FIT Methodology Reference Master Oct 17 2012

8/14/2019 FIT Methodology Reference Master Oct 17 2012

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Contents1 Source of Information .......................................................................................................................................... 3

1.1 Most Recent Annual Filing in DAM system .............................................................................................................................. 3

1.2 Prospectus for New Companies ............................................................................................................................................... 3

1.3 Collecting Segment Descriptions from a Reliable External Source........................................................................................... 3

1.4 Reject foreign language companies ......................................................................................................................................... 3

2 Segment Data Collection ...................................................................................................................................... 3

2.1 Revenue .................................................................................................................................................................................... 3

2.1.1 Revenue from External Customers + Inter-segment Revenue= Total Revenue ................................................................... 3

2.1.2 Gross Revenue vs. Net Revenue .......................................................................................................................................... 4

2.1.3 Calculating Revenue from Percentage ................................................................................................................................. 4

2.1.4 Revenue by Geographic Region ........................................................................................................................................... 4

2.1.5 Revenue Break-outs: Face of Income Statement vs. Footnote Disclosure ......................................................................... 4

2.1.6 Using a product as a segment .............................................................................................................................................. 8

2.2 Operating Profit ...................................................................................................................................................................... 10

2.3 Percentage Calculation ........................................................................................................................................................... 11

2.4 Sub-total or Total should be recorded in FIT application as if it is a segment. ...................................................................... 13

2.5 No financial data is required for a single-segment company. ................................................................................................ 13

2.6 What is considered single-segment? ...................................................................................................................................... 13

2.7 Revenue, Profits, and Assets - Leave blank if no figure is disclosed. ...................................................................................... 13

2.8 Lakhs (Lacs) and Crores .......................................................................................................................................................... 13

2.9 Creating Two Periods from One Document ........................................................................................................................... 13

3 Segment Code Assignment ................................................................................................................................ 15

3.1 ZZ Codes (2/24/2012) ............................................................................................................................................................. 15

3.2 Segment Codes for Overseas Business ................................................................................................................................... 16

3.3 Company with No Operations ................................................................................................................................................ 17

3.4 Concept of Market-Based Classification ................................................................................................................................. 18

3.4.1 Real Estate Investment Trust (REIT) ................................................................................................................................... 18

3.4.2 Investment Trust, Investment Holding Company, or Private Equity .................................................................................. 18

3.4.3 Financing arms of manufacturing companies, such as automobile manufacturers, GE, caterpillar, GM (Industrial

Equipment) etc. ............................................................................................................................................................................... 20

3.4.4 Government Services ......................................................................................................................................................... 20

3.4.5 Special Purpose Vehicles (SPVs) (also called Special Purpose Entities (SPEs) or Special Purpose Companies (SPCs)) ...... 21

3.5 Classification of services a company provides to support its own products .......................................................................... 21

4 Multi-Segment Evaluation .................................................................................................................................. 21


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4.1 Steps to Decide Dominant Industry ........................................................................................................................................ 21

4.2 Applying 10% Relevance Rule ................................................................................................................................................. 22

4.3 Applying 20% Comparable Size Rule ...................................................................................................................................... 22

4.4 Other/ miscellaneous income larger than income from main operation .............................................................................. 22

5 Multi-Segment Application ................................................................................................................................ 23

5.1 Segments Tab ......................................................................................................................................................................... 23

5.1.1 Segment Descriptions ........................................................................................................................................................ 23

5.1.2 Product is optional. ............................................................................................................................................................ 23

5.1.3 Product-Segment Relationships ......................................................................................................................................... 23

5.1.4 Adding a brand name associated with more than one segment code .............................................................................. 24

5.1.5 Brand Names and Product Descriptions ............................................................................................................................ 24

5.1.6 Adding multiple brand names for the same product type ................................................................................................. 25

5.1.7 When there is no appropriate segment for a product ....................................................................................................... 25

5.1.8 Scaling Factor ..................................................................................................................................................................... 25

5.2 Company Info Tab .................................................................................................................................................................. 26

5.2.1 Comment ........................................................................................................................................................................... 26

5.2.2 Using a product with multiple parents as a segment code ................................................................................................ 26

5.3 Buttons ................................................................................................................................................................................... 28

5.3.1 Reject ................................................................................................................................................................................. 28

6 Intergroup Issues ................................................................................................................................................ 28

6.1 Conglomerates ....................................................................................................................................................................... 28

6.2 Carbon Credits ........................................................................................................................................................................ 28

6.3 Recycling Services ................................................................................................................................................................... 28

6.4 Internet Sites .......................................................................................................................................................................... 29


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1 Source of Information1.1 Most Recent Annual Filing in DAM systemWe assume the DAM System is up- to-date.

Reject (Other as a reason) the company if its most recent annual filing found in the DAM system is older than FY2008, and the RAs

are not responsible to check external sources to search for a more recent annual filing that might be available. (3/1/2012)1

For newly listed company that does not have an annual filing, refer to1.2 Prospectus for New Companies.(3/27/2012)

1.2 Prospectus for New CompaniesA prospectus can be used for a newly listed company. (2/21/2012)

1.3 Collecting Segment Descriptions from a Reliable External SourceIf a company does not disclose its segment descriptions in its most recent annual filing available in the DAM system, the RAs are

allowed to find the information in reliable external sources such as the company website. (2/24/2012)

1.4 Reject foreign language companiesReject foreign language companies from China, Korea, Japan, and Taiwan whose annual filings in their original languages are auto-

translated in English. Generally the quality of the translation is bad. However, if the annual filings are published in English by the

companies, use them. (3/27/2012) Eastern European countries (Russia, Czech Republic, Poland, Hungary, Romania, etc.) should be

rejected as well. (6/20/2012)2

2 Segment Data CollectionIn 2 Segment Data Collection, we are talking about the data the RAs record in FIT Assignment.

2.1 Revenue2.1.1 Revenue from External Customers + Inter-segment Revenue= Total RevenueCapture Revenue from External Customers, not Total Revenue. (2/24/2012)

If a company provides sufficient information to calculate revenue from external customers, calculate it. (2/24/2012)

Example 2.1.1-1 BHP Billiton

From the following table,

1Just for clarification, we would like the RAs to classify as many companies as possible in the most efficient way. One of the efficient ways can be reducing time to

search for annual filings online. The RAs workflow can be more efficient by using the document available in the DAM system instead of searching for them ex ternally.

There can be a case where there is a more recent annual filing in a company website and the DAM system is outdated. Howev er, the policy says that it is not the RAs

responsibility to check whether there is a newer annual filing out there because we consider that it is DAMs responsibility to provide us the document we need and

we would like the RAs to focus more on their primary responsibility: assigning correct FIT codes.

Note that not responsible does not mean should not.We do not make it mandatory to check external reliable sources for the sake of efficiency; but it does not

mean that we prohibit the RAs from doing so. It has been noticed that the RAs check company websites, other reliable sources, 10-Qs outside of the DAM system to

gain better understating about industry, segment, or products, which is totally acceptable. (3/27/2012)

2For western European countries, we have to try and classify the company using their translated documents. In case the translation was not good enough to use for

classification, they can be rejected. When rejecting western European countries, a list of companies in question along with the document number(s) should be

informed to Haksu.


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the correct revenue collection is as below. Note that the numbers in red are the calculated values. Total 11 items, including Group

and Unallocated Items/Eliminations and Total, should be recorded in FIT Assignment. (2/24/2012)

2.1.2 Gross Revenue vs. Net RevenueCapture Net Revenue (2/24/2012)

2.1.3 Calculating Revenue from PercentageIf a company only discloses percentage breakdown for its revenue, analysts should calculate revenue for each segment using the

percentage and the total revenue provided. In this case, analysts should make a source link to the percentagein document and

overwrite the Revenue field with the calculated revenue.

Sometimes, percentages a company discloses might not add up to 100%. Refer to two scenarios below.

Scenario1. A company may disclose revenue percentage only for a couple of its significant segments.

Revenue from Segment A50%

Revenue from Segment B40%

In this case, calculate the revenue amount for Segment A and B, and assign the remaining revenue to ZZ90 Unidentified Segment.

Scenario2. A company may have a segment with less than 1% revenue.

Revenue from Segment A60%

Revenue from Segment B40%

Revenue from Segment Cless than 1 %

In this case, analysts can use 0 in Segment Cs Revenue fieldas less than 1% of the total revenue is insignificant to our industry

classification. (9/19/2012)

2.1.4 Revenue by Geographic RegionIf a company discloses its revenue only by geographic region, consider it as a single-segment company. (3/12/2012)


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Scenario #1: If a company discloses revenue breakdown by geographic region and business segments as sub segments, collect all line

items.

If disclosed as the following:

Collect as below:

Scenario #2: If a company discloses revenue breakdown by business segment and geographic regions as sub segments, collect

business segments only and should not collect geographic regions.

Scenario #3: If a company discloses revenue breakdown by geographic region only, and businesses in all regions are identical (same

FIT segment(s) for all regions), consider the company as single-segment.


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Scenario #4: Some companies might disclose revenue breakdown by business segment for its domestic operations and lump all the

businesses in one segment for international operations. In this case, assume business mix of its International segment is

proportional to its domestic businesses unless specified otherwise.

Scenario #5-1: If a company discloses revenue breakdown by geographic region only, and operates different businesses in each

region, consider the company as a multi-segment and collect all line items.

Scenario #5-2: If a company discloses revenue breakdown by geographic region only, and operates different businesses in each

region with some overlaps, consider the company as multi-segment. (10/17/2012)

2.1.5 Revenue Break-outs: Face of Income Statement vs. Footnote DisclosureFor companies from some countries where segment reporting is not required, the RAs might not be able to find the segment data in

the note to the financial statements as they do for US companies. In case there is no segment data disclosed in the footnote, it is

allowed to collect the data from other parts of a companys annual filing, such as income statement. When collecting segment datafrom the income statement, revenue items that are unrelated to a companys main business objectives do not have to be collected.

Refer below for more detailed illustration.

Recently questions have been raised regarding whether analysts should be collecting revenue items that are unrelated to a

companys main business objectives, however are included in the companys total revenue/income. A few examples of these items

include:

- Dividend Income


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- Interest Income- Sale of Securities- Miscellaneous Income

Whether we should or should not collect such items will be based on where in the report such items are disclosed: 1) On the face of

the income statement; or 2) disclosed with other areas of financial report (typically within the notes to the financial statements).

Scenario #1: Face of Income Statement

For example, a company in the Healthcare Industry may report the following presentation on its income statement face:

In these cases, the analyst will enter the income items associated with the companys mainbusinesses: Medical Devices and

Physician Services, and also enter a total income line within FIT Assignment. Upon completion, this should appear as follows:

Scenario #2: Disclosed in Notes

The same company may also disclose only 1 revenue/income item on the face of the income statement, however may provide a

revenue break-out elsewhere within the document. Continuing with the above example, the company may report a single line on

income statement as follows:

Total Income (note 5) 165

Upon reviewing the notes to the financial statements, its discovered that note 5 contains the full revenue break-out for total

income as follows:


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Since this revenue break-out was reported within the notes section, we will collect ALL reported items, including the total. By doing

so we will be preserving the as reported revenue table (Note we dont collect allitems in Scenario #1 since collecting the as

reported presentation is not critical due to variations in statement structure/content amongst different markets, and the fact the

Factset Fundamentals team already collects the entire as reported income statement).

Upon completion of Scenario #2, this should appear in FIT Assignment as follows:

(3/27/2012)

2.1.6 Using a product as a segmentRevenue breakdown is not limited to operating segments reported by a company. In some cases, revenue can be broken down by

product or brand (common in pharmaceutical companies or tech companies like Apple).

Example 2.1.5-1 Eli Lilly Co.

Eli Lilly discloses revenue breakdown at the product level* as well as the segment level**. And it is identifiable which segment each

of the products belongs to***. In this case we should include the product data in the segment data collection as below and assign

product codes to the products.


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* Revenue breakdown at the product level

**Revenue breakdown at the segment level

***Segment-Product Relationship

However, if a company discloses both product and segment level revenue breakdown, but it is not clear which segment each

product belongs to, choose the one that is more relevant to the FIT classification (the segment team will collect both).

Example 2.1.5-2 Use revenue breakdown by market in the case below. (5/23/2012)

Revenue by Products and Services:

Revenue by Market:


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2.1.7 Multiple Iconums associated with one documentIf multiple Iconums are associated with one document, the same document will be loaded multiple times in the RA queue. If the

same document is loaded multiple times, there will be some kind of note in StartReason column informing that the document has

duplicates. Each instance of the document loaded in the queue is associated with each Iconum. And RAs should classify each Iconum

for each instance of the document.

The 10-K below is associated with two entities: Consolidated Edison, Inc. and Consolidate Edison Company of New York, Inc. If each

of the entities is given an Iconum by FactSet Entity Group, this document will be loaded twice in the queue.


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RAs should classify Consolidated Edison, Inc. with one document and Consolidate Edison Company of New York, Inc. with the other

document.

When classifying each entity, collect segment data that is relevant to the entity being classified.

For example, when classifying Consolidated Edison, Inc., RAs should collect the entire table below.

However, when classifying Consolidate Edison Company of New York, Inc., RAs should collect only the part in the red box as

Consolidate Edison Company of New York, Inc. is a subsidiary of Consolidated Edison, Inc. and only the data in the red box is relevant

to its business. (10/17/2012)

2.2 Operating ProfitTo be updated

2.3 Percentage CalculationExample 2.3-1 BHP Billiton (continued from Example 2.1.1-1 BHP Billiton) (2/24/2012)


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Example 2.3-2 Lockheed Martin Corp

From the following tables,

the percentage is calculated as below. (2/24/2012)


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2.4 Sub-total or Total should be recorded in FIT application as if it is a segment.Total item should be recorded in FIT application with ZZ99 Total After Reconciliation/Adjustments as a segment code.

If a company discloses a subtotal, it should be recorded it in FIT Assignment as well with ZZ95 Sub-Total Before

Corporate/Adjustmentsas a segment code. However, the RAs are not responsible for calculating the subtotal if its not disclosed.

(2/28/2012)

For the segment description, use the one reported by the company under review. If the company chooses to name it Consolidated

Total, or Company Total, use whats reported. If company doesnt report anything, use Total. (3/1/2012)

Total item needs to be recorded in FIT Assignment because the percentage calculation will be automated based on the numbers the

RAs enter eventually; also presenting the total makes QC easier. (2/28/2012)

2.5 No financial data is required for a single-segment company.The RAs do not have to collect revenue, operating profit, asset figures, currency, and scaling factor for a single segment company.

(7/25/2012)

Segment Title, Description, andFIT Codes are required. (2/28/2012)

2.6 What is considered single-segment?In general, a company is considered single-segment if it does not provide a breakdown of its operating revenue. (Example 2.6- 1)

However, revenue breakdown is not the sole criteria. If there is evidence that a company has more than one business unit, we

classify it as a multi-segment company. For example, if there is a biopharmaceutical company which has yet to generate revenues

since their drugs are awaiting approval, but provides segment breakdown of operating loss and assets, it can be considered as multi-

segment. (3/5/2012)

Example 2.6- 1

2.7 Revenue, Profits, and Assets - Leave blank if no figure is disclosed.It is not necessary to enter -, 0 or N/A if there is no figure disclosed. Enter 0 only if the value is zero.(3/5/2012)

2.8 Lakhs (Lacs) and CroresA lakh, also a lac, is a unit in the Indian numbering system equal to one hundred thousand (100,000), written as 1,00,000. A crore is

equal to ten million (10,000,000), or 100 lakhs, written as 1,00,00,000. Lakhs and cores are widely used both in official and other

contexts in India, Pakistan, Bangladesh, and Nepal.

Add 0 to adjust lakhs and crores to thousand, million, or billion. For example, 23cr (crores) should be recorded as 230 million.

2.9 Creating Two Periods from One DocumentIf a company files bankruptcy and reorganizes, it is possible that the company presents its financials with two separate periods, pre

and post reorganization, within one annual report. In the example below, the "Successor Nine Months Ended" column represents


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the financials after the reorganization of the company, and the "predecessor three months" column represents the quarter before

the reorganization. The "2011 combined" column represents the combination of the first and second columns.

Example 2.9-1

For this example, we should create two periods, one ending March 31, 2011 and the other ending December 31, 2011; and collect

two sets of financials from one annual report. You can create two periods by clicking Add Period button. And you should change

Period End Date accordingly and collect a set of financials for each period.

In Company Tab, if the companys pre-reorganization FIT Industry and post-reorganization FIT industry are identical, set the Start

Date as March 31, 2011 and assign its FIT industry.


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If the companys FIT Industry changes after reorganization, add the new FIT Industry of the successor with the Start Date as

December 31, 2011. As you create the new Industry and set the Start Date, we will see the End Date of the previous FIT Industry

automatically adjusted to December 30, 2011. This means that the company had been primarily engaged in Casino & Gambling

Industry, based on the information provided on 3/31/2011, until the new information provided on 12/31/2011 indicated that the

company has changed its primary business to Restaurants & Bars. And this classification remains until the companys FIT Industry

changes. (10/9/2012)3

3 Segment Code Assignment3.1 ZZ Codes (2/24/2012)ZZ Unidentified Economy Roll up from ZZ9X

ZZZZ Unidentified Sector

ZZZZ10 Unidentified Industry

ZZ90 Unidentified Segment The nature of business in the segment is not identified

ZZ95 Sub-Total Before Corporate/Adjustments Sub-total before unallocated corporate income expenses

and inter-segment adjustments

ZZ96 Unallocated income/expenses Income/expenses that are not allocated to any specific

segment, but need to be considered for computing

operating profits.

ZZ98 Reconciliation/Adjustments Adjustments or inter-segment reconciliation to reconcile

sub-total of all segments to a value in the financial

statements

ZZ99 Total After Reconciliation/Adjustments TOTAL after reconciliation and adjustments, which usuallymatches to a value in the financial statements

Example3.1-1

3If a companys FIT Industry changes as a result of M&A, we should use the effective date of the M&A (deal closed date) as theStart

Date of the new FIT Industry, not the companys fiscal year end date.


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Example3.1-2

Example3.1-3

3.2 Segment Codes for Overseas BusinessIf a company has an overseas operation segment that includes all domestic businesses, assign a primary segment code of a dominant

segment as a primary segment code for the overseas operation segment. We assume that businesses included in the overseas

operation are similarly distributed to the domestic businesses unless informed otherwise.


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Example 2.5.2-1 Rengo Co. Ltd. (FIT_CASE_RNGO_2011)

Rengos Overseas Business segment includes manufacturing and sales of paperboard, corrugated board, corrugated containers,

flexible packaging and heavy duty packaging products overseas. The correct segment code assignment for the Overseas Business is

as below. (2/24/2012)

3.3 Company with No OperationsEven without any current business operation, if a company has a future business plan, classify it based on its future perspective.

(3/5/2012)

Scenario #1: If a company is currently not operating (or reports that it will cease its current lines of business on a future date) and

does not pursue plans to operate in any specific business segment, classify it as FN16 Private Equity with 52391011 Private Investing

as a product.

If you are in the Group other than FIN and are classifying a company in this case, complete the classification instead of rejecting the

company to FIN Group as youve already done enough research to classify.

Scenario #2: Whether a company does not have any current business operation or intends to cease its current business, if it i sspecific about what it is going to do, classify it based on their future perspective.

If a companys future perspective is specific enough at the Industry level, we should keep the company within the Industry itintends

to be in. For example, if a mining company sold off all of its gold mining properties and plans to engage in different mineral mining,

we should still classify it under Mining Industry although it might be difficult to identify which Segment to assign. Try to find the

most relevant segment and explain the case in the comment field. (10/17/2012)


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Scenario #3: If a company reports that it would change its business as of a date that has already occurred, but we cannot verify that

the change has taken place, or we verify that the change has not taken place yet, reject it using this reason: None of the documents

provides sufficient info for proper classification.

Scenario #4: If a company acquires new business in addition to its existing business, the acquisition is reflected in our classification

as of the deal closing date. (6/6/2012)

3.4 Concept of Market-Based Classification3.4.1 Real Estate Investment Trust (REIT)In general, Real Estate Investment Trusts (REITs) holding commercial real estate (retail and office space) and residential properties

are considered under the Real Estate Economy which falls under the FIN group. However, other real estate investment trusts (such

as hotel REITs, hospital REITS, energy infrastructure REITs, etc.) will be based on the underlying businesses (the type of bu sinesses

that the REITs own or operate). (04/25/2012) Whether REITs fall under FIN Group depends on if properties* are easily convertible. It

is not easy to convert hospitals, railroads, or schools to casino, data centers, or golf course, whereas it is rather frequent, in retail

REITs for example, to change tenants from Wal-Mart to Best Buy.

* The concept of properties the REITs manage often includes equipment and facilities within the properties.

We dont make distinction between REITs and not-qualified REITs. (5/15/2012)

3.4.2 Investment Trust, Investment Holding Company, or Private EquityThe classification for these groups of companies depends on two main factorsownership of the underlying investments

(companies) as well as discernible sector bias.

-

If a company owns a diversified group of businesses with no controlover its investments (generally, if a company holdsmore than 20%(can be flexible as long as the company has significant control) of the underlying investment companys

outstanding shares, we consider the company to have control over its investment.), we should classify such company based

on its investment management nature (i.e., private equity or Investment trust, etc.)

- If, however, the company has controlover its investments businesses while the underlying businesses have discerniblesector bias, we should classify this company based on its underlying investments sector bias. (5/15/2012)

REITs under Real Estate Economy Specialty REITs (industry specific)

Industrial REITs (warehouses, manufacturing spaces) School properties - Education Industry

Commercial REITs (Retail, office spaces) Infrastructure (Railroad etc.)INT Group

Residential REITs Infrastructure (Energy)BMU Group

Medical building, hospital (nursing home), research lab- Healthcare Industry

Hotel , casino, golf course - CNS Group

Data CenterIT Industry


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Following is the general guideline when deciding a holding companys sector bias although it might not be applicable to all cases for

practical reasons.

If a holding company owns more than 50% of its investee, we consider that the company has a dominating ownership over its

investee and has 100% control of the entire revenue from the investee. However, if a company has a significant but not dominating

ownership, we consider that the company can claim only a portion of the investees assets.

Ownership Deciding Sector Bias

Subsidiaries >50% dominating ownership revenue from each subsidiaries

Associate Companies 20% - 50% significant ownership but not

dominating

assets (how much the holding company invest in

each of the associate companies)

Security Investment Trusts


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Example2. Burgenland Holdings Ag (BHD-AT)

The company holds a share of 49% each in the share capital of BEWAG (electricity distribution) and BEGAS (natural gastrading).

The company discloses the revenue amounts of 251.4 and 88.1, generated by BEWAG and BEGAS, respectively. The company has investment Income of EUR 3.84m, which was composed of the BEWAG dividend of EUR 2.7m and the

BEGAS distribution of EUR 1.09m.

We are supposed to classify Burgenland based on its investment in each associate company. However, the company doesnot disclose how much it invests in the associate companies. Also, although the company owns only 49% of the investees, it

seems that the company owns them in the joint venture format, which can be considered that the company has control

over the revenues from its investees. Thus, we can use the revenue to decide the sector bias in this case. (8/22/2012)

3.4.3 Financing arms of manufacturing companies, such as automobile manufacturers, GE, caterpillar, GM(Industrial Equipment) etc.

We dont follow the market-based approach here. Financing arms of manufacturing companies fall under FN9 Commercial Financing

under Specialty Financing as the products are, in general, large equipment used for industrial. However, financing arms of auto

manufactures (consumer goods) should go under Consumer Financing. (5/15/2012)

3.4.4 Government ServicesGovernment Services is exception to the market-based approach. Even if a company generates majority of its revenue from a

government, we do not classify the company under Government Services.


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For example, PAR Technologys Government Business provides information management solutions through advanced technology

and professional services to Federal, State, and local Government agencies. PARs Government business should be classified under IT

although its major customers are government agencies. Likewise, most of defense contractors should be classified under INT, n ot

Government Services. (6/20/2012)

3.4.5 Special Purpose Vehicles (SPVs) (also called Special Purpose Entities (SPEs) or Special Purpose Companies(SPCs))

Special purpose vehicles should be classified based on the purpose of their financing with 52229413 Off-Balance-Sheet Financingas

a product. However, SPVs for Real Estate Mortgage-Backed Securities are an exception and should be classified as FN12 SecondaryMarket Financing.

For example, California Petroleum Transport Corporation operates as a special purpose corporation organized for the purpose of

issuing, as agent on behalf of CalPetro Tankers Limited, serial notes and term notes as its obligation, as well as loaning the proceeds

of the sale to the owners by means of term and serial loans to facilitate the funding of the acquisition of the four vessels from

Chevron Transport Corporation. California Petroleum Transport Corporation should be classified under Oil & Gas Transportation,

not FIN. (6/20/2012)

3.5 Classification of services a company provides to support its own productsWhen a company provides services that support its ownproducts, we do not add any product for these services. However, if the

company discloses the services as a segment and generates revenue from the segment, we should assign a segment code to thesegment based on the type of services the company provides.

For example, Simona AG operates a call center and provides consulting services for all issues relating to the use of its own products.

The company has two segments as below, and the call center and consulting services are not included in any specific segment.

In this case, we do not add the call center service or consulting services as the companys products. However, if the companyhad a

segment that includes a call center service or consulting services, we should assign ID54 Business Support Services or a relevant

segment with related consulting services. (9/19/2012)

4 Multi-Segment Evaluation4.1 Steps to Decide Dominant IndustryGiven the segment data, the RAs are advised to think through the steps below in order to decide on a dominant Industry. The RAs

can stop the process whenever they reach a point where proceeding further does not help to identify a dominant Industry.

Segment Level of Industry Viewthe data that should be recorded in the FIT Assignment

Aggregated Industry Viewaggregate the percentages of the Segments that are under the same Industry

10% Relevance Ruleeliminate irrelevant and insignificant segments from Aggregate Industry View (3/15/2012)


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Adjusted Aggregated Industry Viewrecalculate the percentages after applying 10% Relevance Rule

Decide on a dominant Industry based on various methodologies such as 50/60% Dominance Rule, 20% comparable size rule if

diversifiedor Soft rules (market perception, growth prospective), etc. (2/24/2012)

4.2 Applying 10% Relevance RuleA segment must be bothA. insignificant and B. irrelevant (B1 or B2) in order to be eliminated from Aggregated Industry View.

A. InsignificantA segment is insignificant if the Industry the segment belongs to generates less than 10% of the total revenue by Aggregated

Industry View.

B. IrrelevantB1. A segment is irrelevant to the future of a company when a segment is discontinued or management has no intention to keep it.

Discontinued operations can still have revenue, operating profit or assets in the case when the operation is sold in the middle of a

fiscal year and generates revenue up to the date it is sold. Even if the operation is sold before the fiscal year started, the

discontinuation and transfer of the business can be processed over time.

B2. A segment is irrelevant if it falls under a Sector that is different from the Sector where the company under reviewsmain

business line belongs. (2/29/2012)

Example to be updated

4.3 Applying 20% Comparable Size RuleIf a dominant Industry cannot be identified under the 60/50% Dominance Rule, one of the diversified Industries may be selected.

Diversified Industries are made for large corporations with multiple lines of significant businesses. As it is considered that small

companies cannot compete with large corporations, even if a revenue breakdown of the small companies is similar to that of a large

corporation the small companies cannot be classified as diversified Industries.

A diversified Industry can be selected only if the company in question has a market cap greater than 20% of the average market cap

of the 2 largest companies in that particular industry in the same regional market.

To compare the market cap of different companies, the TLs can use FactSet terminal or search in Google. Some of the possible

keywords for the search can be worlds largest companyor largest mining company in (country name) in case of Diversified

Metals & Minerals Industry. (6/20/2012)

Example to be updated (If you find an example of a small company with multiple lines of significant businesses that we can apply 20

Comparable Size Rule to decide its dominant Industry, please forward it to Jiwon.)

4.4 Other/ miscellaneous income larger than income from main operationOther income can be ignored for the Industry classification even if it is larger than the income from main operations, as long as the

other income has no sector-bias. (8/1/2012)


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5 Multi-Segment Application5.1 Segments Tab5.1.1 Segment DescriptionsA segment description should be relevant and descriptive enough for a QC analyst to perform the quality control based on the

description recorded. (3/12/2012)

Example 5.1.1-1

It is difficult to judge whether EN4: Oil Refinery is the correct segment code for the Petroleum segment based on the description

provided. Also, the part colored in red does not seem relevant to decide a segment code. (3/12/2012)

5.1.2 Product is optional.Adding a Product (Product Description and FIT Product Code) is optional. If a title and description of a product are same as that of

the segment assigned, the product does not have to be added. In Example 5.1.2-1 below, 22111911: Electric Power Generation

Solar does not have to be added, if UT1: Solar Power Generation is assigned. However, if a company under review has a brand name,

an associated product must be added along with the brand name even if the product and the segment assigned are the same.

(3/12/2012)

Example 5.1.2-1

Since we do not expect any company formally make a list of products it provides, which may be associated to each Segment. In this

situation, we need to gather Products included to each Segment from various parts of a document. Product Description that is

expected in FIT data collection is a list of product types included in the segment, such as SMS, internet access, snacks, etc. If there is

any unique service a company illustrates with a specific brand name, you may need to find a generic term that describes the unique

service, instead of listing the brand name in the Product Description. (5/2/2012)

5.1.3 Product-Segment RelationshipsA product from another sector may be chosen and given a parent segment from within your sector if it meets the necessary crit eria.

Suppose there is a company in EN11 Oil & Gas Production Support Segment, which is engaged in the sales of oil and gas field


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simulation software. It is acceptable to add 51121030 Engineering Application Software that is under IT9 Application Software

Segment even if there is no relationship shown between 51121030 and EN11.

The relationship between an existing product and a segment can be created if the product is frequently associated with the segment

(3/14/2012)

5.1.4 Adding a brand name associated with more than one segment codeIf an important brand name is associated with more than one segment code, add the same brand name as many times as the

number of associated segments.

Example 5.1.1-1 Ross Stores, Inc.

Ross Stores segment breakdown is as below:

The segments are entered into FIT assignment as follow:

The company operates 2 different store chains with 2 different names, Ross Dress for Less and dds DISCOUNTS, both of which sell

all items above. In this case, add each of the brand name 6 times for 6 segments its associated with. (4/3/2012)

5.1.5 Brand Names and Product DescriptionsA brand name is a unique symbol/text that represents a specific product or a group of products in a company. A brand name is not

shared among different companies and should not be confused with a product category. For example, SMS (short messaging service)

is a product/service type by mobile communications, not a brand name of a company. Brand names in our FIT application should

NOT include anything generic such as SMS, internet access, snacks, overnight delivery services, etc. Such generic terms can be used

as product descriptions. Also, information about what a product is or how a product works does not have to be included in the

product description as long as the generic description of a product or service is commonly understood. (5/2/2012)


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5.1.5.1 In general, a company name is not a part of a brand name. But its case by case. Use your judgment.For example, Honda had Civic, Accord etc. Brand names would be Civic and Accord, not Honda Civic or Honda Accord. Apple has

iPhone, iPod etc. Brand names would be iPhone and iPod, and dont have to be Apple iPhone or Apple iPod. However, the Coca-Cola

Companys Coke is also called Coca-Cola, the company name itself. In this case the company name can be used as a brand name.

5.1.5.2 A model number is not a part of a brand name, unless its significant.Honda Civic EX, LX, GX etc. is just one brand name, Civic. However, Boeings 737, 747, 767etc. can be entered as separate bra nd

names.

5.1.5.3 A Product Description can be same as a FIT product title.5.1.5.4 Same FIT product code can be added multiple times in case the product code includes many products and each

product has different brand name.

For example, hinges, doors and locks can be added in separate rows with one FIT product code: Hardware manufacturing.

(5/15/2012)

5.1.6 Adding multiple brand names for the same product typeIf a company has many brand names that are the same product type, all the brand names can be added in one row instead of

creating a row for each brand name. (5/8/2012) However, keep in mind that all major brands should be recorded as a separate

product. This is to prevent the complication that might occur in case we need to discontinue a brand name selectively out of many

that are recorded in the same row.

Example 5.1.6 The Coca-Cola Company

When discontinuing a selective brand name,

1) If the brand name to be discontinued is minor, you can ignore the discontinuation of the brand name and just make a notein the comment field. At some point, the existing product group significantly misrepresents the current product. Then wecan discontinue the old product group and create a new one.

2) If the brand name to be discontinued is major, you should discontinue the existing product group that includes thediscontinued brand name the with an end date and create a new product with the remaining brand names. (8/22/2012)

5.1.7 When there is no appropriate segment for a productIf a product does not belong to any of the segment, create a dummy segment and map the product under the dummy segment. Title

the dummy segment as Unidentified Segment and assign ZZ90 Unidentified Segment as a segment code.

For example, Moberg Derma, a pharmaceutical company, has two segments by its two products, Nalox and Kaprolac. However, it

has additional products, MOB-015 and Limtop, both of which are on clinical stage, thus do not contribute to the sales of Nalox

and Kaprolac. In this case, a dummy segment, ZZ90 Unidentified Segment, can be created to map MOB-015 and Limtop. (8/1/2012)

5.1.8 Scaling FactorIf a company does not indicate a scaling factor of its revenue, operating income and assets, find a scaling factor by comparing those

values with the numbers that appear on the income statement or balance sheet. A scaling factor might be stated in textual format

on the other parts of the document. Actual can be selected only when the numbers are actual numbers, and should not be used

just because a scaling factor is not mentioned. (9/12/2012)


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5.2 Company Info Tab5.2.1 CommentThe Comment field should include an RAs thought process used to decide a dominant Industry. This will help QC analysts to

understand why a certain Industry is assigned and where an error occurs if an Industry assignment is wrong. Record if any rule is

applied. (3/12/2012)

5.2.2 Using a product with multiple parents as a segment codeIssue: FIT Assignment 2.0 may not display the correct FIT Industry if a user assigns a product that belongs to multiple parents as a

Primary FIT segment (example case). This may also occur when a product is borrowed from another industry and chosen as the

Primary FIT segment.

Example:BMU and CNS share the following product:


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Suppose a CNS analyst is profiling a Medical Supplies company that reports its revenue allocation based on products, and one of the

products is 32611310 Unlamented Plastics Film Manufacturing.

The analyst makes the following choice:

This would then appear correctly in the Segments tab as:

However, upon reviewing the Company Tab, you will see this segment was rolled up to the FIT Industry of Commodity Chemicals,

and not Medical Supplies:

Regardless of where you select the product from the FIT hierarchy, the application will associate the product with the first parent it

was originally assigned during the schema build out. This incorrect assignment will then be rolled up industry level and displayed

incorrectly on the Company Tab section.

Interim Treatment: Analysts need to be alert to such cases where multiple parents exist. Reviewing the segments displayed in the

Company Tab will often serve as a good indicator that something has not rolled up to proper FIT Industry. Until a development fix

can be implemented, users should continue to use the product code as the primary segment, however in the Alternate segmentfield, they should record the appropriate parent. Continuing with the above example, proper collection of this segment would

appear as follows: (9/19/2012)


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5.3 Buttons5.3.1 RejectChoose Other as a reason when rejecting foreign language companies. (2/28/2012)

When you reject a company to another Group, leave a brief note in the Comment field regarding your reason, and note the initial

group it was assigned to and which group it is being reassigned to. (7/5/2012)

6 Intergroup Issues6.1 ConglomeratesIn order for a company to qualify as an Industrial Manufacturing Conglomerate, the company must have a business concentration in

the Industrials Economy. It does not have to exceed 50% for any one industry, but adding all the Industrials businesses together

must be greater than any other economy that the company operates in. For example, if business segment A is 30% and is an

industrial business, and segments b & c are smaller than A, and are in two other economies, then the company could qualify. If B&C

are both consumer goods and add up to MORE than segment A, then its a consumer goods company.

Keep in mind that many companies will describe themselves as a conglomerate or a diversified industrial, but their definition may

not be the same as the criteria we use in FIT. For example, even though San Miguel describes itself as a conglomerate, as there are

NO industrial businesses it will NOT qualify as an industrial conglomerate.

The 20% rule for conglomerates applies to competitors within the same country and a company is required to meet that criteria to

be considered diversified in any economy (including Conglomerates).

6.2 Carbon CreditsA carbon credit is a tradable certificate or permit representing the right to emit one ton of carbon dioxide or carbon dioxide

equivalent gases (greenhouse gases(GHGs)). Within the FIT classification system, carbon credits are treated similar to other tradable

financial instruments such as cash. Companies that generate revenues by selling carbon credits are therefore categorized based on

their underlying business operations. The fact that their income is derived by selling carbon credits has no impact in assignment of

FIT segments. Product codes that reflect activities that create carbon credits will be added as required and utilized accordingly.

Example1. ERA Carbon Offset Ltd.(ERA) plant trees to create carbon credits for sale. We classify ERA as BM50 Forest Products and

add 11531011 Forestation for Carbon Credits as a product.

Example2. Trading Emissions PLC, an investment fund investing in environmental and emissions assets, can be classified as FN36

Publicly Traded Funds.

Example3. Exchanges that carbon credits are traded on are classified as FN18 Securities & Commodity Exchange and 52321014

Carbon Credit Exchange.

Example4. Establishments that involve in trading carbon credit certificates are classified as FN13 Investment Banking & Securities

Trading and 52311023 Carbon Credit Trading (Emission Trading).

Example5. Companies that provide consulting services regarding carbon credits are classified as ID42 Environmental Services.

6.3 Recycling Services32599825 Recycling Services under ID42 Environmental Services

Description: Recycling Services entities process various waste products to extract usable materials such as gases, metals,

components, etc. for sale or use.


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Example1. Dynamic Energy Alliance Corp. is engaged in the production of synthetic oil, carbon black, gas, and carbon steel from

waste tire through pyrolysis. As the company produces various materials from the waste product, it should be classified as ID42

Environmental Services and 32599825 Recycling Services.

Example2. E-Waste recycling is engaged in extracting of the metals, plastic and glass in electronic goods. If E-Waste recycling

companies extract diverse materials from the electronic waste, we can classify them under ID42 Environmental Services. However, if

they focus on extracting a few particular materials, such as rare earth materials, we can classify them under BMU.

6.4

Internet Sites1) Establishment with website operationsExample: Macys Department Stores

Segment: RT1 (Department Stores) - ***based on market based approach

Product: 45411110 (Internet & Catalog Only)

2) Social/Professional Networking SitesExample: LinkedInSegment: IT14 (Social Networking)

Product: 51913071 (Social Networking Sites)

3) Internet sites that allow 3rdparties to conduct business transactionsExample: EbaySegment IT13 (Internet Access & Search Services)

Product: 45411211 (Internet Market Sites)

4) Internet site that publish Newspapers, Books, MagazinesExamples: NY Times, Lulu.com, National Geographic onlineedition

Segments: CS10 (Newspaper Publishing); CS11 (Books & Magazines)

Products: 54444010 (Newspaper Publishing) or 51913011 (Newspaper PublishingInternet/Electronic)

Depending if publisher has both print and electronic/ or only print

51113010 (Book Publishers) or 51113014 (Book Publishers - Internet/Electronic)

Depending if publisher has both print and electronic/ or only print.

51112010 (Magazines & Periodicals) or 51913013 (Magazines & Periodicals Internet/Electronic)

Depending if publisher has both print and electronic/ or only print.

5) Internet sites that publish content and informationExample: WebMdSegment: CS12 (Directories, Information & Content Services (recently renamed segment)

Product: 51119911 (PublishingInternet Information & Content Sites)

6) Internet Sites that deliver audio and video content: Example: HuluSegment: CS5 (Multimedia Programming & Broadcasting

Product: 51913016 (Internet Entertainment Sites)

7) Internet Gaming SitesExample: Gametap.comSegment: CG56 Gaming Software

Product: 51913010 (Internet Gaming Sites)

FIT Methodology Reference Master Oct 17 2012

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Transcript of FIT Methodology Reference Master Oct 17 2012