Key disclosure requirement for SEC filings

• Purpose of MD&A

• Applies to periodic reports and registration statements

• S-K Item 303 is the substantive SEC rule

• But SEC interpretations, custom and practice
  are especially important here

SEC has added stand-alone requirements to MD&A

• S-K 303(a)(4) was added in 2003

• Covers off-balance sheet arrangements
• See Off-balance Sheet Arrangements

• S-K 303(a)(5) was added in 2003

• Covers aggregate contractual commitments
• See Contractual Commitments

• SEC has recommended disclosures about
  critical accounting estimates

• Issued proposed rules in 2002
• See Critical Accounting Estimates

SEC chronology

Materiality threshold for MD&A disclosure

Significant SEC interpretive release

• Aims to improve presentation and quality of MD&A disclosure

• Focus of MD&A should be on analysis, not description
• Written "through the eyes of management"
• Provide only material information
• Avoid repetition
• Use an executive summary, subheadings, tabular format

• SEC summary  12.01.05

SEC Rel 33-8350  2003

• Table of contents
• Presentation of MD&A III.A
• Content and focus III.B

• Focus on key indicators III.B.1
• Focus on materiality III.B.2
• Focus on material trends and uncertainties III.B.3
• Focus on analysis III.B.4

• Liquidity and capital resources IV

• Cash requirements IV.A
• Sources and uses of cash IV.B
  ◊ Operations IV.B.1
  ◊ Financing IV.B.2
• Debt, guarantees, covenants IV.C
• Cash management IV.D

• Critical accounting estimates V

SEC disclosure issues Dec 2005

• Topic I.J.1   Off-balance sheet arrangements
• Topic I.J.2   SEC staff report
• Topic I.J.3   MD&A interpretive release

SEC disclosure issues March 2005

• Topic I.F.1   Off-balance sheet arrangements
• Topic I.F.2   MD&A interpretive release
• Topic I.F.3   Critical accounting policies
• Topic I.F.4   Commission statement about MD&A

Text

• Summary
• MD&A generally
• Critical accounting policy disclosure
• Non-GAAP financial information
• Revenue recognition
• Restructuring charges
• Impairment charges

• Long-lived assets
• Investment securities
• Goodwill - Intangibles

• Pension plans
• Segment reporting
• Off-balance sheet arrangements
• Environmental and product liability disclosures

Kmart 2005

Coca-Cola Company 2005

Edison Schools 2002

Bank of Boston 1995

America West 1994

Caterpillar 1992

Sony Corporation and Sumio Sano 1998

Gibson Greetings 1995

Salant Corporation 1994

Shared Medical Systems  1994

American Express Company 1986

Critical Accounting Estimates

Forward-Looking Statements

Off-Balance Sheet Arrangements