July 30, 1998 Mr. Jonathan G. Katz Secretary U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: File Number S7-17-98 Segment Reporting Dear Mr. Katz: PricewaterhouseCoopers LLP is pleased to comment on the above mentioned Release. We commend the Commission for its proposal to conform its current rules and forms with the provisions of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131 or the "Statement") prior to the Statement's mandatory effective date. Generally, we agree with the proposed rule changes. However, we do have the following comments on certain aspects of the proposal: Item 101 (c) (1) (i) currently requires registrants to disclose 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. We recommend that the Commission conform this requirement to the language contained in FAS 131. Accordingly, disclosure would be required of any class of similar products/services pursuant to either paragraph 10 or 37 of FAS 131. If disclosed pursuant to paragraph 10, an entity's operating segments are based on differences in products/services and are subject to the quantitative tests of paragraph 18, one of which is based on the materiality of segment revenues to consolidated revenues. However, a company may be required to disclose a segment's revenues that are otherwise below the revenue ten-percent test by virtue of that segment meeting the ten-percent test based on either profit/loss or assets. If disclosure of classes of similar products/services is required pursuant to paragraph 37, a company's reportable segments are not based on differences in products/services. While paragraph 37 does not provide for quantitative tests similar to those contained in paragraph 18, the Statement's general disclaimer that its provisions need not be applied to immaterial items would generally limit the disclosures to those classes of similar products/services deemed material. Additionally, we agree with the Commission retaining the requirement of Item 101 (c) (1) (i) regarding narrative disclosure of the principal markets and distribution methods of a registrant's principal products/services. Mr. Jonathan G. Katz July 30, 1998 Page -2- The Commission is proposing to add the following footnote to the informal guidance about MD&A contained in CFRP 501.06.a: 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. The above footnote, in particular the restructuring and asset impairment example, appears to require registrants to reconcile the internal measure of segment profitability (that is also disclosed pursuant to FAS 131) to what would otherwise be a GAAP operating profit by segment. We believe this "partial reconciliation by segment " goes significantly beyond the requirements of FAS 131, which only requires entities to reconcile the combined total of all reportable segments' profitability to consolidated amounts. We recommend that the Commission reconsider this "informal" guidance since GAAP (as defined in FAS 131) does not require such detail, principally due to the reasons cited in paragraphs 81 through 91 of FAS 131. ******** We appreciate the opportunity to express our views. If you have any questions concerning our comments, please contact Jay P. Hartig at 203-316- 5743 or Stephen J. Lis at 201-521-3041. Very truly yours, PricewaterhouseCoopers LLP