SEC Issues Statement Concerning MD&A Disclosures

Clear Disclosure of Obligations and Commitments

Pursuant to applicable accounting standards, reporting companies must disclose information concerning a company's contractual obligations and commercial commitments. Currently, these disclosures are not required to be gathered in a single location within a company's filings. However, the SEC believes that investors would benefit from an overview of these disclosures contained in a central location within the filing. The following is an example of a table that may be utilized to achieve an aggregated disclosure.

Contractual Obligations	Payments Due by Period
	Total	Less than 1 year	1-3years	4-5 years	After 5 years
Long-Term Debt
Capital Lease Obligations
Operating Leases
Unconditional Purchase Obligations
Other Long-Term Obligations
Total Contractual Cash Obligations

In addition, the SEC restated its position with respect to liquidity disclosure that companies must report circumstances that are "reasonably likely," rather than the lower threshold of "more likely than not," to materially affect liquidity.

Related Parties

Further, the SEC restated its position concerning the disclosure of transactions with related and certain other parties. A reporting company is required to disclose any material related party transactions to provide investors with an understanding of the company's current and prospective financial position and operating results. In addition, the SEC encourages companies to describe the elements of a transaction that would affect the company's financial statements and any risk or liability that may arise from these transactions. Companies should also consider including disclosure about parties who do not meet the definition of "related person," but with whom the company or its related parties have a relationship that enables the parties to negotiate the terms of material transactions that may not be available to parties that negotiate a transaction on an arm's length basis.

Off-Balance Sheet Arrangements

In addition, companies that maintain relationships with unconsolidated entities limited to narrow activities that assist a company's transfer or access to assets are subject to further disclosure requirements regarding material sources of liquidity and financing. Any company that utilizes off-balance sheet arrangements with unconsolidated entities should fully and clearly describe the manner in which those entitles provide financing, liquidity or market or credit risk support for the reporting company, participate in leasing, hedging or research and development services with the reporting company or expose the reporting company to liability that is not reflected on the face of the company's financial statements.

Specific examples of what reporting companies should consider disclosing in relation to off-balance sheet arrangements include: (i) the total amount of assets and liabilities of the unconsolidated entity; (ii) the amounts payable or receivable and revenues, expenses and cash flows that result from the company's arrangements with the entity; (iii) any extensions on payment obligations of receivables, loans and debt securities resulting from the off-balance sheet arrangements; and (iv) any guarantees, lines of credit or commitments that could require the company to provide funding of any obligations under the arrangements. While this and other information may be aggregated, the result to the company's overall financial position should not lose its meaning in the process of aggregation.

Commodity Contracts

Companies that engage in trading involving commodity contracts accounted for at fair value using estimation techniques because of the lack of market price quotations should expand the disclosures in MD&A to include information that supplements the information contained in their financial statements. Examples of such additional disclosure include the distinction between realized and unrealized changes in fair value and the change in fair value related to the change in valuation techniques. Companies should also consider disclosing any risk management policies in effect with respect to this type of commodities trading.

In conclusion, the SEC noted that the purpose of the statement is to provide suggestions that companies should consider when preparing disclosure obligations with respect to their year-end and interim financial reports. The statement does not create new legal requirements or modify existing legal requirements. However, the SEC intends to consider rulemaking regarding the topics addressed in the statement and other topics concerning MD&A in the future. The full text of the SEC's MD&A statement is available at the SEC's website, www.sec.gov.

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