SEC Adopts Rules on Disclosure of Off-Balance Sheet Arrangements and
Aggregate Contractual Obligations
FOR IMMEDIATE RELEASE
2003-10
Washington, D.C., January 22, 2003 — The Securities and
Exchange Commission today voted to adopt amendments to implement the
mandate of Section 401(a) of the Sarbanes-Oxley Act of 2002. Section
401(a) added Section 13(j) to the Securities Exchange Act of 1934, which
requires the Commission to adopt final rules by Jan. 26, 2003, to require
each annual and quarterly financial report required to be filed with the
Commission, to disclose "all material off-balance sheet transactions,
arrangements, obligations (including contingent obligations), and other
relationships of the issuer with unconsolidated entities or other persons,
that may have a material current or future effect on financial condition,
changes in financial condition, results of operations, liquidity, capital
expenditures, capital resources, or significant components of revenues or
expenses."
The amendments approved by the Commission will require a registrant to
provide an explanation of its off-balance sheet arrangements in a
separately captioned subsection of the "Management's Discussion and
Analysis" (MD&A) section in its disclosure documents. The amendments
also will require registrants (other than small business issuers) to
provide an overview of certain known contractual obligations in a tabular
format.
The amendments will include a definition of "off-balance sheet
arrangements" that primarily targets the means through which companies
typically structure off-balance sheet transactions or otherwise incur
risks of loss that are not fully transparent to investors. The definition
of "off-balance sheet arrangements" will employ concepts in accounting
literature in order to define the categories of arrangements with
precision. Generally, the definition will include the following categories
of contractual arrangements:
- certain guarantee contracts;
- retained or contingent interests in assets transferred to an
unconsolidated entity;
- derivative instruments that are classified as equity; or
- material variable interests in unconsolidated entities that conduct
certain activities.
The amendments will require disclosure of off-balance sheet
arrangements that either have, or are reasonably likely to have, a current
or future effect on the registrant's financial condition, changes in
financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors. That disclosure threshold is consistent with the existing
disclosure threshold under which information that could have a material
effect on financial condition, changes in financial condition or results
of operations must be included in MD&A.
The amendments will require disclosure of the following specified
information to the extent necessary to an understanding of off-balance
sheet arrangements and their material effects:
- the nature and business purpose of the registrant's off-balance
sheet arrangements;
- the importance to the registrant for liquidity, capital resources,
market risk or credit risk support or other benefits;
- the financial impact and exposure to risk; and
- known events, demands, commitments, trends or uncertainties that
implicate the registrant's ability to benefit from its off-balance sheet
arrangements.
Consistent with the existing MD&A requirements, the amendments will
contain a principles-based requirement that a registrant provide such
other information that it believes is necessary for an understanding of
its off-balance sheet arrangements and their specified material
effects.
In addition, the amendments will include a requirement for registrants
to disclose, in a tabular format, the amounts of payments due under
specified contractual obligations, aggregated by category of contractual
obligation, for specified time periods. The categories of contractual
obligations to be included in the table are defined by reference to the
applicable accounting literature.
Registrants will be required to comply with the disclosure requirements
for off-balance sheet arrangements in Commission filings that are required
to include financial statements for the fiscal years ending on or after
June 15, 2003. Registrants will be required to comply with the disclosure
requirements for the table of contractual obligations in Commission
filings that are required to include financial statements for the fiscal
years ending on or after Dec. 15, 2003. Registrants could voluntarily
comply with the new disclosure requirements before the compliance dates.
* * *
The full text of detailed releases concerning each of these items will
be posted to the SEC Web site as soon as possible.
http://www.sec.gov/news/press/2003-10.htm
