59894 Federal Register / Vol. 75, No. 187 / Tuesday, September 28, 2010 / Rules and Regulations 

1See, e.g., Commission Statement About 

Management’s Discussion and Analysis of Financial 

Condition and Results of Operations, Release No. 

33–8056 (Jan. 22, 2002) [67 FR 3746]; Disclosure in 

Management’s Discussion and Analysis About Off 

Balance Sheet Arrangements, Contractual 

Obligations and Contingent Liabilities and 

Commitments, Release No. 33–8144 (Nov. 4, 2002) 

[67 FR 68054]; Disclosure in Management’s 

Discussion and Analysis About Off Balance Sheet 

Arrangements, Contractual Obligations and 

Contingent Liabilities and Commitments, Release 

No. 33–8182 (Jan. 28, 2003) [68 FR 5982] (adopting 

rules for disclosure in MD&A of off-balance sheet 

arrangements and aggregate contractual 

obligations); and Commission Guidance Regarding 

Management’s Discussion and Analysis of Financial 

Condition and Results of Operations, Release No. 

33–8350 (Dec. 19, 2003) [68 FR 75056] (providing 

interpretive guidance on disclosure in MD&A, 

including liquidity and capital resources). 

2See Short-Term Borrowings Disclosure, Release 

No. 33–9143 (the ‘‘Proposing Release’’). 

3See Commission Guidance Regarding 

Management’s Discussion and Analysis of Financial 

Condition and Results of Operations, Release No. 

33–8350 (Dec. 19, 2003) [68 FR 75056] (the ‘‘2003 

Interpretive Release’’). 

4See Disclosure in Management’s Discussion and 

Analysis About Off Balance Sheet Arrangements, 

Contractual Obligations and Contingent Liabilities 

and Commitments, Release No. 33–8182 (Jan. 28, 

2003) [68 FR 5982] (the ‘‘OBS Adopting Release’’), 

at 5982 (‘‘MD&A also provides a unique opportunity 

for management to provide investors with an 

understanding of its view of the financial 

performance and condition of the company, an 

appreciation of what the financial statements show 

and do not show, as well as important trends and 

risks that have shaped the past and are reasonably 

likely to shape the future.’’). 

5 ‘‘MD&A should be a discussion and analysis of 

a company’s business as seen through the eyes of 

those who manage that business. Management has 

a unique perspective on its business that only it can 

present. As such, MD&A should not be a recitation 

of financial statements in narrative form, or an 

otherwise uninformative series of technical 

responses to MD&A requirements, neither of which 

provides this important management perspective.’’ 

See 2003 Interpretive Release, supra note 3, at 

75056. 

6 ‘‘The scope of the discussion should thus 

address liquidity in the broadest sense, 

encompassing internal as well as external sources, 

current conditions as well as future commitments 

and known trends, changes in circumstances and 

uncertainties.’’ See Commission Statement About 

Management’s Discussion and Analysis of Financial 

Condition and Results of Operations, Release No. 

33–8056 (Jan. 22, 2002) [67 FR 3746] (the ‘‘2002 

Interpretive Release’’), at 3748 n.11. 

7See 2002 Interpretive Release, supra note 5, at 

3748. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 211, 231, and 241 

[Release Nos. 33–9144; 34–62934; FR–83] 

Commission Guidance on Presentation 

of Liquidity and Capital Resources 

Disclosures in Management’s 

Discussion and Analysis 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Interpretation. 

SUMMARY: We are providing interpretive 

guidance that is intended to improve 

discussion of liquidity and capital 

resources in Management’s Discussion 

and Analysis of Financial Condition and 

Results of Operations in order to 

facilitate understanding by investors of 

the liquidity and funding risks facing 

the registrant. 

DATES: Effective Date: September 28, 

2010. 

FOR FURTHER INFORMATION CONTACT: 

Questions about specific filings should 

be directed to staff members responsible 

for reviewing the documents the 

registrant files with the Commission. 

For general questions about this release, 

contact Christina L. Padden, Attorney 

Fellow in the Office of Rulemaking, at 

(202) 551–3430 or Stephanie L. 

Hunsaker, Associate Chief Accountant, 

at (202) 551–3400, in the Division of 

Corporation Finance; or Wesley R. 

Bricker, Professional Accounting 

Fellow, Office of the Chief Accountant 

at (202) 551–5300; U.S. Securities and 

Exchange Commission, 100 F Street, 

NE., Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Over the past several years, we have 

provided guidance and have engaged in 

rulemaking initiatives to improve the 

presentation of information about 

funding and liquidity risk.1 In a 

companion release, we are proposing 

amendments to enhance the disclosure 

that registrants present about short-term 

borrowings.2 The proposals in that 

release would require a registrant to 

provide, in a separately captioned 

subsection of Management’s Discussion 

and Analysis of Financial Condition and 

Results of Operations (‘‘MD&A’’), a 

comprehensive explanation of its shortterm borrowings, including both 

quantitative and qualitative information. 

The proposed amendments to MD&A 

would be applicable to annual and 

quarterly reports, proxy or information 

statements that include financial 

statements, registration statements 

under the Securities Exchange Act of 

1934, and registration statements under 

the Securities Act of 1933. We are also 

proposing conforming amendments to 

Form 8–K so that the Form would use 

the terminology contained in the 

proposed short-term borrowings 

disclosure requirement. To further 

improve the discussion of liquidity and 

capital resources in MD&A in order to 

facilitate understanding by investors of 

the liquidity and funding risks facing 

the registrant, we are also providing the 

following guidance with respect to 

existing MD&A requirements. 

II. Guidance on Presentation of 

Liquidity and Capital Resources 

Disclosures in Management’s 

Discussion and Analysis 

A. Liquidity Disclosure 

As discussed in the Proposing 

Release, companies have expanded the 

types of funding methods and cash 

management tools they use. We remind 

registrants that Item 303(a)(1) of 

Regulation S–K requires them to 

‘‘identify and separately describe 

internal and external sources of 

liquidity, and briefly discuss any 

material unused sources of liquidity.’’ 

Accordingly, as the financing activities 

undertaken by registrants become more 

diverse and complex, it is increasingly 

important that the discussion and 

analysis of liquidity and capital 

resources provided by registrants meet 

the objectives of MD&A disclosure. 

In 2003, the Commission issued 

interpretive guidance relating to MD&A 

disclosures of liquidity and capital 

resources, as well as MD&A generally.3

We encourage registrants to review that 

guidance when preparing their MD&A, 

as it covers topics relating to the 

discussion of cash requirements, cash 

management, sources and uses of cash, 

as well as a registrant’s debt 

instruments, guarantees and related 

covenants, that continue to be relevant 

to investors. 

As we have stated in the past, MD&A 

requires companies to provide investors 

with disclosure that facilitates an 

appreciation of the known trends and 

uncertainties that have impacted 

historical results or are reasonably likely 

to shape future periods.4 This disclosure 

should both discuss and analyze the 

company’s business from the 

perspective of management.5 In the 

context of liquidity, Item 303(a)(1) of 

Regulation S–K requires disclosure of 

known trends or any known demands, 

commitments, events or uncertainties 

that will result in, or that are reasonably 

likely to result in, the registrant’s 

liquidity increasing or decreasing in any 

material way.6 In past guidance, the 

Commission has highlighted a number 

of issues for management to consider 

when identifying trends, demands, 

commitments, events and uncertainties 

that require disclosure in MD&A.7 Some 

additional important trends and 

uncertainties relating to liquidity might 

include, for example, difficulties 

accessing the debt markets, reliance on 

commercial paper or other short-term 

financing arrangements, maturity 

mismatches between borrowing sources 

and the assets funded by those sources, 

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Federal Register / Vol. 75, No. 187 / Tuesday, September 28, 2010 / Rules and Regulations 59895 

8 In its 2005 OBS Report, the Commission’s staff 

identified transfers of assets with continuing 

involvement as one of the principal areas in need 

of improvement in disclosure of off-balance sheet 

arrangements. See Staff of the U.S. Securities and 

Exchange Commission, Report and 

Recommendations Pursuant to Section 401(c) of the 

Sarbanes-Oxley Act of 2002 On Arrangements with 

Off-Balance Sheet Implications, Special Purpose 

Entities and Transparency of Filings by Issuers 

(June 2005), available at http://www.sec.gov/news/ 

studies/soxoffbalancerpt.pdf. See also, the Division 

of Corporation Finance, Sample Letter Sent to 

Public Companies Asking for Information Related to 

Repurchase Agreements, Securities Lending 

Transactions, or Other Transactions Involving the 

Transfer of Financial Assets (Mar. 2010), available 

at http://www.sec.gov/divisions/corpfin/guidance/ 

cforepurchase0310.htm., and the Division of 

Corporation Finance, Sample Letter Sent to Public 

Companies That Have Identified Investments in 

Structured Investment Vehicles, Conduits or 

Collateralized Debt Obligations (Off-balance Sheet 

Entities) (Dec. 2007) available at http:// 

www.sec.gov/divisions/corpfin/guidance/ 

cfoffbalanceltr1207.htm. 

9See Item 303(a)(1) [17 CFR 229.303(a)(1)]. 

10We also note that, in 1986, the Commission 

adopted changes to Rule 4–08 of Regulation S–X to 

require financial statement footnote disclosure of 

the nature and extent of a registrant’s repurchase 

and reverse repurchase transactions and the degree 

of risk involved. See Disclosure Amendments to 

Regulation S–X Regarding Repurchase and Reverse 

Repurchase Agreements, Release No. 33–6621 (Jan. 

22, 1986) [51 FR 3765]. These requirements focus 

on disclosure of risk of loss due to counter-party 

default. See Rule 4–08(m) of Regulation S–X [17 

CFR 210.4–08m]. However, the adopting release 

indicates that the requirements do not affect 

obligations under MD&A requirements to discuss 

‘‘any material impact on liquidity or operations and 

risk resulting from involvement with repurchase 

and reverse repurchase agreements.’’ 

11See 2002 Interpretive Release, supra note 5, at 

3749. 

12See 2003 Interpretive Release, supra note 3, at 

75061, and Management’s Discussion and Analysis 

of Financial Condition and Results of Operations; 

Certain Investment Company Disclosures, Release 

No. 33–6835 (May 18, 1989) [54 FR 22427] (the 

‘‘1989 Interpretive Release’’). The 1989 Interpretive 

Release clarifies that material changes to items 

disclosed in MD&A in annual reports should be 

discussed in the quarter in which they occur. The 

2003 Interpretive Release states that ‘‘there may also 

be circumstances where an item may not be 

material in the context of a discussion of annual 

results of operations but is material in the context 

of interim results.’’ 

changes in terms requested by 

counterparties, changes in the valuation 

of collateral, and counterparty risk. 

In addition, in the context of liquidity 

and capital resources, if the registrant’s 

financial statements do not adequately 

convey the registrant’s financing 

arrangements during the period, or the 

impact of those arrangements on 

liquidity, because of a known trend, 

demand, commitment, event or 

uncertainty, additional narrative 

disclosure should be considered and 

may be required to enable an 

understanding of the amounts depicted 

in the financial statements. For 

example, depending on the registrant’s 

circumstances, if borrowings during the 

reporting period are materially different 

than the period-end amounts recorded 

in the financial statements, disclosure 

about the intra-period variations is 

required under current rules to facilitate 

investor understanding of the 

registrant’s liquidity position. 

Moreover, the Commission’s staff has 

noted that there may be confusion on 

the part of registrants about how to 

address disclosure of certain repurchase 

agreements that are accounted for as 

sales, as well as other types of shortterm financings that are not otherwise 

fully captured in period-end balance 

sheets.8 Again, disclosure is required in 

MD&A where a known commitment, 

event or uncertainty will result in (or is 

reasonably likely to result in) the 

registrant’s liquidity increasing or 

decreasing in a material way.9 The 

absence of specific references in existing 

disclosure requirements for off-balance 

sheet arrangements or contractual 

obligations to repurchase transactions 

that are accounted for as sales, or to any 

other transfers of financial assets that 

are accounted for as sales, does not 

relieve registrants from the disclosure 

requirements of Item 303(a)(1).10

Further, as stated in the 2002 

Interpretive Release, legal opinions 

regarding ‘‘true sale’’ issues do not 

obviate the need for registrants to 

consider whether disclosure is 

required.11 In evaluating whether 

disclosure in MD&A may be required in 

connection with a repurchase 

transaction, securities lending 

transaction, or any other transaction 

involving the transfer of financial assets 

with an obligation to repurchase 

financial assets, that has been accounted 

for as a sale under applicable 

accounting standards, the registrant 

should consider whether the transaction 

is reasonably likely to result in the use 

of a material amount of cash or other 

liquid assets. Disclosure may be 

required in the discussion of liquidity 

and capital resources, particularly 

where the registrant does not otherwise 

include such information in its offbalance sheet arrangements or its 

contractual obligations table. A 

registrant may determine where in its 

MD&A this information would be most 

informative based on the type of 

obligation and potential exposure 

involved, with an emphasis on 

providing disclosure that is clear and 

not misleading. 

To provide context for the exposures 

identified in MD&A, companies should 

also consider describing cash 

management and risk management 

policies that are relevant to an 

assessment of their financial condition. 

Banks, in particular, should consider 

discussing their policies and practices 

in meeting applicable banking agency 

guidance on funding and liquidity risk 

management, or any policies and 

practices that differ from applicable 

agency guidance. In addition, a 

company that maintains or has access to 

a portfolio of cash and other 

investments that is a material source of 

liquidity should consider providing 

information about the nature and 

composition of that portfolio, including 

a description of the assets held and any 

related market risk, settlement risk or 

other risk exposure. This could include 

information about the nature of any 

limits or restrictions and their effect on 

the company’s ability to use or to access 

those assets to fund its business 

operations. 

Transparent financial reporting that 

conveys a complete and understandable 

picture of a company’s financial 

position reduces uncertainty in our 

markets. Surprises to investors can be 

reduced or avoided when a company 

provides clear and understandable 

information about known trends, events, 

demands, commitments and 

uncertainties, particularly where they 

are reasonably likely to have a current 

or future material impact on that 

company. The economic environment is 

not static. Circumstances and risks 

change and, as a result, disclosure about 

those circumstances and risks must also 

evolve. As we stated in the 2003 

Interpretive Release, if prior disclosure 

‘‘does not adequately foreshadow 

subsequent events, or if new 

information that impacts known trends 

and uncertainties becomes apparent 

* * * additional disclosure should be 

considered and may be required.’’ 12

This principle is equally applicable in 

the context of liquidity and capital 

resources disclosure. 

B. Leverage Ratio Disclosures 

Where a registrant includes capital or 

leverage ratio disclosure in its filings 

with the Commission, and there are no 

regulatory requirements prescribing the 

calculation of that ratio, or where a 

registrant includes capital or leverage 

ratios that are calculated using a 

methodology that is modified from its 

prescribed form, we remind registrants 

of our long-standing approach to 

disclosure of financial measures and 

non-financial measures in MD&A. First, 

the registrant should determine whether 

the measure is a financial measure. If 

the measure is not a financial measure, 

registrants should refer to the guidance 

we provided in 2003 for disclosures 

relating to non-financial measures, such 

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59896 Federal Register / Vol. 75, No. 187 / Tuesday, September 28, 2010 / Rules and Regulations 

13See 2003 Interpretive Release, supra note 3, at 

75060. 

14See Conditions for Use of Non-GAAP Financial 

Measures, Release No. 33–8176 (Jan. 22, 2003) [68 

FR 4820] and Item 10(e) of Regulation S–K [17 CFR 

229.10(e)(5)]. We note that existing rules and 

guidance governing the inclusion of non-GAAP 

financial measures in filings with the Commission 

do not apply to financial measures that are 

‘‘required to be disclosed by GAAP, Commission 

rules, or a system of regulation of a government or 

governmental authority or self-regulatory 

organization that is applicable to the registrant. 

15See 2003 Interpretive Release, supra note 3, at 

75064. 

16See OBS Adopting Release, supra note 4, at 

5990. 

17As an example, if useful to a clear 

understanding of the information presented, a 

registrant might consider separating amounts in the 

table into those that are reflected on the balance 

sheet and those arising from off-balance sheet 

arrangements, particularly where such a distinction 

helps to tie the information to financial statement 

disclosure and other MD&A discussion. 

as industry metrics or value metrics.13 If 

the measure is a financial measure, the 

registrant should next determine 

whether the measure falls within the 

scope of our requirements for nonGAAP financial measures, and if it is, 

the registrant would need to follow our 

rules and guidance governing the 

inclusion of non-GAAP financial 

measures in filings with the 

Commission.14

In any event, any ratio or measure 

included in a filing should be 

accompanied by a clear explanation of 

the calculation methodology. The 

explanation would need to clearly 

articulate the treatment of any inputs 

that are unusual, infrequent or nonrecurring, or that are otherwise adjusted 

so that the ratio is calculated differently 

from directly comparable measures. 

Similar to our guidance for the 

disclosure of non-financial measures, if 

the financial measure presented differs 

from other measures commonly used in 

the registrant’s industry, the registrant 

would need to consider whether a 

discussion of those differences or 

presentation of those measures would 

be necessary to make the disclosures not 

misleading. Finally, a registrant would 

need to consider its reasons for 

presenting the particular financial 

measure, and should include disclosure 

clearly stating why the measure is 

useful to understanding its financial 

condition. Where the ratio is being 

presented in connection with disclosure 

on debt instruments and related 

covenants, registrants should also 

consult our past guidance on disclosure 

of debt instruments, guarantees and 

related covenants.15

C. Contractual Obligations Table 

Disclosures 

As an aid to understanding other 

liquidity and capital resources 

disclosures in MD&A, the contractual 

obligations tabular disclosure should be 

prepared with the goal of presenting a 

meaningful snapshot of cash 

requirements arising from contractual 

payment obligations. The Commission’s 

staff has observed that divergent 

practices have developed in connection 

with the contractual obligations table 

disclosure, with registrants drawing 

different conclusions about the 

information to be included and the 

manner of presentation. The 

requirement itself permits flexibility so 

that the presentation can reflect 

company-specific information in a way 

that is suitable to a registrant’s business. 

Accordingly, registrants are encouraged 

to develop a presentation method that is 

clear, understandable and appropriately 

reflects the categories of obligations that 

are meaningful in light of its capital 

structure and business. Registrants 

should highlight any changes in 

presentation that are made, so that 

investors are able to use the information 

to make comparisons from period to 

period. 

Since the adoption of Item 303(a)(5), 

registrants and industry groups have 

raised questions to our staff about how 

to treat a number of items under the 

contractual obligations requirement, 

including: interest payments, 

repurchase agreements, tax liabilities, 

synthetic leases, and obligations that 

arise under off-balance sheet 

arrangements. In addition, a variety of 

questions has been raised with our staff 

in the context of purchase obligations. 

Because the questions that arise tend to 

be fact-specific and closely related to a 

registrant’s particular business and 

circumstances, we have not issued 

general guidance as to how to treat these 

items or other questions regarding the 

presentation of the contractual 

obligations table. The purpose of the 

contractual obligations table is to 

provide aggregated information about 

contractual obligations and contingent 

liabilities and commitments in a single 

location so as to improve transparency 

of a registrant’s short-term and longterm liquidity and capital resources 

needs and to provide context for 

investors to assess the relative role of 

off-balance sheet arrangements; 16

registrants should prepare the 

disclosure consistent with that 

objective. Uncertainties about what to 

include or how to allocate amounts over 

the periods required in the table should 

be resolved consistent with the purpose 

of the disclosure. To that end, footnotes 

should be used to provide information 

necessary for an understanding of the 

timing and amount of the specified 

contractual obligations, as indicated in 

the instructions contained in Item 

303(a)(5)(i), or, where necessary to 

promote understanding of the tabular 

data, additional narrative discussion 

outside of the table should be 

considered. Registrants should 

determine how best to present the 

information that is relevant to their own 

business in a manner that is clear, 

consistent with the purpose of the 

disclosure and not misleading, and 

should provide additional disclosure 

where necessary to explain what the 

tabular data includes and does not 

include.17

III. Codification Update 

The ‘‘Codification of Financial 

Reporting Policies’’ announced in 

Financial Reporting Release 1 (April 15, 

1982) [47 FR 21028] is updated by 

adding new Section 501.03.a.i, 

captioned ‘‘Additional Guidance on 

Presentation of Liquidity and Capital 

Resources Disclosures’’ to the Financial 

Reporting Codification and under that 

caption including the text in Section II 

of this release. 

The Codification is a separate 

publication of the Commission. It will 

not be published in the Federal 

Register/Code of Federal Regulations. 

List of Subjects in 17 CFR Parts 211, 

231 and 241 

Securities. 

Amendments to the Code of Federal 

Regulations 

■ For the reasons set forth above, under 

the authority at Sections 6, 7, 10 and 

9(a) of the Securities Act and Sections 

12, 13, 14, 15(d) and 23(a) of the 

Exchange Act, the Commission is 

amending title 17, chapter II of the Code 

of Federal Regulations as set forth 

below: 

PART 211—INTERPRETATIONS 

RELATING TO FINANCIAL REPORTING 

MATTERS 

■ 1. Part 211, subpart A, is amended by 

adding Release No. FR–83 to the list of 

interpretive releases as follow: 

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Federal Register / Vol. 75, No. 187 / Tuesday, September 28, 2010 / Rules and Regulations 59897 

Subject Release No. Date Fed. Reg. vol. and page 

*******

Commission Guidance on Presentation of Liquidity and Capital 

Resources Disclosures in Management’s Discussion and Analysis.

FR–83 September 17, 2010 .......... 75 FR [FR PAGE PAGE 

NUMBER]. 

PART 231—INTERPRETATIVE 

RELEASES RELATING TO THE 

SECURITIES ACT OF 1933 AND 

GENERAL RULES AND REGULATIONS 

THEREUNDER 

■ 2. Part 231 is amended by adding 

Release No. 33–9144 to the list of 

interpretive releases as follow: 

Subject Release No. Date Fed. Reg. vol. and page 

*******

Commission Guidance on Presentation of Liquidity and Capital 

Resources Disclosures in Management’s Discussion and Analysis.

33–9144 September 17, 2010 .......... 75 FR [FR PAGE PAGE 

NUMBER]. 

PART 241—INTERPRETATIVE 

RELEASES RELATING TO THE 

SECURITIES EXCHANGE ACT OF 1934 

AND GENERAL RULES AND 

REGULATIONS THEREUNDER 

■ 3. Part 241 is amended by adding 

Release No. 34–62934 to the list of 

interpretive releases as follow: 

Subject Release No. Date Fed. Reg. vol. and page 

*******

Commission Guidance on Presentation of Liquidity and Capital 

Resources Disclosures in Management’s Discussion and Analysis.

34–62934 September 17, 2010 .......... 75 FR [FR PAGE PAGE 

NUMBER]. 

Dated: September 17, 2010. By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–23744 Filed 9–27–10; 8:45 am] 

BILLING CODE 8010–01–P 

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