A majority of companies are organized along product and/or service lines. For example, we show operating segment disclosures for Wyeth in Exhibit 8.4. Wyeth does not disclose interest revenue and interest expense by operating segment because these relate only to administration. Nor does it report income tax expense or benefit by segment because the company evaluates the performance of its operating segments based on income before taxes.
A study of 106 companies with reportable segments based on line of business found that 52 percent of the companies disclosed more segments under SFAS 131 than they did under SFAS 14, 42 percent disclosed the same number of segments, and only 6 percent reported fewer segments. Notwithstanding these results, the Securities and Exchange Commission (SEC) has expressed concern about the number of segments reported by companies.
In 2001, SEC Chief Accountant Robert Bayless warned companies that they should expect his staff to “review the company’s Web site, financial analysts’ reports, and other public documents to assess whether segments included in the footnotes appear reasonably disaggregated.”
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Some companies, such as McDonald’s, Coca-Cola, and Nike, are organized geographically and define operating segments as regions of the world. McDonald’s has nine operating segments: United States, Europe, Asia, Pacific, Middle East, Africa (APMEA), Latin America, Canada, and Other.
Some companies report a combination of products or services and international segments. Wal-Mart has four operating segments- Wal-Mart Stores, Sam’s Club, International, and Other.
Anheuser-Busch Companies, Inc., has five reportable segments: Domestic Beer, International Beer, Packaging, Entertainment, and Other. The nature of these companies’ segmentation provides considerable insight into the way that upper management views and evaluates the various parts of the consolidated enterprise.