstances of its incurrence. Likewise, the Commission
expects that the effects of management’s use of non-GAAP
measures, either on a consolidated or segment basis, 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.

Several commenters said that the footnote as proposed could

be read to require registrants to reconcile the internal measure

of segment profitability to pre-tax income from continuing

operations by segment, which partial reconciliation by segment

would go significantly beyond the requirements of SFAS No. 131.

We have revised this language, as set out above, to clarify that

we are not requiring any incremental reconciliation of segment

profit beyond what SFAS No. 131 requires. The note now makes it

clear that we expect a narrative discussion in MD&A of items that

affect the operating results of a segment but that are not

included in segment operating profit defined by management.

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").[31] Form 20-F has

permitted 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.

As proposed, we are replacing the reference to SFAS No. 14 with

one to SFAS No. 131.[32]

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 are not changing 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

reflected those standards. As we proposed, we are updating 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) has required 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

required 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.

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.[33]

We are revising our disclosure requirements to conform

entirely with the new accounting standard. Consequently,

issuers, even those whose segments are defined by geography, will

continue to report designated information based on geographic

areas, unless the information is already provided as part of the

reportable operating segment information required by the

accounting standards.[34] Consistent with SFAS No. 131, the

rules no longer will require companies to disclose geographic

information relating to profitability, unless their segments are

defined by geographic areas, or export sales.

2. Major customers

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

disclosure of revenues from major customers.[35] SFAS No. 131

now requires issuers to disclose the amount of revenues from each

external customer that amounts to 10 percent or more of an

enterprise’s 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 has required 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.[36] We continue to believe that the identity

of major customers is material information to investors. This

disclosure allows a reader to better assess risks associated with

a particular customer, as well as material concentrations of

revenues related to that customer. Consequently, we retain this

Regulation S-K requirement, as we proposed.

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 for interim periods 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.[37]

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. [38]

SFAS No. 131 is effective for fiscal years beginning after

December 15, 1997.[39] 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.[40] 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,[41] we expect to begin to see

comparative segment information reported in filings made by

companies whose fiscal years ended after December 15, 1998 in

their filings relating to their first quarter ending after March

15, 1999. A calendar year end company would provide comparative

interim segment information beginning in its March 31, 1999

interim financial statements. No changes to our rules are

necessary to implement the FASB’s changes in this regard.

III. CERTAIN FINDINGS

We requested 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. No commenter addressed this issue. In

complying with our responsibilities under Section 23(a)(2) of the

Exchange Act, we have determined that there will be no adverse

effect on competition and that the rule changes will not impose

any unnecessary burden on competition that is not appropriate in

furthering the purposes of the federal securities laws.[42]

We also find that our action will promote efficiency,

competition and capital formation by making our disclosure

standards uniform with the accounting standards. This is in

keeping with our responsibilities under Section 2(b) of the

Securities Act[43] and Section 3(f) of the Exchange Act.[44]

IV. COST-BENEFIT ANALYSIS

We anticipate that these rule changes will not impose any

new regulatory costs on registrants, since the changes simply

conform our disclosure requirements with current accounting

principles, to which registrants are already subject. To the

contrary, registrants will benefit from the obligation to follow

uniform standards rather than potentially conflicting ones.

V. REGULATORY FLEXIBILITY ACT CERTIFICATION

Pursuant to section 605(b) of the Regulatory Flexibility

Act,[45] 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

amendments conform rules and forms to GAAP, as amended, to which

registrants are already subject. We included the certification

in the proposing release as Attachment A.

VI. PAPERWORK REDUCTION ACT[46]

We determined that information collection burden hours will

not change as a result of the technical amendments adopted today.

VII. CODIFICATION UPDATE

The "Codification of Financial Report Policies" announced in

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

is 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.[47] 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.

The following example illustrates segment disclosure for a

manufacturer with two segments. The two segments contributed to

segment profit amounts that were disproportionate to their

respective revenues. The registrant discusses sales and segment

profit trends, factors explaining such trends, and where

applicable, known events that will impact future results of

operations of the segment.

Net Sales by Segment

Year 3 Year 2 Year 1
Percent Percent Percent
Segments ($ million) of Total ($ million) of Total ($ million) of Total

Segment I 585 55 479 53 420 48

Segment II 472 45 433 47 457 52

Total Sales 1057 100 912 100 877 100

Year 3 vs. Year 2

Segment I sales increased 22% in Year 3 over the Year 2

period. The increase included the effect of the acquisition of

Corporation T. Excluding this acquisition, sales would have

increased by 16% over Year 2. Product Line A sales increased by

18% due to a 24% increase in selling prices, partially offset by

lower shipments. Product Line B sales increased by 35% due to a

17% increase in selling prices and a 15% increase in shipment

volume.

Segment II sales increased 9% due to a 12% increase in

selling prices partly offset by a 3% reduction in shipment

volume.

Year 2 vs. Year 1

Segment I sales increased 14% in Year 2. Product Line A

sales increased 22%, in spite of a slight reduction in shipments,

because of a 23% increase in selling prices.

Product Line B sales declined 5% due mainly to a 7%

decrease in selling prices, partially offset by higher shipments.

The 5% decline in Segment II sales reflected a 3% reduction

in selling prices and a 2% decline in shipments.

The substantial increases in selling prices of Product Line

A during Year 3 and Year 2 occurred primarily because of

heightened worldwide demand which exceeded the industry’s

production capacity. The Company expects these conditions to

continue for the next several years. The Company anticipates

that shipment volumes of Product Line A will increase as its new

production facility reaches commercial production levels in Year

Segment II shipment volumes have declined during the past

two years primarily because of the discontinuation of certain

products that were marginally profitable and did not have

significant growth potential.

Profit by Segment

Year 3 Year 2 Year 1
Percent Percent Percent
Segments ($ million) of Total ($ million) of Total ($ million) of Total

Segment I 126 75 108 68 67 55

Segment II 42 25 51 32 54 45

Segment
Profit 168 100 159 100 121 100

Year 3 vs. Year 2

Segment I profit was $18 million (17%) higher in Year 3 than

in Year 2. This increase includes the effects of higher sales

prices and slightly improved margins on Product Line A, higher

shipments of Product Line B and the acquisition of Corporation T.

Excluding this acquisition, Segment I profit would have been 11%

higher than in Year 2. Partially offsetting these increases are

costs and expenses of $11 million related to new plant start-up,

slightly reduced margins on Product Line B and a $9 million

increase in research and development expenses.

Segment II profit declined $9 million (18%) due mainly to

substantially higher costs in Year 3 resulting from a 23%

increase in average raw material costs which could not be fully

recovered through sales prices increases. The Company expects

that Segment II margins will continue to decline, although at a

lesser rate than in Year 3 as competitive factors limit the

Company’s ability to recover cost increases.

Year 2 vs. Year 1

Segment I profit was $41 million (61%) higher in Year 2 than

in Year 1. After excluding the effect of the $34 million non-

recurring charge for the early retirement program in Year 1,

Segment I profit in Year 2 was $18 million (27%) higher than in

Year 1. This increase reflected higher prices and a

corresponding 21% increase in margins on Product Line A, and a

17% increase in margins on Product Line B due primarily to costs

reductions resulting from the early retirement program.

Segment II profit declined about $3 million (6%) due mainly

to lower selling prices and slightly reduced margins in Year 2.

2. Replace paragraphs .01, .02 and .03 of Section 503 with new

paragraph .01, to include the text of Section I of this release

captioned "Background" and with new paragraph .02 to include the

text of Section II.B.2 of this release captioned "Major

Customers."

The Codification is a separate publication of the

Commission. It will not be published in the Code of Federal

Regulations.

VIII. STATUTORY BASIS

The Commission proposes the rule changes explained in this

release pursuant to Sections 6, 7, 8, 10 and 19(a) of the

Securities Act and Sections 3, 12, 13, 14, 15(d) and 23(a) of the

Exchange Act.

List of Subjects in 17 CFR Parts 210, 229, 240 and 249

Accounting, Registration requirements, Reporting and

recordkeeping requirements, Securities.

TEXT OF THE RULES

Accordingly, the Commission amends Title 17, Chapter II of

the Code of Federal Regulations as follows:

PART 210- FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE
ACT OF 1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935,
INVESTMENT COMPANY ACT OF 1940, AND ENERGY POLICY AND
CONSERVATION ACT OF 1975.

1. The authority citation for Part 210 continues to read

as follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2,

77aa(25), 77aa(26), 78j-1, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a),

78ll(d), 79e(b), 79j(a), 79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-

30, 80a-37(a), unless otherwise noted.

2. By amending Section 210.3-03 by revising the first

sentence of paragraph (e) to read as follows:

§210.3-03 Instructions to income statement requirements.

* * * * *

(e) Disclosures regarding segments required by generally

accepted accounting principles shall be provided for each year

for which an audited statement of income is provided. * * *

3. By amending §210.12-16 by revising footnote one to the
table to read as follows:

§210.12-16 Supplementary insurance information.

* * * * *

1 Segments shown should be the same as those presented in the

footnote disclosures called for by generally accepted accounting

principles.

* * * * *

PART 229- STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY
POLICY AND CONSERVATION ACT OF 1975 - REGULATION S-K

4. The authority citation for Part 229 continues to read

in part as follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,

77z-2, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii,

77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5,

78w, 78ll(d), 79e, 79n, 79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-

11, unless otherwise noted.

* * * * *

5. By amending §229.101 (Item 101 of Regulation S-K) by

revising the introductory text of paragraph (b), paragraph (b)(1)

and paragraph (d); in paragraphs (c)(1) the introductory text,

(c)(1)(i), (c)(1)(ii), (c)(1)(iv), and (c)(1)(v), by revising the

term "industry segment" to read "segment"; in paragraph (c)(1)

the introductory text and in Instruction 1 in the Instructions to

Item 101, by revising the term "industry segments" to read

"segments"; by revising Instruction 2 to Item 101, and by

removing Appendix A - Industry Segments, and Appendix B - Foreign

and Domestic Operations and Export Sales.

§ 229.101 (Item 101) Description of business.

* * * * *

(b) Financial information about segments. Report for each

segment, as defined by generally accepted accounting principles,

revenues from external customers, a measure of profit or loss and

total assets. A registrant must report this information for each

of the last three fiscal years or for as long as it has been in

business, whichever period is shorter. If the information

provided in response to this paragraph (b) conforms with

generally accepted accounting principles, a registrant may

include in its financial statements a cross reference to this

data in lieu of presenting duplicative information in the

financial statements; conversely, a registrant may cross

reference to the financial statements.

(1) If a registrant changes the structure of its internal

organization in a manner that causes the composition of its

reportable segments to change, the registrant must restate the

corresponding information for earlier periods, including interim

periods, unless it is impracticable to do so. Following a change

in the composition of its reportable segments, a registrant shall

disclose whether it has restated the corresponding items of

segment information for earlier periods. If it has not restated

the items from earlier periods, the registrant 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.

* * * * *

(d) Financial information about geographic areas. (1)

State for each of the registrant’s last three fiscal years, or

for each fiscal year the registrant has been engaged in business,

whichever period is shorter:

(i) Revenues from external customers attributed to:

(A) The registrant’s country of domicile;

(B) All foreign countries, in total, from which the

registrant derives revenues; and

Disclose the basis for attributing revenues from external

customers to individual countries.

(ii) 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:

(A) The registrant’s country of domicile;

(B) All foreign countries, in total, in which the

registrant holds assets; and

(2) A registrant shall report the amounts based on the

financial information that it uses to produce the general-purpose

financial statements. If providing the geographic information is

impracticable, the registrant shall disclose that fact. A

registrant may wish to provide, in addition to the information

required by paragraph (d)(1) of this section, subtotals of

geographic information about groups of countries. To the extent

that the disclosed information conforms with generally accepted

accounting principles, the registrant may include in its

financial statements a cross reference to this data in lieu of

presenting duplicative data in its financial statements;

conversely, a registrant may cross-reference to the financial

statements.

(3) A registrant shall describe any risks attendant to the

foreign operations and any dependence on one or more of the

registrant’s segments upon such foreign operations, unless it

would be more appropriate to discuss this information in

connection with the description of one or more of the

registrant’s segments under paragraph (c) of this item.

(4) If the registrant includes, or is required by Article 3

of Regulation S-X (17 CFR 210), to include, interim financial

statements, discuss any facts relating to the information

furnished under this paragraph (d) that, in the opinion of

management, indicate that the three year financial data for

geographic areas may not be indicative of current or future

operations. To the extent necessary to the discussion, include

comparative information.

Instructions to Item 101

* * * * *

2. Base the determination of whether information about

segments is required for a particular year upon an evaluation of

interperiod comparability. For instance, interperiod

comparability would require a registrant to report segment

information in the current period even if not material under the

criteria for reportability of SFAS No. 131 if a segment has been

significant in the immediately preceding period and the

registrant expects it to be significant in the future.

* * * * *

6. By amending Section 229.102 by revising the term

"industry segment(s)" in the introductory paragraph to read

"segment(s), as reported in the financial statements,".

PART 240 - GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT
OF 1934

7. The authority citation for Part 240 continues to read

in part as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2,

77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-

1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w,

78x, 78ll(d), 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37,

80b-3, 80b-4 and 80b-11, unless otherwise noted.

* * * * *

8. By amending §240.14a-101(Schedule 14A) in Item

14(b)(2)(ii)(A)(3)(i) by revising the phrase "industry segments"

to read "segments".

PART 249 - FORM, SECURITIES EXCHANGE ACT OF 1934

9. The authority citation for Part 249 continues to read

in part as follows:

Authority: 15 U.S.C. 78a, et seq., unless otherwise noted:

* * * * *

10. By amending Form 20-F (referenced in § 249.220f) by

removing the term "SFAS 14" from Instruction 3 to Item 17 and

inserting the term "SFAS No. 131" in its place.

[Note: The text of Form 20-F does not, and the amendment will

not, appear in the Code of Federal Regulations]

By the Commission.

January 5, 1999 Jonathan G. Katz
Secretary

**FOOTNOTES**

[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 CFR 240.14a-101.

[8]: 17 CFR 249.220f.

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

[10]: Release No. 33-7549 (June 25, 1998) [63 FR 35886].

[11]: 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.

[12]: SFAS No. 14, ¶ 10.a.

[13]: We use the proposed terms "segment" and "segments" as well as the phrase "segments
as defined by generally accepted accounting principles" and similar terms or
phrases in the rules rather than follow the accounting standard’s nomenclature
of "operating segment." Registrants should construe these terms to mean a
component of a business for which GAAP requires separate reporting in
financial statements.

[14]: We refer to this below as the "management approach."

[15]: 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.

[16]: The FASB has proposed eliminating the word "reported" from the phrase "all reported
operating segments." See ¶ 7.t.(1)(a) of Proposed Statement of Financial
Accounting Standards - Amendment to FASB Statement No. 66, Rescission of FASB
Statement No. 75, and Technical Corrections, File Reference No. 190-A, dated
October 13, 1998 ("Exposure Draft").

[17]: SFAS No. 131, ¶ 18.

[18]: 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.

[19]: Segment assets included all tangible and intangible assets used by the segment,
including goodwill, other intangibles, and deferred income and expenses.

[20]: Certain enterprises may report segment interest revenue net of interest expense.
See SFAS No. 131, ¶ 27.

[21]: Id.

[22]: In its Exposure Draft, the FASB has proposed to modify the provisions of ¶¶27 and
28 of SFAS No. 131 to require companies to disclose the designated items for
each segment, if included in the measure of profit or loss reviewed by or
otherwise regularly provided to the chief operating decision maker. See ¶¶
7.t.(3) and (4) of the Exposure Draft.

[23]:
See Sections II.A.1.a. and II.B.2.

[24]: We are also adopting several technical amendments to update cross
references to the new accounting standard. These revisions are in Rules 3-
03(e) and 12-16 of Regulation S-X and Item 14(b)(2)(ii)(A)(3)(i) of Schedule
14A.

[25]: 17 CFR 229.101(b).

[26]: We also retain the provisions allowing an issuer to refer to other sections of the
registration statement that include the required information in order to avoid
duplicative disclosure.

[27]: 17 CFR 229.101(c)(1)(i).

[28]: See SFAS No. 131, ¶ 34.

[29]: 17 CFR 229.102.

[30]: 17 CFR 229.303(a).

[31]: 15 U.S.C. 78a et seq.

[32]: See Instruction 3 to Item 17 of Form 20-F. One commenter suggested also
referencing International Accounting Standard 14 in this instruction. In
light of the technical nature of this rulemaking, we believe that we should
reexamine this suggestion in connection with substantive rulemaking projects
involving this form that may arise in the future rather than adopt a provision
that was not introduced in the proposals.

[33]: See SFAS No. 131, ¶ 38.

[34]: See SFAS No. 121, ¶ 36. We are eliminating Appendix B of Regulation S-K Item 101.
We also 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.

[35]: SFAS No. 30 amended SFAS No. 14 and retained this provision to disclose revenues
from major customers.

[36]: 17 CFR 229.101(c)(1)(vii).

[37]: 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 ¶ 1.

[38]:
SFAS No. 131, ¶ 33 currently states that segment information must be included in
"condensed financial statements of interim periods issued to shareholders."
Since this language has caused some confusion relating to when segment
information is required, the FASB has proposed, as a technical amendment,
eliminating the words "issued to shareholders" to make it clear that the
information is to be provided in all interim financial statements, regardless
of whether delivered to shareholders. See Exposure Draft ¶7.t.(5). We
understood this to be the FASB’s interpretation of this requirement before we
issued the proposals and we will expect to see segment information in all
interim financial statements filed with the Commission.

[39]: SFAS No. 131 ¶ 40.

[40]: Id.

[41]: See 17 CFR 210.4-01(a)(1).

[42]: 15 U.S.C. 78w(a)(2).

[43]: 15 U.S.C. 77b(b).

[44]: 15 U.S.C. 78c(f).

[45]:
5 U.S.C. 605(b).

[46]: 44 U.S.C. 3501 et seq.

[47]: Where consistent with the registrant’s internal management reports,
SFAS No. 131 permits measures of segment profitability that differ from
consolidated operating profit as defined by GAAP, or that exclude items
included in the determination of the registrant’s net income. Under SFAS No.
131, a registrant also must reconcile key segment amounts to the corresponding
items reported in the consolidated financial statements in a note to the
financial statements. Similarly, the Commission expects that the discussion
of a segment whose profitability is determined on a basis that differs from
consolidated operating profit as defined by GAAP or that excludes the effects
of items attributable to the segment also will address the applicable
reconciling items in Management’s Discussion and Analysis. For example, if a
material charge for restructuring or 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 discuss in Management’s Discussion
and Analysis the applicable portion of the charge, the segment to which it
relates and the circumstances of its incurrence. Likewise, the Commission
expects that the effects of management’s use of non-GAAP measures, either on a
consolidated or segment basis, 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.