[Federal Register Volume 85, Number 40 (Friday, February 28, 2020)]
[Proposed Rules]
[Pages 12068-12117]
[FR Doc No: 2020-02313]

Vol. 85

Friday,

No. 40

February 28, 2020

Part II

Securities and Exchange Commission

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17 CFR Parts 210, 229, 239, et al.

Management's Discussion and Analysis, Selected Financial Data, and
Supplementary Financial Information; Proposed Rule

Federal Register / Vol. 85 , No. 40 / Friday, February 28, 2020 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 239, 240, and 249

[Release No. 33-10750; 34-88093; IC-33795; File No. S7-01-20]
RIN 3235-AM48

Management's Discussion and Analysis, Selected Financial Data,
and Supplementary Financial Information

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to modernize, simplify, and
enhance certain financial disclosure requirements in Regulation S-K.
Specifically, we are proposing to eliminate Item 301 of Regulation S-K,
Selected Financial Data and Item 302 of Regulation S-K, Supplementary
Financial Information because they are largely duplicative of other
requirements and to amend Item 303 of Regulation S-K, Management's
Discussion & Analysis of Financial Condition and Results of Operations
(``MD&A'') to modernize and enhance MD&A disclosures. In combination,
the proposed amendments are intended to eliminate duplicative
disclosures and modernize and enhance MD&A disclosures for the benefit
of investors, while simplifying compliance efforts for registrants.

DATES: Comments should be received by April 28, 2020.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment forms (https://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-01-20 on the subject line.

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-01-20. This file number
should be included in the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (https://www.sec.gov/rules/proposed.shtml). Comments also are
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549, on
official business days between the hours of 10 a.m. and 3 p.m. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly.
    We or the staff may add studies, memoranda, or other substantive
items to the comment file during this rulemaking. A notification of the
inclusion in the comment file of any such materials will be made
available on our website. To ensure direct electronic receipt of such
notifications, sign up through the ``Stay Connected'' option at
www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Angie Kim, Special Counsel, or
Courtney Lindsay, Special Counsel, Office of Rulemaking, at (202) 551-
3430, or Ryan Milne, Associate Chief Accountant, Office of the Chief
Accountant, at<PHONE_NUMBER> in the Division of Corporation Finance,
U.S. Securities and Exchange Commission, 100 F Street NE, Washington,
DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing to remove and
reserve 17 CFR 229.301 (``Item 301'') and 17 CFR 229.302 (``Item 302'')
of Regulation S-K under the Securities Act of 1933 (the ``Securities
Act'') and the Securities Exchange Act of 1934 (the ``Exchange Act'').
The Commission is also proposing to amend 17 CFR 210.1-02(bb) of
Regulation S-X (``Rule 1-02(bb)''); 17 CFR 229.303 (``Item 303'') and
17 CFR 229.914 (``Item 914'') of Regulation S-K under the Securities
Act and the Exchange Act; 17 CFR 229.1112 (``Item 1112''), 17 CFR
229.1114 (``Item 1114'') and 17 CFR 229.1115 (``Item 1115'') of
Regulation AB (a subpart of Regulation S-K) under the Securities Act
and the Exchange Act; 17 CFR 239.11 (``Form S-1''), 17 CFR 239.20
(``Form S-20''), 17 CFR 239.25 (``Form S-4''), 17 CFR 239.31 (``Form F-
1'') and 17 CFR 239.34 (``Form F-4'') under the Securities Act; 17 CFR
240.14a-101 (``Schedule 14A'') under the Exchange Act; and 17 CFR
249.220f (``Form 20-F''), 17 CFR 249.240f (``Form 40-F''), and 17 CFR
249.308 (``Form 8-K'') under the Exchange Act.

Table of Contents

I. Introduction
    A. Background
    B. Overview of the Proposed Amendments
II. Description of the Proposed Amendments
    A. Selected Financial Data (Item 301)
    B. Supplementary Financial Information (Item 302)
    1. Supplementary Financial Information (Item 302(a))
    2. Information About Oil and Gas Producing Activities (Item
302(b))
    C. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Item 303)
    1. Restructuring and Streamlining (Item 303(a))
    2. Capital Resources (Item 303(a)(2))
    3. Results of Operations--Known Trends or Uncertainties (Item
303(a)(3)(ii))
    4. Results of Operations--Net Sales and Revenues (Item
303(a)(3)(iii))
    5. Results of Operations--Inflation and Price Changes (Item
303(a)(3)(iv), and Instructions 8 and 9 to Item 303(a))
    6. Off-Balance Sheet Arrangements (Item 303(a)(4))
    7. Contractual Obligations Table (Item 303(a)(5))
    8. Critical Accounting Estimates
    9. Interim Period Discussion (Item 303(b))
    10. Safe Harbor for Forward-Looking Information (Item 303(c))
    11. Smaller Reporting Companies (Item 303(d))
    D. Application to Foreign Private Issuers
    1. Form 20-F
    2. Form 40-F
    3. Item 303 of Regulation S-K
    E. Additional Conforming Amendments
    1. Roll-up Transactions--Item 914 of Regulation S-K
    2. Regulation AB--Items 1112, 1114, and 1115
    3. Summary Prospectus in Forms S-1 and F-1
    4. Business Combinations--Form S-4, Form F-4 and Schedule 14A
    5. Form S-20
    F. Compliance Date
III. General Request for Comments
IV. Economic Analysis
    A. Introduction
    B. Baseline and Affected Parties
    C. Potential Benefits and Costs of the Proposed Amendments
    1. Overall Potential Benefits and Costs
    2. Benefits and Costs of Specific Proposed Amendments
    D. Anticipated Effects on Efficiency, Competition, and Capital
Formation
    E. Alternatives
V. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Summary of the Proposed Amendments' Effects on the
Collections of Information
    C. Incremental and Aggregate Burden and Cost Estimates for the
Proposed Amendments
VI. Small Business Regulatory Enforcement Fairness Act
VII. Regulatory Flexibility Act Certification
VIII. Statutory Authority

I. Introduction

A. Background

    We are proposing certain amendments to Regulation S-K, and related
rules and forms. Specifically, we are proposing (1)

to eliminate Item 301, Selected Financial Data and Item 302,
Supplementary Financial Information; and (2) to modernize, simplify,
and enhance the disclosure requirements in Item 303, MD&A.\1\ We are
also proposing certain parallel amendments applicable to financial
disclosures provided by foreign private issuers (``FPIs'').\2\
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    \1\ Concurrent with this release we are issuing guidance on key
performance indicators and metrics in MD&A. See Commission Guidance
on Management's Discussion and Analysis of Financial Condition and
Results of Operations, Release No. 33-10751 (Jan. 30, 2020) (the
``Companion Guidance'').
    \2\ See Section II.D below. An FPI is any foreign issuer other
than a foreign government, except for an issuer that (1) has more
than 50% of its outstanding voting securities held of record by U.S.
residents; and (2) any of the following: (i) A majority of its
officers or directors are citizens or residents of the United
States; (ii) more than 50% of its assets are located in the United
States; or (iii) its business is principally administered in the
United States. See 17 CFR 230.405. See also 17 CFR 240.3b-4(c).
     While the disclosure requirements for Item 9 of Form 1-A for
Regulation A issuers are similar to the MD&A requirements under Item
303, we are not proposing to amend Form 1-A at this time. See
Amendments for Small and Additional Issues Exemptions Under the
Securities Act (Regulation A), Release No. 33-9741 (Mar. 25, 2015)
[80 FR 21805 (Apr. 20, 2015)], at 21830. With that said, in the
preparation of Part II of Form 1-A, Regulation A issuers have the
option of disclosing either the information required by (i) the
Offering Circular format (including Item 9 referenced above) or (ii)
Part I of Forms S-1 or S-11 (except for the financial statements,
selected financial data, and supplementary information called for by
those forms). Thus, even though the proposed changes would not amend
Item 9 of Form 1-A, they would still impact Regulation A issuers
that choose to disclose the information required by Part I of Forms
S-1 or S-11. See Section (a)(1)(ii) of Part II of Form 1-A.
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    Based on a recommendation in the Report on Review of Disclosure
Requirements in Regulation S-K (``S-K Study''),\3\ Commission staff
initiated a comprehensive evaluation of the Commission's disclosure
requirements, which included an assessment of the information our rules
require registrants to disclose, how and where this information is
presented, and how we can better leverage technology as part of these
efforts (collectively, the ``Disclosure Effectiveness Initiative'').\4\
The objective of the Disclosure Effectiveness Initiative is to improve
our disclosure regime for the benefit of both investors and
registrants. In connection with the S-K Study and the launch of the
Disclosure Effectiveness Initiative, Commission staff received public
input on how to improve registrant disclosures.\5\ Additionally, in a
concept release issued in 2016,\6\ the Commission solicited comment on
the business and financial disclosure requirements in Regulation S-K.
Specifically, the Commission solicited comment on whether these
requirements provide the material information that investors need to
make informed investment and voting decisions, and whether any of our
rules have become outdated or unnecessary, or could otherwise be
improved. These proposals also are informed by the objectives of the
Fixing America's Surface Transportation Act (the ``FAST Act''), which,
among other things, required the Commission to study ways that
Regulation S-K could be modernized and simplified.\7\ The JOBS Act and
the FAST Act, and the work on the Disclosure Effectiveness Initiative
and the S-K Study, have focused on modernizing and improving disclosure
to reduce costs and burdens while continuing to provide investors with
all material information. These proposals continue that work with a
particular focus on performance and financial disclosure.
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    \3\ See Report on Review of Disclosure Requirements in
Regulation S-K (Dec. 2013), available at https://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf. The report
was mandated by Section 108 of the Jumpstart Our Business Startups
Act (``JOBS Act''). Public Law 112-106, Sec. 108, 126 Stat. 306
(2012). Section 108 required the Commission to conduct a review of
Regulation S-K to comprehensively analyze the current registration
requirements and to determine how such requirements can be updated
to modernize and simplify the registration process and to reduce the
costs and other burdens associated with these requirements for
emerging growth companies. Section 108 also required the Commission
to provide a report on this review to Congress.
    \4\ See SEC Spotlight on Disclosure Effectiveness, available at
https://www.sec.gov/spotlight/disclosure-effectiveness.shtml.
    \5\ In connection with the S-K Study, the Commission received
public comments on regulatory initiatives to be undertaken in
response to the JOBS Act. See Comments on SEC Regulatory Initiatives
Under the JOBS Act: Title I--Review of Regulation S-K, available at
http://www.sec.gov/comments/jobs-title-i/reviewreg-sk/reviewreg-sk.shtml.
    Similarly, to facilitate public input on the Disclosure
Effectiveness Initiative, members of the public were invited to
submit comments. See Request for Public Comment, available at http://www.sec.gov/spotlight/disclosure-effectiveness.shtml. Public
comments received to date on the Disclosure Effectiveness Initiative
are available on our website. See Comments on Disclosure
Effectiveness, available at https://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness.shtml.
    \6\ See Business and Financial Disclosure Required by Regulation
S-K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23915 (Apr. 22,
2016)] (``Concept Release''). Comment letters related to the Concept
Release are available at https://www.sec.gov/comments/s7-06-16/s70616.htm. Unless otherwise indicated, comments cited in this
release are to the public comments on the Concept Release.
    \7\ Public Law 114-94, Sec. 72003, 129 Stat. 1311 (2015)
(requiring, among other things, that the SEC conduct a study, issue
a report, and issue a proposed rule on the modernization and
simplification of Regulation S-K). Among other things, the FAST Act
directed the Commission to study Regulation S-K to: Determine how to
best modernize and simplify such requirements in a manner that
reduces costs and burdens on registrants while continuing to provide
all material information; emphasize a company-by-company approach
that allows relevant and material information to be disseminated
without boilerplate language or static requirements while preserving
completeness and comparability of information across registrants;
and evaluate methods of information delivery and presentation and
explore methods for discouraging repetition and the disclosure of
immaterial information. In 2016, the staff published the Report on
Modernization and Simplification of Regulation S-K (the ``FAST Act
Report''). See Report on Modernization and Simplification of
Regulation S-K (Nov. 23, 2016), available at https://www.sec.gov/reportspubs/sec-fast-act-report-2016.pdf. Comment letters received
in response to the FAST Act Report are available at https://www.sec.gov/comments/fast/fast.htm.
    In connection with the FAST Act Report, the Commission proposed
and then adopted certain amendments to Regulation S-K. See FAST Act
Modernization and Simplification of Regulation S-K, Release No. 33-
10425 (Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)] (``FAST Act
Proposing Release'') and FAST Act Modernization and Simplification
of Regulation S-K, Release No. 33-10618 (Mar. 20, 2019) [84 FR 12674
(Apr. 20, 2019)] (``FAST Act Adopting Release'').
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    In developing the proposed amendments, we considered input from
comment letters the Commission received on the initiatives described
above. We also took into account the staff's experience with Regulation
S-K arising from the Division of Corporation Finance's disclosure
review program and changes in the regulatory and business landscape
since the adoption of Regulation S-K over 40 years ago. Regulation S-K
was adopted in 1977 to foster uniform and integrated disclosure for
registration statements under both the Securities Act and the Exchange
Act, and other Exchange Act filings, including periodic and current
reports.\8\ In 1982, the Commission expanded and reorganized Regulation
S-K to be the central repository for its non-financial statement
disclosure requirements.\9\ The Commission's goals in adopting
integrated disclosure were to revise or eliminate overlapping or
unnecessary disclosure requirements wherever possible, thereby reducing
burdens on registrants and enhancing readability

without affecting the provision of material information to
investors.\10\ The amendments we are proposing in this release would
continue to advance these goals.
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    \8\ The Commission adopted the initial version of Regulation S-K
following issuance of the report by the Advisory Committee on
Corporate Disclosure led by former Commissioner A.A. Sommer, Jr.,
which recommended adoption of a single integrated disclosure system.
See H. Comm. on Interstate and Foreign Commerce, Report of the
Advisory Committee on Corporate Disclosure to the Securities and
Exchange Commission, 95th Cong., 1st Sess., at 95-29 (Comm. Print
1977), available at http://3197d6d14b5f19f2f440-5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/papers/1970/1977_1103_AdvisoryDisclosure.pdf. This version of
Regulation S-K included only two disclosure requirements--a
description of business and a description of properties.
    \9\ See Adoption of Integrated Disclosure System, Release No.
33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16, 1982)] (``1982
Integrated Disclosure Adopting Release'').
    \10\ See id.
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    Additionally, we reviewed Items 301, 302, and 303 in light of
advancements in technology (in particular the availability of past
financial statements and other disclosure made in filings on the
Commission's Electronic Data Gathering, Analysis, and Retrieval
(``EDGAR'') system) and changes in requirements under U.S. Generally
Accepted Accounting Principles (``U.S. GAAP''). We also considered the
benefits and appropriateness of a principles-based approach in
reviewing these Items and our proposals are intended to promote the
principles-based nature of MD&A.\11\
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    \11\ See Concept Release on Management's Discussion and Analysis
of Financial Condition and Operations, Release No. 33-6711 (Apr. 23,
1987) [52 FR 13715 (Apr. 24, 1987)] (stating that when the
Commission adopted MD&A as a separate disclosure requirement, the
rules remained intentionally general in nature: ``The Commission
believed that a flexible approach would elicit more meaningful
disclosure and avoid boilerplate discussions which a more specific
approach could foster. Further, the Commission reasoned that,
because each registrant is unique, no one checklist could be
fashioned to cover all registrants comprehensively.'').
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B. Overview of the Proposed Amendments

    We are proposing changes to Items 301, 302, and 303 of Regulation
S-K that would reduce duplicative disclosure and focus on material
information. Specifically, we propose to eliminate:
     Item 301--Selected Financial Data;
     Item 302--Supplementary Financial Information; and
     Item 303(a)(5)--MD&A, Tabular disclosure of contractual
obligations.
    We are also proposing changes to modernize, simplify, and enhance
disclosure requirements in Item 303 in order to improve these
disclosures for investors and simplify compliance efforts for
registrants. Specifically, these proposed revisions would:
     Add a new Item 303(a), Objective, to state the principal
objectives of MD&A
     Amend Item 303(a), Full fiscal years (proposed Item
303(b)) and Item 303(b), Interim periods (proposed Item 303(c)) to
modernize, clarify, and streamline the items;
     Replace Item 303(a)(4), Off-balance sheet arrangements,
with an instruction regarding the need to discuss such obligations in
the broader context of MD&A
     Add a new Item 303(b)(4), Critical accounting estimates,
to clarify and codify Commission guidance on critical accounting
estimates; \12\
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    \12\ See Commission Guidance Regarding Management's Discussion
and Analysis of Financial Condition and Results of Operation,
Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 2003)]
(the ``2003 MD&A Interpretive Release'').
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     Eliminate current Item 303(c), Safe harbor, in light of
the proposed replacement of Item 303(a)(4) and elimination of Item
303(a)(5); and
     Eliminate Item 303(d), Smaller reporting companies \13\ in
light of the proposed elimination of Items 303(a)(3)(iv) and 303(a)(5).
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    \13\ Item 10 of Regulation S-K defines a smaller reporting
company (``SRC'') as a registrant that is not an investment company,
an asset-backed issuer, or a majority-owned subsidiary of a parent
that is not an SRC that: Had a public float of less than $250
million; or had annual revenues of less than $100 million, and
either no public float or a public float of less than $700 million.
Business development companies (``BDCs'') do not fall within the SRC
definition and are a type of closed-end investment company that is
not registered under the Investment Company Act.
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    We are also proposing certain parallel amendments to Forms 20-F and
40-F, including Item 3.A of Form 20-F (Selected Financial Information),
Item 5 of Form 20-F (Operating and Financial Review and Prospects),
General Instruction B.(11) of Form 40-F (Off-Balance Sheet
Arrangements), and General Instruction B.(12) of Form 40-F (Tabular
Disclosure of Contractual Arrangements).\14\ The following table
summarizes some of the changes we are proposing, as described more
fully in Section II (Proposed Amendments): \15\
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    \14\ We discuss our proposals that would affect FPIs in Section
II.D below.
    \15\ The information in this table is not comprehensive and is
intended only to highlight some of the more significant aspects of
the current rules and proposed amendments. It does not reflect all
of the proposed amendments or all of the rules and forms that are
affected. All changes are discussed in their entirety below. As
such, this table should be read together with the referenced
sections and the complete text of this release.

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                                       Summary
     Current item or issue         description of         Principal        Corresponding FPI    Discussed below
                                      proposal          objective(s)          change(s)?          in  section
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Item 301, Selected financial     Registrants would   Modernize           Yes.................  II.A & II.D.1.
 data.                            no longer be        disclosure
                                  required to         requirement in
                                  provide 5 years     light of
                                  of selected         technological
                                  financial data.     developments and
                                                      simplify
                                                      disclosure
                                                      requirements.
Item 302(a), Supplementary       Registrants would   Reduce repetition   N/A.................  II.B.1.
 financial information.           no longer be        and focus
                                  required to         disclosure on
                                  provide 2 years     material
                                  of selected         information.
                                  quarterly           Modernize
                                  financial data.     disclosure
                                                      requirement in
                                                      light of
                                                      technological
                                                      developments.
Item 303(a), MD&A..............  Clarify the         Simplify and        Yes.................  II.C.1 & II.D.1.
                                  objective of MD&A   enhance the
                                  and streamline      purpose of MD&A.
                                  the fourteen
                                  instructions.
Item 303(a)(2), Capital          Registrants would   Modernize and       Yes.................  II.C.2 & II.D.1.
 resources.                       disclose material   enhance
                                  cash                disclosure
                                  requirements,       requirements to
                                  including           account for
                                  commitments for     capital
                                  capital             expenditures that
                                  expenditures, as    are not
                                  of the latest       necessarily
                                  fiscal period,      capital
                                  the anticipated     investments.
                                  source of funds
                                  needed to satisfy
                                  such cash
                                  requirements, and
                                  the general
                                  purpose of such
                                  requirements.
Item 303(a)(3)(ii), Results of   Registrants would   Clarify item        Yes.................  II.C.3 & II.D.1.
 operations.                      disclose known      requirement by
                                  events that are     using a
                                  reasonably likely   disclosure
                                  to cause a          threshold of
                                  material change     ``reasonably
                                  in the              likely,'' which
                                  relationship        is consistent
                                  between costs and   with the
                                  revenues, such as   Commission's
                                  known or            interpretative
                                  reasonably likely   guidance on
                                  future increases    forward-looking
                                  in costs of labor   statements.
                                  or materials or
                                  price increases
                                  or inventory
                                  adjustments.
Item 303(a)(3)(iii), Results of  Clarify that a      Clarify MD&A        Yes.................  II.C.4 & II.D.1.
 operations.                      discussion of the   disclosure
                                  reasons             requirements by
                                  underlying          codifying
                                  material changes    existing
                                  in net sales or     Commission
                                  revenues is         guidance.
                                  required.

Item 303(a)(3)(iv), Results of   The item and        Encourage           Yes.................  II.C.5.
 operations.                      instructions        registrants to
Instructions 8 and 9 (Inflation   would be            focus on material
 and price changes).              eliminated.         information that
                                  Registrants would   is tailored to a
                                  still be required   registrant's
                                  to discuss these    businesses,
                                  matters if they     facts, and
                                  are part of a       circumstances.
                                  known trend or
                                  uncertainty that
                                  has had, or the
                                  registrant
                                  reasonably
                                  expects to have,
                                  a material
                                  favorable or
                                  unfavorable
                                  impact on net
                                  sales, or
                                  revenue, or
                                  income from
                                  continuing
                                  operations.
Item 303(a)(4), Off-balance      The item would be   Prompt registrants  Yes.................  II.C.6, II.D.1, &
 sheet arrangements.              replaced by a new   to consider and                           II.D.2.
                                  instruction added   integrate
                                  to Item 303.        disclosure of off-
                                  Under the new       balance sheet
                                  instruction,        arrangements
                                  registrants would   within the
                                  be required to      context of their
                                  discuss             MD&A.
                                  commitments or
                                  obligations,
                                  including
                                  contingent
                                  obligations,
                                  arising from
                                  arrangements with
                                  unconsolidated
                                  entities or
                                  persons that
                                  have, or are
                                  reasonably likely
                                  to have, a
                                  material current
                                  or future effect
                                  on such
                                  registrant's
                                  financial
                                  condition,
                                  changes in
                                  financial
                                  condition,
                                  revenues or
                                  expenses, results
                                  of operations,
                                  liquidity, cash
                                  requirements, or
                                  capital resources
                                  even when the
                                  arrangement
                                  results in no
                                  obligation being
                                  reported in the
                                  registrant's
                                  consolidated
                                  balance sheets.
Item 303(a)(5), Contractual      Registrants would   Promote the         Yes.................  II.C.7, II.D.1, &
 obligations.                     no longer be        principles-based                          II.D.2.
                                  required to         nature of MD&A
                                  provide a           and simplify
                                  contractual         disclosures by
                                  obligations table.  reducing
                                                      redundancy.
Instruction 4 (Material changes  Incorporate a       Enhance analysis    Yes.................  II.C.1 & II.D.1.
 in line items).                  portion of the      in MD&A. Clarify
                                  instruction into    MD&A disclosure
                                  proposed Item       requirements by
                                  303(b). Clarify     codifying
                                  that where there    existing
                                  are material        Commission
                                  changes in a line   guidance on the
                                  item, including     importance of
                                  where material      analysis in MD&A.
                                  changes within a
                                  line item offset
                                  one another,
                                  disclosure of the
                                  underlying
                                  reasons for these
                                  material changes
                                  in quantitative
                                  and qualitative
                                  terms is required.
Item 303(b), Interim periods...  Registrants would   Allow for           N/A.................  II.C.9.
                                  be permitted to     flexibility in
                                  compare their       comparison of
                                  most recently       interim periods
                                  completed quarter   to enhance the
                                  to either the       disclosure
                                  corresponding       provided to
                                  quarter of the      investors.
                                  prior year or to
                                  the immediately
                                  preceding
                                  quarter.
                                  Registrants
                                  subject to Rule 3-
                                  03(b) of
                                  Regulation S-X
                                  would be afforded
                                  the same
                                  flexibility.
Critical Accounting Estimates..  Explicitly require  Facilitate          Yes.................  II.C.8 & II.D.1.
                                  disclosure of       compliance and
                                  critical            improve resulting
                                  accounting          disclosure.
                                  estimates.          Eliminate
                                                      disclosure that
                                                      duplicates the
                                                      financial
                                                      statement
                                                      discussion of
                                                      significant
                                                      policies. Promote
                                                      meaningful
                                                      analysis of
                                                      measurement
                                                      uncertainties.
----------------------------------------------------------------------------------------------------------------

    We discuss the proposed amendments below in the order that each
Item appears in Regulation S-K. We welcome feedback and encourage
interested parties to submit comments on any or all aspects of the
proposals. When commenting, it would be most helpful if you include the
reasoning behind your position or recommendation.

II. Description of the Proposed Amendments

A. Selected Financial Data (Item 301)

    Item 301 \16\ requires registrants to furnish selected financial
data in comparative tabular form for each of the registrant's last five
fiscal years and any additional fiscal years necessary to keep the
information from being misleading. Instruction 1 to Item 301 states
that the purpose of the item is to supply in a convenient and readable
format selected financial data that highlights certain significant
trends in the registrant's financial condition and results of
operations. Instruction 2 to Item 301 lists specific items that must be
included, subject to appropriate variation to conform to the nature of
the registrant's business, and provides that registrants may include
additional items they believe would enhance an understanding of, and
highlight, other trends in their financial condition or results of
operations.\17\
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    \16\ See also Section II.D below for a discussion of related
amendments to Form 20-F.
    \17\ Instruction 2 to Item 301 of Regulation S-K states that,
subject to appropriate variation to conform to the nature of the
registrant's business, the following items shall be included in the
table of financial data: Net sales or operating revenues; income
(loss) from continuing operations; income (loss) from continuing
operations per common share; total assets; long-term obligations and
redeemable preferred stock (including long-term debt, capital
leases, and redeemable preferred stock); and cash dividends declared
per common share.
---------------------------------------------------------------------------

    SRCs are not required to provide Item 301 information.\18\ Emerging
growth companies (``EGCs'') \19\ that are providing the information
called for by Item 301 in a Securities Act registration statement, need
not present selected financial data for any period prior to the
earliest audited financial statements presented in connection with the
EGC's initial public offering (``IPO'') of its common equity
securities.\20\ In addition, an EGC that is providing the information
called for by Item 301 in a registration statement, periodic report, or
other report filed under the Exchange Act need not present selected
financial

data for any period prior to the earliest audited financial statements
presented in connection with its first registration statement that
became effective under the Exchange Act or Securities Act.\21\
---------------------------------------------------------------------------

    \18\ Item 301(c) of Regulation S-K [17 CFR 229.301(c)].
    \19\ An EGC is defined as a company that has total annual gross
revenues of less than $1.07 billion during its most recently
completed fiscal year and, as of December 8, 2011, had not sold
common equity securities under a registration statement. A company
continues to be an EGC for the first five fiscal years after it
completes an IPO, unless one of the following occurs: Its total
annual gross revenues are $1.07 billion or more; it has issued more
than $1 billion in non-convertible debt in the past three years; or
it becomes a ``large accelerated filer,'' as defined in Exchange Act
Rule 12b-2. See Securities Act Rule 405 and Exchange Act Rule 12b-2.
    \20\ Item 301(d)(1) of Regulation S-K.
    \21\ Item 301(d)(2) of Regulation S-K.
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    In the Concept Release, the Commission solicited comment on whether
to retain, modify, or eliminate Item 301.\22\ The Commission also
solicited comment on the cost of this disclosure and whether
information on the earliest two of the last five fiscal years is
available without unreasonable cost or expense. Additionally, the
Commission solicited comment on the utility of this disclosure.
---------------------------------------------------------------------------

    \22\ See Concept Release, at 23940.
---------------------------------------------------------------------------

    Many commenters recommended eliminating Item 301 completely or
questioned its usefulness.\23\ One of these commenters stated that
``absent a requirement to provide narrative discussions of trends, the
current requirement under [Item 301] seems less useful in an electronic
era where historical financial information is easily accessible.'' \24\
Another commenter stated that it did not believe that presenting five
years of information is useful to an investor and similarly noted that
the information is accessible through EDGAR.\25\ An additional
commenter questioned whether selected financial data was necessary in
light of data-tagged financial statements.\26\ A number of commenters
recommended revising the item to reduce burdens, if retained.\27\
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    \23\ See, e.g., letters from New York State Society of Certified
Public Accountants (July 19, 2016) (``NYSSCPA''), Aflac, Inc. (July
19, 2016) (``AFLAC''), Ernst & Young LLP (July 21, 2016) (``E&Y''),
PNC Financial Services Group (July 21, 2016) (``PNC''), Edison
Electric Institute and American Gas Association (July 21, 2016)
(``EEI and AGA''), XBRL US, Inc. (July 21, 2016), Chevron
Corporation (July 22, 2016) (``Chevron''), Fenwick West LLP (Aug. 1,
2016) (``Fenwick''), Grant Thornton LLP (July 21, 2016) (``Grant
Thornton''), Northrop Grumman Corporation (Sept. 27, 2016)
(``Northrop Grumman''), General Motors Company (Sept. 30, 2016)
(``General Motors''), and Financial Executives International (Oct.
3, 2016) (``FEI'').
    \24\ See letter from Grant Thornton.
    \25\ See letter from NYSSCPA.
    \26\ See letter from E&Y. This commenter also suggested that the
Commission ``encourage registrants to include tables of selected
financial data in the summary section of their annual reports if the
information would highlight the key content and developments
disclosed in the full report.''
    \27\ See, e.g., letters from NYSSCPA, AFLAC, E&Y, Fenwick,
General Motors, and FEI. These commenters suggested: Limiting the
disclosure requirement to two or three years (letters from NYSSCPA
and AFLAC); making disclosure of the earlier years voluntary and
allowing all registrants to adopt a ``build up'' approach to Item
301 similar to the option available to EGCs (letters from E&Y and
Fenwick); making the selected financial data table voluntary and
permitting registrants to present only a retroactive accounting
change for the periods presented in the financial statements if the
periods prior to those presented in the financial statements cannot
be recast without unreasonable effort or cost (letter from General
Motors); and allowing hyperlinks to access five-year data if placed
within a separate `company profile' section of EDGAR (letter from
FEI).
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    One of these commenters noted the potentially significant costs in
public offerings for comfort letters associated with this
disclosure.\28\ This commenter stated that where prior years have been
audited by a different accounting firm, companies typically incur
significant additional costs, both in terms of direct costs and
internal resources, to obtain comfort letters. Additionally, this
commenter stated that if Item 301 information is required for periods
where no audited financial statements are otherwise required, the costs
can be much more substantial.
---------------------------------------------------------------------------

    \28\ See letter from Fenwick.
---------------------------------------------------------------------------

    Another commenter encouraged the Commission to ask investors
whether the utility of the information provided in response to Item 301
justify the costs of presenting it.\29\ This commenter stated that,
while this required disclosure is limited to a small number of line
items, certain of these items effectively require preparation of a full
income statement and balance sheet to derive information for the
earlier two years.
---------------------------------------------------------------------------

    \29\ See letter from PricewaterhouseCoopers LLP (July 21, 2016)
(``PWC'') (stating that providing the earliest two years can be time
consuming and costly, such as in circumstances where the information
has not been previously provided (e.g., in an initial registration
statement)).
---------------------------------------------------------------------------

    Many commenters recommended revising Item 301 to allow registrants
to omit the earliest two years.\30\ Some of these commenters noted that
providing disclosure of the earliest two years often creates challenges
for registrants, including non-EGC issuers conducting IPOs.\31\ A few
of these commenters recommended a practicability exception allowing
registrants to omit the earliest two years when the information cannot
be provided without unreasonable cost or expense.\32\ Others
recommended that the earliest two years should be required only when
necessary to make the current financial data not misleading,\33\ or to
illustrate material trends.\34\
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    \30\ See, e.g., letters from Deloitte & Touche LLP (July 15,
2016) (``Deloitte''), BDO USA, LLP (July 20, 2016) (``BDO''), U.S.
Chamber of Commerce (Jul. 20, 2016) (``Chamber''), FedEx Corporation
(``FedEx'') (Jul. 21, 2016), Corporate Governance Coalition for
Investor Value (July 20, 2016) (``CGCIV''), Center for Audit Quality
(July 21, 2016) (``CAQ''), Securities Industry and Financial Markets
Association (July 21, 2016) (``SIFMA''), National Association of
Real Estate Investment Trusts (July 21, 2016) (``NAREIT''), Allstate
Insurance Company (July 21, 2016) (``Allstate''), Davis Polk &
Wardwell LLP (July 22, 2016) (``Davis Polk''), Stephen Percoco (July
24, 2016) (``S. Percoco''), and Shearman & Sterling LLP (Aug. 31,
2016) (``Shearman'').
    \31\ See, e.g., letters from Deloitte and CAQ.
    \32\ See, e.g., letters from BDO, Davis Polk, and S. Percoco.
    \33\ See, e.g., letters from Chamber, FedEx, and CGCIV.
    \34\ See, e.g., letters from NAREIT and SIFMA.
---------------------------------------------------------------------------

    A few commenters supported retaining Item 301.\35\ Some of these
commenters stated that having the information in one place keeps
investors from having to review multiple sources to obtain this
information,\36\ with one of these commenters noting that investors
sometimes rely on printed copies.\37\ Two of the commenters also stated
that requiring this disclosure for five years is an appropriate
timeframe,\38\ with one stating that five years is more likely to
capture the effects that business cycles may have on a registrant.\39\
Another stated that Item 301 information should be easy for companies
to disclose because the information is already in company records.\40\
---------------------------------------------------------------------------

    \35\ See, e.g., letters from R.G. Associates, Inc. (July 6,
2016) (``RGA''), California Public Employees' Retirement System
(July 21, 2016) (``CalPERS''), California State Teachers' Retirement
System (July 21, 2016), and CFA Institute (Oct. 6, 2016).
    \36\ See letters from RGA and CFA Institute.
    \37\ See letter from RGA.
    \38\ See letters from CalPERS and CFA Institute.
    \39\ See letter from CFA Institute.
    \40\ See letter from CalPERs.
---------------------------------------------------------------------------

    We propose to eliminate Item 301. When the precursor to Item 301
was adopted in 1970, prior annual reports were not quickly and easily
accessible.\41\ Today, the information required by Item 301 can be
readily accessed and compiled through prior filings on EDGAR.\42\ In
addition, this information is tagged using eXtensible Business
Reporting Language (``XBRL'') data format. As noted above, there are
currently certain exceptions to Item 301 for EGC and SRC
registrants.\43\ Our proposals would not affect these exceptions or
result in any further loss of information from these registrants.\44\
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    \41\ Before adopting the precursor to Item 301, the Commission
implemented a microfiche system in 1968 that supplemented its hard
copy reproduction service and was intended to ``facilitate wider,
more economical and more rapid distribution'' of Exchange Act
reports. See Disclosure to Investors--A Reappraisal of Federal
Administrative Policies under the '33 and '34 Acts, Policy Study,
Mar. 27, 1969, available at http://www.sechistorical.org/museum/galleries/tbi/gogo_d.php, at 313.
    \42\ In addition, filings are generally available on
registrants' websites and other third-party websites.
    \43\ We recognize an exception to this accessibility would be
SRCs and EGCs that are either filing an initial registration
statement or those that have not been public for at least two fiscal
years following their initial registration statement.
    \44\ Based on Ives Group's Audit Analytics data, during the
period from April 5, 2012 through December 31, 2018, EGC issuers
accounted for approximately 1,267 out of 1,440, or approximately
88%, of priced exchange-listed IPOs (excluding deals identified as
mergers, spin-offs, or fund offerings). SRCs are often also EGCs so
these statistics of IPOs conducted by EGCs likely encompass the
majority of IPOs conducted by SRCs. In addition, for reasons
discussed in this release, registrants would still be required to
discuss and analyze material trends, which was one of the intended
purposes of Item 301. Accordingly, in the majority of instances, we
believe that our proposal would not result in a loss of disclosure.

---------------------------------------------------------------------------

    In adding the requirement for selected financial data to Regulation
S-K, the Commission stated that Item 301 was ``relevant primarily where
it can be related to trends in the registrant's continuing
operations.'' \45\ However, Item 303 specifically calls for disclosure
of material trend information.\46\ In addition, since Item 301 has been
incorporated into Regulation S-K, the Commission has issued guidance
emphasizing trend disclosure in MD&A.\47\ In light of the requirement
for discussion and analysis of trends in Item 303, we believe requiring
five years of selected financial data is not necessary to achieve the
original purpose of providing trend disclosure. Registrants may,
however, continue to include a tabular presentation of relevant
financial or other information discussed in MD&A, to the extent they
believe that such a presentation would be useful to an understanding of
the disclosure. We believe that eliminating Item 301 would continue to
allow registrants the flexibility to present a meaningful MD&A
discussing material trend information, while easing compliance burdens
on registrants.
---------------------------------------------------------------------------

    \45\ Amendments to Annual Report Form, Related Forms, Rules,
Regulations, and Guides; Integration of Securities Acts Disclosure
Systems, Release No. 33-6231 (Sept. 2, 1980) [45 FR 63630 (Sept. 25,
1980)] (``1980 Form 10-K Adopting Release'').
    \46\ See, e.g., Item 303(a)(3).
    \47\ See, e.g., 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
(May 24, 1989)] (the ``1989 MD&A Interpretative Release'') and 2003
MD&A Interpretive Release.
---------------------------------------------------------------------------

    We acknowledge that some commenters suggested we revise Item 301 to
require only presentation of the same number of years as included in
the financial statements, or otherwise provide accommodations to limit
the number of years presented. However, we believe that such an
approach would result in disclosure that would be largely duplicative
of information in the financial statements, and therefore may have
limited utility. We also acknowledge that some commenters recommended
that we retain Item 301 without any revisions or enhance the item
requirement. We believe, however, that the incremental utility of
having a full five years of selected financial information is not
justified by the cost to prepare such disclosures, particularly since
Item 303 already requires disclosure of material trends and such other
information necessary to an understanding of the registrant's financial
conditions, changes in financial condition, and results of
operations.\48\
---------------------------------------------------------------------------

    \48\ See Item 303(a).
---------------------------------------------------------------------------

Request for Comment
    1. Should we eliminate Item 301, as proposed? Would eliminating
Item 301 result in the loss of material information that is otherwise
not available to investors, such as through prior filings on EDGAR? If
so, what information would be lost, and are there alternatives we
should consider that would capture this information?
    2. Is the option for investors to compile selected financial
information from current or prior filings an adequate substitute for
the separate presentation of that information in Item 301? Do current
XBRL-tagging requirements facilitate compilation and comparison of
selected financial information?
    3. Are the requirements of Item 303 sufficient to provide investors
with necessary disclosure regarding trends in a registrant's results of
operations and financial condition?
    4. Alternatively, if Item 301 should be retained, should
registrants be allowed to provide less than five years of selected
financial data? If so, what is the appropriate number of years that
should be provided, and in what circumstances?
    5. What are the costs to registrants of providing five years of
selected financial data? Would those costs significantly decrease if
the Commission limited selected financial data to only those years
presented in the filing's historical financial statements?
    6. How do market participants use the selected financial data
disclosures? Do market participants rely on any particular fiscal year
or years more than others (e.g., the most recent two or three years)?
Would there be a cost to obtain selected financial data disclosures
elsewhere and, if so, what would that cost be?
    7. Would registrants continue to provide selected financial data
even if they are no longer required to do so? If so, for how many
years?
    8. If we were to retain Item 301, should we modify the line items
required to be included in the presentation pursuant to Instruction 2?
\49\ For example, should we allow registrants more discretion regarding
which line items to present?
---------------------------------------------------------------------------

    \49\ See Instruction 2 to Item 301, supra note 17.
---------------------------------------------------------------------------

    9. The Commission recently proposed to extend to BDCs the
requirement for registered closed-end investment companies to disclose
``financial highlights.'' \50\ The disclosure required by Item 301 and
the financial highlights requirement is similar in many respects. If we
were to adopt the financial highlights requirement and retain Item 301,
should we specifically exclude BDCs from the Item 301 requirement?
---------------------------------------------------------------------------

    \50\ See Securities Offering Reform for Closed-End Investment
Companies, Release No. 33-10619 (Mar. 20, 2019) [84 FR 14448 (Apr.
10, 2019)], at 14472.
---------------------------------------------------------------------------

B. Supplementary Financial Information (Item 302)

1. Supplementary Financial Information (Item 302(a))
    Item 302(a)(1) requires disclosure of selected quarterly financial
data of specified operating results \51\ and Item 302(a)(2) requires
disclosure of variances in these results from amounts previously
reported on a Form 10-Q.\52\ Item 302(a) does not apply to SRCs or FPIs
and, because it only applies to companies that already have a class of
securities registered under Section 12 of the Exchange Act at the time
of filing, it does not apply to first time registrants conducting an
IPO and registrants who are only required to file reports pursuant to
Section 15(d) of the Exchange Act.\53\ When Item 302(a) applies, it
requires certain information for each full quarter within the two most
recent fiscal years and any subsequent period for which financial
statements are included or required by Article 3 of Regulation S-X.\54\
Item 302(a)(3) requires a description of the effect of any discontinued
operations and unusual or infrequently occurring items recognized in
each quarter, as well as the aggregate effect and the nature of year-
end or other adjustments that are material to the results of that
quarter.\55\

If a registrant's financial statements have been reported on by an
accountant, Item 302(a)(4) requires that accountant to follow
appropriate professional standards and procedures regarding the data
required by Item 302(a).\56\
---------------------------------------------------------------------------

    \51\ Item 302(a)(1) of Regulation S-K [17 CFR 229.302(a)(1)].
Item 302(a)(1) specifies disclosure of: Net sales; gross profit (net
sales less costs and expenses associated directly with or allocated
to products sold or services rendered); income (loss) from
continuing operations; per share data based upon income (loss) from
continuing operations; net income (loss); and net income (loss)
attributable to the registrant.
    \52\ Item 302(a)(2) of Regulation S-K [17 CFR 229.302(a)(2)].
When the data supplied pursuant to Item 302(a) varies from amounts
previously reported on the Form 10-Q filed for any quarter, such as
when a combination between entities under common control occurs or
where an error is corrected, the registrant must reconcile the
amounts given with those previously reported and describe the reason
for the difference.
    \53\ Item 302(a)(5) and (c) of Regulation S-K [17 CFR
229.302(a)(5) and (c)].
    \54\ Item 302(a)(1) and (a)(3) [17 CFR 229.302(a)(1) and
(a)(3)].
    \55\ Item 302(a)(3) of Regulation S-K [17 CFR 229.302(a)(3)].
The requirement applies to items recognized in each full quarter
within the two most recent fiscal years and any subsequent interim
period for which financial statements are included or are required
to be included.
    \56\ Item 302(a)(4) of Regulation S-K [17 CFR 229.302(a)(4)].
---------------------------------------------------------------------------

    In the Concept Release, the Commission solicited input on whether
to retain, eliminate, or modify Item 302(a). The Commission also
solicited input on the importance of information required by Item
302(a) that is not duplicative of previously provided information, such
as a separate presentation of certain fourth quarter information and
the effect of a retrospective change in the earliest of the two
years.\57\ The Commission also sought input on the costs and benefits
of this disclosure item.
---------------------------------------------------------------------------

    \57\ Because Item 302(a)(2) requires disclosure of variances in
results from amounts previously reported for the two most recent
fiscal years, the effect of a retrospective change in any quarter
for which a Form 10-Q is filed in the more recent of the two fiscal
years will be disclosed in the selected quarterly data. However,
absent Item 302(a)(2), this variance would not be specifically
required to be disclosed until the following year in the
corresponding fiscal quarter in which the retrospective change
occurred. Additionally, disclosure in the Form 10-Q for this
corresponding fiscal quarter would not include the effects of this
change in the earliest of the two years presented in the Form 10-K,
as this Form 10-Q would be limited to the current and prior-year
interim periods.
---------------------------------------------------------------------------

    A few commenters recommended retaining and expanding Item
302(a).\58\ One of these commenters stated that it ``sense[d] that
investors find it useful to see fourth quarter results presented
discretely, rather than having to infer them based on the annual
results and the interim results through the third quarter.'' \59\ The
commenter also stated that, where the data changes from what was
previously reported, having the revised data in an annual report allows
investors to understand the effects of the changes sooner. Another of
these commenters noted the importance of fourth quarter data, stating
that, in the absence of a Form 8-K filing containing such information,
analysts must derive the information from the annual report and the
three previously filed quarterly reports and that ``any numbers derived
from this method are at best approximate.'' \60\ This commenter stated
that, ``if a requirement to file a full fourth-quarter report is too
onerous . . . [Item 302(a)] could be enhanced to include more data from
the income statement beyond revenues, net income, and earnings per
share.'' Yet another commenter recommended that Item 302(a) be revised
to ensure the information is presented in a consistent manner across
registrants.\61\
---------------------------------------------------------------------------

    \58\ See letters from BDO, Bloomberg LP (July 21, 2016)
(``Bloomberg''), and CFA Institute.
    \59\ See letter from BDO.
    \60\ See letter from Bloomberg.
    \61\ See letter from CFA Institute.
---------------------------------------------------------------------------

    Multiple commenters recommended streamlining Item 302(a).\62\
Several of these commenters recommended revising Item 302(a)(5) to
accommodate newly reporting registrants in an annual report or a
follow-on offering where the registrant would be required to provide
Item 302(a) data for interim periods prior to those presented in the
IPO registration statement.\63\ Another commenter recommended only
requiring Item 302(a) disclosure when there is a material retrospective
change in the financial statements that has not been previously
filed.\64\ The commenter also stated that some companies voluntarily
provide fourth quarter data in earnings releases.
---------------------------------------------------------------------------

    \62\ See, e.g., letters from Fenwick, Deloitte, CAQ, E&Y, Grant
Thornton, and PWC.
    \63\ See, e.g., letters from Deloitte, CAQ, E&Y, Grant Thornton,
and PWC. Suggested accommodations included: Requiring registrants to
begin presenting selected quarterly data in their second annual
report (see letters from E&Y, PWC, and CAQ); and allowing new
registrants to present supplementary financial data in registration
statements and annual reports that ``build'' from the quarterly
information that has been separately filed in Exchange Act reports
subsequent to an IPO (see letters from Deloitte, CAQ, E&Y, Grant
Thornton, and PWC).
    \64\ See letter from Fenwick. In this commenter's view, outside
of such situations, quarterly financial information in a
registrant's annual report is redundant with information available
on EDGAR. See also letter from Crowe.
---------------------------------------------------------------------------

    Most commenters recommended eliminating Item 302(a) altogether,\65\
with many of these commenters stating that this item is duplicative of
disclosures provided in prior filings.\66\ Two of these commenters
stated that ``the disclosure required under Item 302(a) is yet another
example of duplicative information that unnecessarily complicates and
lengthens disclosure documents, while increasing burdens for
registrants and offering little value to investors.'' \67\ Another
commenter stated that, though the original intent of the item was ``to
help investors understand the pattern of corporate activities
throughout a fiscal year,'' not all businesses are seasonal and the
information provided by Item 302(a) is already available in Form 10-
Qs.\68\ This commenter supported a flexible approach for Item 302(a)
disclosure that would allow registrants to determine when and if this
disclosure would be relevant and enhance an investor's understanding of
the business throughout the year. This commenter also stated that
fourth quarter data can be easily derived from prior filings without
needing to separately reference the fourth quarter information.
---------------------------------------------------------------------------

    \65\ See, e.g., letters from AFLAC, Chamber, FedEx, CGCIV,
UnitedHealth Group, Inc. (July 21, 2016) (``United Health''), SIFMA,
PNC, EEI and AGA, NAREIT, Davis Polk, S. Percoco, National Investor
Relations Institute (``NIRI''), Northrop Grumman, FEI, and General
Motors.
    \66\ See, e.g., letters from AFLAC, Chamber, FedEx, CGCIV,
UnitedHealth Group, SIFMA, PNC, EEI and AGA, NAREIT, NIRI, Northrop
Grumman, FEI, and General Motors.
    \67\ See letters from Chamber and CGCIV.
    \68\ See letter from FEI.
---------------------------------------------------------------------------

    We propose to eliminate Item 302(a). Like many commenters, we
believe that this prescriptive requirement largely results in
duplicative disclosures. The precursor to Item 302 was adopted at a
time when quarterly data was ``reported on an extremely abbreviated
basis.'' \69\ The item was intended to help investors understand the
pattern of corporate activities throughout a fiscal period by
disclosing trends over quarterly periods to reflect seasonal
patterns.\70\ Today, most of the financial data required by Item 302(a)
can be found in prior quarterly reports, which are readily available on
EDGAR. While Item 302(a) requires separate disclosure of certain fourth
quarter information, which is not otherwise required to be disclosed,
we believe this data generally can be calculated from a registrant's
Form 10-K and third quarter Form 10-Q. We believe that eliminating this
prescriptive requirement will encourage registrants to take a more
principles-based approach to presenting information called for by Item
302(a) in their filings and specifically, in MD&A.
---------------------------------------------------------------------------

    \69\ See Interim Financial Data: Proposals to Increase
Disclosure, Release No. 34-11142 (Dec. 19, 1974) [40 FR 1079 (Jan.
6, 1975)], at 1080.
    \70\ See Interim Financial Reporting: Increased Disclosures,
Release No. 33-5611 (Sept. 10, 1975) [40 FR 46107 (Oct. 6, 1975)],
at 46108.
---------------------------------------------------------------------------

    Eliminating Item 302(a) may result in the loss of a separate
presentation of certain fourth quarter information and, where
applicable, the effect of a retrospective change in the earliest of the
two years.\71\ Where fourth quarter results are material or there is a
material retrospective change, existing requirements would still elicit
this disclosure. Specifically, Item 303 requires registrants to discuss
unusual events that materially affected reported income and other
matters that are necessary to understand their results of
operations.\72\ The item also requires

registrants to discuss known trends and uncertainties that have had or
that registrants reasonably expect to have an impact on net sales,
revenues, or operating income.\73\ Also, U.S. GAAP requires disclosure
of disposals of components of an entity and unusual or infrequently
occurring items recognized for the fourth quarter if interim data and
disclosures are not separately reported for the fourth quarter.\74\
Additionally, Item 101(c)(1)(v) of Regulation S-K requires disclosure
of the extent to which a business is seasonal.\75\
---------------------------------------------------------------------------

    \71\ See supra note 51.
    \72\ Item 303(a)(3)(i) requires registrants to describe any
unusual or infrequent events or transactions or any significant
economic changes that materially affected the amount of reported
income from continuing operations and indicate the extent to which
income was so affected. In addition, the item requires registrants
to describe any other significant components of revenues or expenses
that, in the registrant's judgment, should be described in order to
understand the registrant's results of operations.
    \73\ Item 303(a)(3)(ii) requires registrants to describe any
known trends or uncertainties that have had or that the registrant
reasonably expects will have a material favorable or unfavorable
impact on net sales or revenues or income from continuing
operations. If the registrant knows of events that will cause a
material change in the relationship between costs and revenues (such
as known future increases in costs of labor or materials or price
increases or inventory adjustments), the change in the relationship
must be disclosed.
    \74\ ASC 270-10-50-2 requires the disclosure of certain
information if interim data and disclosures are not separately
reported for the fourth quarter. This information includes
``disposals of components of an entity and unusual, or infrequently
occurring items recognized in the fourth quarter, as well as the
aggregate effect of year end adjustments that are material to the
results of that quarter.''
    \75\ Item 101(c)(1)(v) [17 CFR 229.101(c)(1)(v)]. The Commission
recently proposed changes to Item 101 and proposed retaining Item
101(c)(1)(v). See Modernization of Regulation S-K Items 101, 103,
and 105, Release No. 33-10668 (Aug. 8, 2019) [84 FR 44358 (Aug. 23,
2019)].
---------------------------------------------------------------------------

Request for Comment
    10. Should we eliminate Item 302(a), as proposed? Would eliminating
Item 302(a) result in the loss of material information that is
otherwise not available to investors, such as through prior filings on
EDGAR? If so, what material information would be lost, and are there
alternatives we should consider that would capture this information?
    11. Do market participants find Item 302(a) disclosures to be
helpful? If so, how do market participants use the disclosures? Does
the utility of the disclosures vary by industry or business? If so, for
which industries or businesses are Item 302(a) disclosures helpful?
    12. Is the option for investors to compile supplemental financial
information through searches of prior filings an adequate substitute
for Item 302(a)? Do current XBRL-tagging requirements reliably
facilitate compilation and comparison of supplemental financial
information? Would there be a cost to investors of compiling and/or
calculating information presented in Item 302(a) from other sources
and, if so, what would that cost be?
    13. What are the burdens on registrants to provide the information
required by Item 302(a)?
    14. Is a separate presentation of certain fourth quarter data
material to investors? If so, is such information material for all
companies or industries? Are investors able to readily calculate this
fourth quarter data from a registrant's Form 10-K and related third
quarter Form 10-Q? What are the challenges to making such calculations?
    15. Would registrants continue to provide fourth quarter data in
the absence of a requirement to do so (e.g., through voluntary earnings
releases)? If we eliminate Item 302(a), should we require registrants
to disclose certain fourth quarter data elsewhere in an annual report,
such as in MD&A? What would be the cost of this approach? Should we
require registrants to disclose any variances to its previously issued
quarterly information that would inhibit the calculation of fourth
quarter data by market participants? What would be the costs of this
approach?
    16. Should we retain Item 302(a) but allow a newly reporting
registrant to exclude Item 302(a) data for interim periods prior to
those presented in its IPO registration statement? \76\
---------------------------------------------------------------------------

    \76\ See supra note 63 and corresponding text.
---------------------------------------------------------------------------

2. Information About Oil and Gas Producing Activities (Item 302(b))
    Item 302(b) \77\ requires registrants engaged in oil and gas
producing activities, other than SRCs, to disclose information about
those activities for each period presented. The disclosure called for
by Item 302(b) is also required by U.S. GAAP.\78\ However, unlike the
U.S. GAAP requirement, Item 302(b) incrementally requires that the
disclosure be provided for each period presented.
---------------------------------------------------------------------------

    \77\ See Item 302(b) of Regulation S-K [17 CFR 229.302(b)].
    \78\ See ASC 932-235-50.
---------------------------------------------------------------------------

    In 2018, the Commission referred certain of its disclosure
requirements to the FASB for potential incorporation into U.S. GAAP
because these items largely overlapped with, but required information
incremental to, U.S. GAAP.\79\ Item 302(b) was among the items referred
to the FASB.\80\
---------------------------------------------------------------------------

    \79\ See Disclosure Update and Simplification, Release No. 33-
10532 (Aug. 17, 2018) [83 FR 50234 (Oct. 4, 2018)].
    \80\ See id.
---------------------------------------------------------------------------

    On May 6, 2019, the FASB issued proposed Accounting Standards
Update, Disclosure Improvements: Codification Amendments in Response to
the SEC's Disclosure Update and Simplification,\81\ which would amend
U.S. GAAP to require the incremental disclosure called for by Item
302(b), disclosure of oil and gas producing activities for each period
presented. If FASB adopts amendments consistent with those it proposed,
upon effectiveness of the amendments to U.S. GAAP, the requirements of
Item 302(b) will be duplicative of U.S. GAAP. Therefore, we propose to
eliminate Item 302(b), subject to the FASB finalizing its related
amendments to U.S. GAAP.\82\
---------------------------------------------------------------------------

    \81\ FASB, File Reference No. 2019-600, available at https://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176172611572.
    \82\ Item 302(c) of Regulation S-K states that SRCs do not have
to provide the information required by the Item. Since we are
proposing to eliminate Items 302(a) and (b), we are likewise
proposing to eliminate Item 302(c) since it will no longer be
applicable.
---------------------------------------------------------------------------

Request for Comment
    17. As proposed, should we eliminate Item 302(b) if the FASB amends
U.S. GAAP to require substantially similar disclosure?

C. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Item 303)

    Item 303 of Regulation S-K requires disclosure of information
relevant to assessing a registrant's financial condition, changes in
financial condition, and results of operations. The disclosure
requirements for full fiscal years in Item 303(a) specify five
components: Liquidity, capital resources, results of operations, off-
balance sheet arrangements, and contractual obligations.\83\ Item
303(b) covers interim period disclosures and requires registrants to
discuss material changes in the items listed in Item 303(a) (including
the instructions), other than the impact of inflation and changing
prices on operations and tabular disclosure of contractual
obligations.\84\ Item 303(c) acknowledges the application of a
statutory safe harbor for forward-looking information provided in off-
balance sheet arrangements and contractual obligations disclosures.
Item 303(d) provides certain accommodations for SRCs.
---------------------------------------------------------------------------

    \83\ Item 303(a)(1)-(5) of Regulation S-K [17 CFR 229.303(a)(1)-
(5)].
    \84\ See Item 303(b) and Instruction 7 to Item 303(b) of
Regulation S-K [17 CFR 229.303(b)].
---------------------------------------------------------------------------

    The Concept Release solicited comment on the overall objectives of
the current MD&A requirements, as well as specific subsections of Item
303, including how to improve the content and focus of MD&A. Many
commenters responded to the Commission's request

for input with a variety of suggestions, which we discuss below. The
Commission recently addressed some of the Item 303(a) disclosure
requirements referenced in the Concept Release and by commenters when
it adopted amendments to modernize and simplify certain disclosure
requirements in Regulation S-K.\85\
---------------------------------------------------------------------------

    \85\ See FAST Act Adopting Release. Specifically, the Commission
amended Item 303 to: Revise Instruction 1 to Item 303(a) to allow
registrants that provide financial statements covering three years
in a filing to omit discussion of the earliest of the three years if
such discussion was already included in the registrant's prior
filings on EDGAR; eliminate the reference to year-over-year
comparisons in Instruction 1 to Item 303(a); and eliminate the
reference to five-year selected financial data in Instruction 1 to
Item 303(a).
---------------------------------------------------------------------------

    We propose further amendments to Item 303 of Regulation S-K that
are intended to modernize, simplify, and enhance the MD&A disclosures
for investors while reducing compliance burdens for registrants.\86\
Specifically, we are proposing to:
---------------------------------------------------------------------------

    \86\ We discuss below in Section II.D our proposals to make
certain parallel amendments to Item 5 of Form 20-F (Operating and
Financial Review and Prospects), General Instruction B.(11) of Form
40-F (Off-Balance Sheet Arrangements), and General Instruction
B.(12) of Form 40-F (Tabular Disclosure of Contractual Obligations).
---------------------------------------------------------------------------

     Establish a new paragraph 303(a) that incorporates much of
the substance of Instructions 1, 2, and 3 to current Item 303(a) to
emphasize the objective of MD&A for both full fiscal years and interim
periods;
     Recaption current Item 303(a) as Item 303(b), and make the
following additional changes:
    [cir] Streamline current Item 303(a) by eliminating unnecessary
cross-references to industry guides in Instructions 13 and 14; \87\
---------------------------------------------------------------------------

    \87\ See 17 CFR 229.802.
---------------------------------------------------------------------------

    [cir] Amend current Item 303(a)(2) to modernize and enhance the
current requirement, which is limited to capital expenditures, to
specifically require a discussion of material cash requirements;
    [cir] Amend current Item 303(a)(3)(ii) to clarify that a registrant
should disclose reasonably likely changes in the relationship between
costs and revenues;
    [cir] Amend current Item 303(a)(3)(iii) and Instruction 4 to Item
303(a) to enhance analysis in MD&A by clarifying that a registrant
should include in its MD&A a discussion of the reasons underlying
material changes from period-to-period in one or more line items;
    [cir] Eliminate current Item 303(a)(3)(iv), which requires
registrants to discuss the impact of inflation and changing prices
where material, along with the related Instructions 8 and 9 to Item
303(a);
    [cir] Replace current Item 303(a)(4), the requirement that
registrants provide off-balance sheet arrangement disclosures in a
separately captioned section, with an instruction emphasizing the
importance of discussing these obligations in the broader context of
MD&A disclosure when such obligations have or are reasonably likely to
have a material current or future effect on a registrant's financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, cash requirements or capital
resources; and
    [cir] Eliminate current Item 303(a)(5), the requirement that
registrants provide a tabular disclosure of contractual obligations;
     Recaption Item 303(b) as Item 303(c) and:
    [cir] Amend current Item 303(b) to allow for more flexibility in
interim periods compared; and
    [cir] Simplify current Item 303(b) by eliminating certain
instructions and providing cross-references to similar instructions in
Item 303(a); and
     Eliminate current Items 303(c) and (d) as conforming
changes.
    The following table outlines the current and proposed structure of
Item 303: \88\
---------------------------------------------------------------------------

    \88\ The information in this table is not comprehensive and is
intended only to highlight the general structure of the current
rules and proposed amendments. It does not reflect all of the
substance of the proposed amendments or all of the rules and forms
that may be affected. All changes are discussed in their entirety
throughout this release. As such, this table should be read together
with the referenced sections and the complete text of this release.

----------------------------------------------------------------------------------------------------------------
           Current structure                  Proposed structure                 Discussed in section(s)
----------------------------------------------------------------------------------------------------------------
Item 303(a), Full fiscal years........  Item 303(a), Objective........  II.C.1.
Item 303(a) (combined liquidity and     Instruction 2 to Item 303(b)..  II.C.1.
 capital resources discussions).
Item 303(a)(1), Liquidity.............  Item 303(b)(1), Liquidity.....  II.C.2.
Item 303(a)(2), Capital resources.....  Item 303(b)(2), Capital         II.C.2.
                                         resources.
    (i) Capital expenditures..........     (i) Capital expenditures...
    (ii) Known material trends........     (ii) Known material trends.
Item 303(a)(3), Results of operations.  Item 303(b)(3), Results of      II.C.3, II.C.4, & II.C.5.
                                         operations.
    (i) Unusual or infrequent events..     (i) Unusual or infrequent
                                            events.
    (ii) Known trends or uncertainties     (ii) Known trends or
                                            uncertainties.
    (iii) Material increases..........     (iii) Material changes.....
    (iv) Inflation and changing prices
    Item 303(a)(4), Off-balance sheet   Replace with Instruction 8 to   II.C.6.
     arrangements.                       Item 303(b).
    Instructions 1, 2, 3, 4, and 5 to   Replace with Instruction 8 to   II.C.6.
     Item 303(a)(4).                     Item 303(b).
Item 303(a)(5), Contractual             Eliminate.....................  II.C.7.
 obligations.
2003 MD&A Interpretative Release,       Item 303(b)(4), Critical        II.C.8.
 Critical accounting estimates.          accounting estimates.
    Instruction 1 to Item 303(a)......     Instruction 1 to Item        II.C.1.
                                            303(b)(with amendments).
    Instruction 2 to Item 303(a)......     Eliminate (with content      II.C.1.
                                            incorporated into
                                            Objective).
    Instruction 3 to Item 303(a)......     Eliminate (with content      II.C.1.
                                            incorporated into
                                            Objective).
    Instruction 4 to Item 303(a)......     Instruction 3 to Item        II.C.4.
                                            303(b)(with amendments and
                                            some content incorporated
                                            into Item 303(b)).
    Instruction 5 to Item 303(a)......     Instruction 4 to Item        II.C.1.
                                            303(b).
    Instruction 6 to Item 303(a)......     Instruction 5 to Item        II.C.1.
                                            303(b).

    1Instruction 7 to Item 303(a).....     Instruction 6 to Item        II.C.1.
                                            303(b).
    1Instruction 8 to Item 303(a).....     Eliminate..................  II.C.5.
    1Instruction 9 to Item 303(a).....     Eliminate..................  II.C.5.
    1Instruction 10 to Item 303(a)....     Instruction 7 to Item        II.C.1.
                                            303(b).
    1Instruction 11 to Item 303(a)....     Instruction 9 to Item        II.D.3.
                                            303(b)(with amendments).
    1Instruction 12 to Item 303(a)....     Instruction 10 to Item       II.C.1.
                                            303(b).
    1Instruction 13 to Item 303(a)....     Eliminate..................  II.C.1.
    1Instruction 14 to Item 303(a)....     Eliminate..................  II.C.1.
Item 303(b), Interim periods..........  Item 303(c), Interim periods..  II.C.9.
(1) Material changes in financial       (1) Material changes in
 condition.                              financial condition.
(2) Material changes in results of      (2) Material changes in
 operations, Rule 3-03(b) of             results of operations.
 Regulation S-X matters.                (i) Material changes in
                                         results of operations (year-
                                         to-date).
                                        (ii) Material changes in
                                         results of operations
                                         (quarter comparisons).
    Instruction 1 to Item 303(b)......     Instruction 1 to Item        II.C.9.
                                            303(c) (with amendments to
                                            reference Instructions 3,
                                            6, 8, and 11 to proposed
                                            Item 303(b)).
    Instruction 2 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 3 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 4 to Item 303(b)......     Instruction 2 to Item        II.C.9.
                                            303(c).
    Instruction 5 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 6 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 7 to Item 303(b)......     Eliminate..................  II.C.9.
    Instruction 8 to Item 303(b)......     Instruction 11 to Item       II.C.9.
                                            303(b).
Item 303(c), Safe harbor..............  Eliminate.....................  II.C.10.
Item 303(d), Smaller reporting          Eliminate.....................  II.C.11.
 companies.
----------------------------------------------------------------------------------------------------------------

1. Restructuring and Streamlining (Item 303(a))
    The first paragraph of current Item 303(a) instructs registrants to
discuss their financial condition, changes in financial condition, and
results of operations for full fiscal years.\89\ The paragraph then
sets forth the items that must be included in this discussion,
including liquidity, capital resources, results of operations, off-
balance sheet arrangements, contractual obligations, and any other
information a registrant believes would be necessary to understand its
financial condition, changes in financial condition, and results of
operations. The paragraph also instructs that discussions of capital
resources and liquidity may be combined when the topics are
interrelated. Finally, the paragraph states that a registrant must
provide a discussion of business segments and/or of subdivisions when,
in the registrant's judgment, such a discussion would be appropriate
for understanding its business. This discussion must focus on each
relevant, reportable segment and/or other subdivision of the business
and on the registrant as a whole. In addition to the text, there are
fourteen instructions to Item 303(a).
---------------------------------------------------------------------------

    \89\ Item 303(a) of Regulation S-K [17 CFR 229.303(a)].
---------------------------------------------------------------------------

    We are proposing multiple changes that are intended to streamline
and clarify the purposes of Item 303.\90\ First, we propose adding a
new Item 303(a) to succinctly state the purposes of MD&A by
incorporating a portion of the substance of Instruction 1, and much of
the substance of Instructions 2 and 3 into the item. Specifically, we
propose to incorporate each of the following portions of current
Instructions 1, 2, and 3 to describe the objectives of MD&A, which is
for companies to provide disclosure regarding:
---------------------------------------------------------------------------

    \90\ These proposed changes, along with the other proposed
amendments and eliminations discussed elsewhere in this release,
would result in some changes in the subsection labeling and
headings.
---------------------------------------------------------------------------

     Material information relevant to an assessment of the
financial condition and results of operations of the registrant,
including an evaluation of the amounts and certainty of cash flows from
operations and from outside sources.
     The material financial and statistical data that the
registrant believes will enhance a reader's understanding of the
registrant's financial condition, changes in financial condition, and
results of operations.\91\
---------------------------------------------------------------------------

    \91\ The remainder of the instruction also specifies periods
that the discussion must cover, which our proposed amendments would
retain.
---------------------------------------------------------------------------

     Material events and uncertainties known to management that
would cause reported financial information not to be necessarily
indicative of future operating results or of future financial
condition. This would include descriptions and amounts of matters that:
(i) Would have a material impact on future operations and have not had
an impact in the past, and (ii) have had a material impact on reported
operations and are not expected to have an impact on future operations.
    We are also proposing to codify Commission guidance that states
that a registrant should provide a narrative explanation of its
financial statements that enables investors to see a registrant
``through the eyes of management'' \92\ into the description of MD&A
objectives. We believe that emphasizing the purpose of MD&A at the
outset of the Item will provide clarity and focus to registrants as
they consider what information to discuss and analyze. Our intent is to
facilitate a thoughtful discussion and analysis, and encourage
management to disclose factors specific to the registrant's business,
which management is in the best position to know, and underscore
materiality as the overarching principle of MD&A.\93\ Our proposal is
intended to serve as a reminder to registrants as they prepare their
MD&A that the general purpose of the disclosure is to provide both a
historical and prospective analysis of the registrant's financial
condition and

results of operations, with particular emphasis on the registrant's
prospects for the future.\94\ This principles-based approach is also
well-suited to elicit disclosure about complex and often rapidly
evolving areas, without the need to continuously amend the text of the
rule to impose bright-line or prescriptive requirements.\95\
---------------------------------------------------------------------------

    \92\ See 2003 MD&A Interpretative Release, at 75056. See also
1989 Interpretative Release, at 22428.
    \93\ See, e.g., FAST Act Adopting Release, at 12679 (emphasizing
that ``[m]ateriality remains, as always, the primary consideration''
of MD&A) and the 2003 MD&A Interpretative Guidance, at 75060 (noting
that ``it is increasingly important for companies to focus their
MD&A on material information. In preparing MD&A, companies should
evaluate issues presented in previous periods and consider reducing
or omitting discussion of those that may no longer be material or
helpful, or revise discussions where a revision would make the
continuing relevance of an issue more apparent.'').
    \94\ See 1989 MD&A Interpretive Release (``In preparing MD&A
disclosure, registrants should be guided by the general purpose of
the MD&A requirements: To give investors an opportunity to look at
the registrant through the eyes of management by providing a
historical and prospective analysis of the registrant's financial
condition and results of operations, with particular emphasis on the
registrant's prospects for the future.'').
    \95\ See, e.g., Commission Guidance Regarding Disclosure Related
to Climate Change, Release No. 33-9106 (Feb. 2, 2010) [75 FR 6290
(Feb. 8, 2010)] and Commission Statement and Guidance on Public
Company Cybersecurity Disclosures (Feb. 21, 2018) [83 FR 8166 (Feb.
26, 2018)]. Commission staff has also provided its views on the
application of our principles-based disclosure requirements to
emerging issues. See, e.g., Staff Statement on LIBOR Transition
(July 12, 2019), available at https://www.sec.gov/news/public-statement/libor-transition.
---------------------------------------------------------------------------

    In light of our proposal to add new Item 303(a), we propose to re-
caption current Item 303(a) as Item 303(b), which will continue to
apply to all MD&A disclosures.\96\ As proposed, the introductory
paragraph would retain the current language that outlines what is to be
covered in the discussion of a registrant's financial condition,
changes in financial condition, and results of operations.\97\
Additionally, we propose to add product lines as an example of other
subdivisions of a registrant's business that should be discussed where,
in the registrant's judgment, such a discussion would be necessary to
an understanding of the registrant's business.\98\ We believe that this
added example would provide registrants with additional clarity on the
types of subdivisions that may require separate disclosure, though it
is not intended to complete the list.
---------------------------------------------------------------------------

    \96\ For interim periods, current Item 303(b) of Regulation S-K
requires a ``discussion of material changes in those items
specifically listed in [Item 303(a)], except that the impact of
inflation and changing prices on operations for interim periods need
not be addressed.'' See 1989 MD&A Interpretive Release at n. 38 and
39 and corresponding text (``The second sentence of Item 303(b)
states that MD&A relating to interim period financial statements
`shall include a discussion of material changes in those items
specifically listed in paragraph (a) of this Item, except that the
impact of inflation and changing prices on operations for interim
periods need not be addressed.' As this sentence indicates, material
changes to each and every specific disclosure requirement contained
in paragraph (a), with the noted exception, should be discussed.'');
2003 MD&A Interpretive Release (``Disclosure in MD&A in quarterly
reports is complementary to that made in the most recent annual
report and in any intervening quarterly reports.'').
    \97\ See Item 303(a).
    \98\ The current relevant Item 303(a) language states that
where, in the registrant's judgment, a discussion of segment
information and/or of other subdivisions (e.g., geographic areas) of
the registrant's business would be appropriate to an understanding
of such business, the discussion shall focus on each relevant
segment and/or other subdivision of the business and on the
registrant as a whole.
---------------------------------------------------------------------------

    We also propose to move to proposed Item 303(b) the portion of
current Instruction 4 to Item 303(a) that requires a description of the
causes of material changes from year-to-year in line items of the
financial statements to the extent necessary to an understanding of the
registrant's business as a whole.\99\ In response to general requests
for comment on Item 303 in the Concept Release, a few commenters
provided recommendations on how to revise Item 303(a) to facilitate a
more meaningful analysis.\100\ One commenter suggested amending Item
303 to require a description of material factors that contributed to
any material change in results, and that quantitative and qualitative
factors could be listed as examples of the types of factors that could
be discussed in MD&A.\101\
---------------------------------------------------------------------------

    \99\ Instruction 4 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)].
    \100\ See, e.g., letters from Fenwick, Maryland State Bar
Association (July 21, 2016) (``Maryland Bar Securities Committee''),
S. Percoco, and NYSSCPA.
    \101\ See letter from Fenwick.
---------------------------------------------------------------------------

    Similarly, another commenter recommended revising Item 303(a)(3) to
require a description of the major factors that caused changes in line
items (e.g., economic trends, industry conditions and sales and costs
related to key products and services).\102\ Yet another commenter
stated that Item 303(a) and Instruction 4 should be revised to
``clearly instruct'' registrants that discussions about material
changes should address quantitative and qualitative factors underlying
the changes.\103\ One commenter also noted that it would be preferable
for the requirements to indicate that registrants cannot present line
item changes without providing ``meaningful explanations.'' \104\
Finally, another commenter recommended revising Instruction 4 to Item
303(a) to allow registrants to omit financial statement line item
changes to the extent such an omission would not materially impair an
investor's understanding of a registrant's results of operations.\105\
This revision, the commenter stated, would allow registrants and
investors to focus on line items that had the most impact on its
results of operations.
---------------------------------------------------------------------------

    \102\ See letter from S. Percoco.
    \103\ See letter from Maryland Bar Securities Committee.
    \104\ See letter from NYSSCPA. This commenter also expressed its
belief that a significant number of registrants were providing
narratives that did not allow an investor to view performance
``through the eyes of management.'' According to this commenter,
such discussions ``generally [become] an exercise where management
provides a quantitative analysis, which most investors can
recompute--if they chose to--from the financial statements.''
    \105\ See letter from Davis Polk.
---------------------------------------------------------------------------

    We propose to amend the language of Instruction 4 to Item
303(a),\106\ which would be moved to proposed Item 303(b), to clarify
that MD&A requires a narrative discussion of the ``underlying reasons''
for material changes from period-to-period in one or more line items in
quantitative and qualitative terms, rather than only the ``cause'' for
material changes. We are also proposing to amend the language to
clarify that registrants should discuss material changes within a line
item even when such material changes offset each other.\107\ We believe
our proposals would enhance analysis in MD&A, and accordingly, would be
responsive to concerns raised by commenters. We also believe the
proposals would clarify MD&A's requirements by codifying some of the
Commission's prior guidance on the importance of analysis in MD&A. The
Commission has previously emphasized the importance of providing an
analysis in MD&A and stated that a thorough analysis often will involve
discussing both the intermediate effects of known material trends,
events, demands, commitments, and uncertainties and the reasons
underlying those intermediate effects.\108\ Commission guidance has
also stated that MD&A should include both qualitative and quantitative
analysis.\109\ We believe the proposed amendments would encourage
registrants to provide a more nuanced discussion of the underlying
reasons that may be contributing to material changes in line items.
---------------------------------------------------------------------------

    \106\ Proposed to be renumbered as Instruction 3 to Item 303(b).
    \107\ See, e.g., 1989 MD&A Interpretive Release (providing an
example of material changes in revenue and in so doing, describing
the effects of offsetting developments: ``Revenue from sales of
single-family homes for 1987 increased 6 percent from 1986. The
increase resulted from a 14 percent increase in the average sales
price per home, partially offset by a 6 percent decrease in the
number of homes delivered. Revenues from sales of single-family
homes for 1986 increased 2 percent from 1985. The average sales
price per home in 1986 increased 6 percent, which was offset by a 4
percent decrease in the number of homes delivered.'').
    \108\ See, e.g., 2003 MD&A Interpretive Release.
    \109\ See, e.g., 2003 MD&A Interpretive Release and 1989 MD&A
Interpretive Release.
---------------------------------------------------------------------------

    We also are proposing several amendments to further streamline the
text of Item 303:

     We propose to move the text in current Item 303(a) stating
that registrants may combine their discussions of liquidity and capital
resources when the topics are interrelated to an instruction to the
item.\110\ We believe this language is an instruction given that it is
not a substantive requirement or accommodation, but rather a
clarification of how registrants may structure their disclosures.
---------------------------------------------------------------------------

    \110\ Proposed Instruction 2 to Item 303(b).
---------------------------------------------------------------------------

     Instruction 8 to current Item 303(b) indicates that the
term ``statement of comprehensive income'' is defined by Rule 1-02 of
Regulation S-X.\111\ We are proposing to move this language to proposed
Instruction 11 to proposed Item 303(b) to clarify that the instruction
applies to both full fiscal year and interim period MD&A disclosure.
---------------------------------------------------------------------------

    \111\ [17 CFR 210.1-02(cc)]. Rule 1-02 defines a ``statement of
comprehensive income'' as follows: ``[t]he term statement(s) of
comprehensive income means a financial statement that includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owners. . . . A statement
of operations or variations thereof may be used in place of a
statement of comprehensive income if there was no other
comprehensive income during the period.'' Thus, references to a
statement of comprehensive income would include a statement of
operations prepared by certain issuers, such as BDCs.
---------------------------------------------------------------------------

     We also propose to eliminate current Instructions 13 and
14 to Item 303(a) as simplifying amendments. These instructions call
the attention of bank holding companies and property-casualty insurance
companies to Guide 3 \112\ and Guide 6,\113\ respectively. Registrants
should still consider the Guides in preparing their disclosures
generally, but we do not believe the cross-reference is necessary to an
understanding of the requirements of Item 303.
---------------------------------------------------------------------------

    \112\ [17 CFR 229.801(c) and 17 CFR 229.802(c)]. We recently
proposed rules relating to Guide 3. See Update of Statistical
Disclosures for Bank and Savings and Loan Registrants, Release No.
33-10688 (Sept. 17, 2019) [84 FR 52936 (Oct., 3, 2019)]. The
proposed rules would update the disclosures that investors receive,
codify certain Guide 3 disclosures and eliminate other Guide 3
disclosures that overlap with Commission rules, U.S. GAAP, or
International Financial Reporting Standards (``IFRS''). In addition,
the Commission proposed to relocate the codified disclosures to a
new subpart of Regulation S-K and to rescind Guide 3.
    \113\ [17 CFR 229.801(f)].
---------------------------------------------------------------------------

Request for Comment
    18. Should we adopt proposed Item 303(a)? Would proposed Item
303(a) clarify the purpose of MD&A disclosures for registrants and
others? Would the proposed amendments aid registrants in determining
what to disclose in their MD&A?
    19. Should we incorporate the language from current Instruction 4
to Item 303(a) into proposed Item 303(b), as proposed? Should we amend
this language to require disclosure of the underlying reasons for
material changes in quantitative and qualitative terms, including
material changes within a line item, as proposed?
    20. Are there any instructions that we are proposing to delete or
move that we should retain or leave as is? Are there any other current
instructions that we should revise or clarify?
    21. Should we eliminate Instructions 13 and 14 to Item 303(a) that
reference Guides 3 and 6, as proposed? Should we instead include
additional instructions to reference the other industry guides?
2. Capital Resources (Item 303(a)(2))
    Item 303(a)(2) requires a registrant to discuss its material
commitments for capital expenditures as of the end of the latest fiscal
period, and to indicate the general purpose of such commitments and the
anticipated sources of funds needed to fulfill such commitments.\114\ A
registrant also must discuss any known material trends, favorable or
unfavorable, in its capital resources, and indicate any expected
material changes in the mix and relative cost of such resources.\115\
The discussion must consider changes between equity, debt, and any off-
balance sheet financing arrangements.\116\
---------------------------------------------------------------------------

    \114\ Item 303(a)(2)(i) of Regulation S-K [17 CFR
229.303(a)(2)(i)].
    \115\ Item 303(a)(2)(ii) [17 CFR 229.303(a)(2)(ii)].
    \116\ Id.
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    When adopting disclosure requirements for capital resources, the
Commission recognized that the term ``capital resources'' lacked
precision, but stated that ``additional specificity would decrease the
flexibility needed by management for a meaningful discussion.'' \117\
To that end, Item 303 does not define ``capital resources.'' \118\ The
current capital resources disclosure requirements in Item 303(a)(2)
have remained largely the same since 1980.\119\ Item 303(a)(2)
specifies that registrants must disclose material commitments for
capital expenditures, which generally relate to physical assets, such
as buildings and equipment. Some registrants include disclosure beyond
capital expenditures, which the Commission's guidance has
encouraged.\120\
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    \117\ 1980 Form 10-K Adopting Release, at 63636.
    \118\ Instruction 5 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)]. See also 1980 Form 10-K Adopting Release, supra note
45, at 63636.
    \119\ See 1980 Form 10-K Adopting Release.
    \120\ See 2003 MD&A Interpretive Release, at 75062.
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    The Concept Release solicited comment on how the Commission could
revise Item 303(a) to elicit a more meaningful analysis of a
registrant's capital resources while maintaining flexibility.\121\ The
Concept Release also requested comment on how registrants interpret the
term ``capital resources'' and whether defining the term would be
helpful to registrants.\122\
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    \121\ See Concept Release, at 23947.
    \122\ See id.
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    Some commenters observed differences in how registrants apply the
term ``capital resources.'' \123\ One of these commenters stated that
the Commission should adopt a definition of capital resources that is
broader than currently implied by Item 303(a)(2)(i).\124\ This
commenter stated that registrants interpret ``capital resources'' as
material commitments for capital expenditures and the source of funds
related to such commitments. Another commenter stated that some
registrants interpret ``capital resources'' to require ``disclosure of
a registrant's sources of capital, while others interpret it to require
disclosure of the sources of capital assets used in a registrant's
business.'' \125\
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    \123\ See letters from NYSSCPA and BDO.
    \124\ See letter from NYSSCPA.
    \125\ See letter from BDO.
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    Some commenters supported the Commission's current approach to the
term ``capital resources.'' \126\ One commenter urged the Commission
not to depart from the existing policy of recognizing the term
``capital resources'' as a general term in a manner that might decrease
the flexibility needed by management for a meaningful discussion.\127\
Another commenter recommended that the Commission not further define
the term ``capital resources'' beyond its current general use.\128\
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    \126\ See letters from Davis Polk and FEI.
    \127\ See letter from Davis Polk.
    \128\ See letter from FEI (``As noted above, we believe it would
be helpful to consolidate the guidance on MD&A into a single source.
In doing so, we recommend that the SEC not expand prescriptive
requirements with respect to liquidity and capital resources,
including not further defining the terms ``liquidity'' and ``capital
resources'' beyond their current general terms.'').
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    We continue to believe that disclosure of capital resources is
critical to an assessment of a registrant's prospects for the future
and likelihood of its survival.\129\ Therefore, we propose to

amend current Item 303(a)(2) \130\ to specify, consistent with the
Commission's 2003 MD&A Interpretive Release, that a registrant should
broadly disclose material cash commitments, including but not limited
to capital expenditures. Specifically, our proposed amendment would
require a registrant to describe its material cash requirements,
including commitments for capital expenditures, as of the latest fiscal
period, the anticipated source of funds needed to satisfy such cash
requirements, and the general purpose of such requirements.\131\
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    \129\ See 2003 MD&A Interpretive Release at note 41 and
corresponding text. Much of the Commission's prior guidance has
focused on enhancing disclosure of liquidity and capital resources.
See, e.g., 1989 MD&A Interpretive Release and 2003 MD&A Interpretive
Release.
    \130\ Proposed to be renumbered as Item 303(b)(2).
    \131\ See 2003 MD&A Interpretive Release, at 75063.
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    This proposal is intended to require registrants to identify and
disclose known material cash requirements. Depending on the registrant,
this could include items such as: Funds necessary to maintain current
operations, complete projects underway, and achieve stated objectives
or plans; or commitments for capital or other expenditures.\132\ This
proposal is also intended to modernize Item 303(a)(2) by specifically
requiring disclosure of material cash requirements in addition to
capital expenditures. While capital expenditures remain important in
many industries, we recognize that certain expenditures and cash
commitments that are not necessarily capital investments in property,
plant, and equipment may be increasingly important to companies,
especially those for which human capital or intellectual property are
key resources. Our proposals are intended to encompass these and other
material cash requirements.
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    \132\ See id.
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    These proposals, alongside the current requirement for registrants
to discuss their ability to generate cash,\133\ are intended to enhance
disclosure and provide investors with a clear picture of a registrant's
ability to meet its material cash requirements. We acknowledge the
commenters who suggested that we define ``capital resources.'' We have
decided, however, not to propose a definition of the term to allow for
continued flexibility and business-specific discussions of the
topic.\134\ Lastly, and as discussed in Section II.C.7, our proposal to
enhance discussion of capital resources is also intended to complement
our proposed deletion of the contractual obligations table.
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    \133\ See Item 303(a)(1) and Instruction 5 of Item 303(a). See
also 2003 MD&A Interpretive Release, at 75062-75064.
    \134\ See 1980 Form 10-K Adopting Release.
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Request for Comment
    22. Should we amend Item 303(a)(2), as proposed? Would the proposed
amendments continue to allow management flexibility to provide a
meaningful discussion of capital resources?
    23. Are there other aspects of Item 303(a)(2) we should revise? If
so, which aspects?
3. Results of Operations--Known Trends or Uncertainties (Item
303(a)(3)(ii))
    Item 303(a)(3)(ii) requires a registrant to describe any known
trends or uncertainties that have had or that the registrant reasonably
expects will have a material impact (favorable or unfavorable) on net
sales or revenues or income from continuing operations.\135\ In
addition, if the registrant knows of events that will cause a material
change in the relationship between costs and revenues, the change in
the relationship must be disclosed.\136\
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    \135\ Item 303(a)(3)(ii) of Regulation S-K [17 CFR
229.303(a)(3)(ii)].
    \136\ Examples given include known future increases in costs of
labor or materials or price increases or inventory adjustments. See
id.
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    We propose to amend Item 303(a)(3)(ii) \137\ to provide that when a
registrant knows of events that are reasonably likely to cause (as
opposed to will cause) a material change in the relationship between
costs and revenues, such as known or reasonably likely future increases
in costs of labor or materials or price increases or inventory
adjustments, the reasonably likely change must be disclosed. This
proposed amendment would conform the language in this paragraph to
other Item 303 disclosure requirements for known trends,\138\ and align
Item 303(a)(3)(ii) with the Commission's guidance on forward-looking
disclosure.\139\
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    \137\ To be renumbered as Item 303(b)(3)(ii).
    \138\ See, e.g., Item 303(a)(1), which requires registrants to
``[i]dentify any 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.'' Item 303(a)(1) to Regulation S-K
[17 CFR 229.303(a)(1)].
    \139\ See 1989 MD&A Interpretive Release, at 22430, where the
Commission articulated a two-step test for assessing when forward-
looking disclosure is required in MD&A:
    ``Where a trend, demand, commitment, event or uncertainty is
known, management must make two assessments:
    (1) Is the known trend, demand, commitment, event or uncertainty
likely to come to fruition? If management determines that it is not
reasonably likely to occur, no disclosure is required.
    (2) If management cannot make that determination, it must
evaluate objectively the consequences of the known trend, demand,
commitment, event or uncertainty, on the assumption that it will
come to fruition. Disclosure is then required unless management
determines that a material effect on the registrant's financial
condition or results of operations is not reasonably likely to
occur.''
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Request for Comment
    24. Should we amend Item 303(a)(3)(ii) to provide that registrants
must disclose events reasonably likely to cause a material change in
the relationship between costs and revenue, as proposed? Are there
other areas in Item 303 where we should provide a similar requirement?
4. Results of Operations--Net Sales and Revenues (Item 303(a)(3)(iii))
    Item 303(a)(3)(iii) specifies that, to the extent financial
statements disclose material increases in net sales or revenues, a
registrant must provide a narrative discussion of the extent to which
such increases are attributable to increases in prices, or to increases
in the volume or amount of goods or services being sold, or to the
introduction of new products or services.\140\ The Commission
previously clarified that a results of operations discussion should
describe not only increases but also decreases in net sales or
revenues.\141\ Accordingly, we propose to amend Item 303(a)(3)(iii) to
codify this guidance and clarify the requirement by tying the required
disclosure to ``material changes'' in net sales or revenues, rather
than solely to ``material increases'' in these line items.
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    \140\ Item 303(a)(3)(iii) of Regulation S-K [17 CFR
229.303(a)(3)(iii)].
    \141\ See 1989 MD&A Interpretative Release, at n. 36 (``Although
Item 303(a)(3)(iii) speaks only to material increases, not
decreases, in net sales or revenues, the Commission interprets Item
303(a)(3)(i) and Instruction 4 as seeking similar disclosure for
material decreases in net sales or revenues.'').
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Request for Comment
    25. Should we revise Item 303(a)(3)(iii), as proposed?
    26. Are there reasons other than changes in prices, or changes in
volume or amount of goods or services being sold, or the introduction
of new products or services that can contribute to changes in revenue
or net sales, or other line items? If so, what are they? Would
enumerating other reasons aid registrants in determining what
information may be necessary to understand material changes in line
items, or would this result in a de facto prescriptive or minimum
disclosure standard?

5. Results of Operations--Inflation and Price Changes (Item
303(a)(3)(iv), and Instructions 8 and 9 to Item 303(a))
    Item 303(a)(3)(iv) \142\ generally requires registrants, for the
three most recent fiscal years, or for those fiscal years in which the
registrant has been engaged in business, whichever period is shortest,
to discuss the impact of inflation and price changes on their net
sales, revenue, and income from continuing operations. Instruction 8 to
Item 303(a) clarifies that a registrant must provide a discussion of
the effects of inflation and other changes in prices only to the extent
it is material. The instruction further states that the discussion may
be made in whatever manner appears appropriate under the circumstances
and that no specific numerical financial data is required, except as
required by Rule 3-20(c) of Regulation S-X,\143\ which applies to FPIs.
Instruction 9 to Item 303(a) states that registrants that elect to
disclose supplementary information on the effects of changing prices
may combine such disclosures with the Item 303(a) discussion and
analysis or provide it separately (with an appropriate cross-
reference).\144\
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    \142\ Item 303(a)(3)(iv) of Regulation S-K [17 CFR
229.303(a)(3)(iv)].
    \143\ Rules 3-20(c) and 3-20(d) of Regulation S-X provide the
situations when a registrant must discuss hyperinflation. Rule 3-
20(d) generally describes a hyperinflationary environment as one
that has cumulative inflation of approximately 100 percent or more
over the most recent three-year period.
    \144\ Instruction 9 to Item 303(a).
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    The precursors to Item 303(a)(3)(iv) and Instructions 8 and 9 were
adopted in 1980,\145\ during a period of rapid domestic inflation.\146\
At that time, the Commission was concerned with the adequacy of
disclosures about the effect of inflation and changing prices on
registrants.\147\ Several years later, the Commission amended the
instructions to, among other things, clarify that disclosure of
inflation is only required if material.\148\
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    \145\ 1980 Form 10-K Adopting Release.
    \146\ See One Hundred Years of Price Change: The Consumer Price
Index and the American Inflation Experience (Apr. 2014) available at
https://www.bls.gov/opub/mlr/2014/article/one-hundred-years-of-price-change-the-consumer-price-index-and-the-american-inflation-experience.htm (stating ``the period from 1968 to 1983 stands out as
the definitive era of sustained inflation in the 20th-century United
States'' and that during this time period, the largest 12-month
increase in inflation of 14.8 percent occurred between March 1979 to
March 1980).
    \147\ See 1980 Form 10-K Adopting Release (``[T]he Commission
believes that Management's Discussion and Analysis should contain
information which changes the potentially confusing situation
involving inflation impact disclosure into a meaningful discussion
of the effects of changing prices on the registrant's business.'').
    \148\ At that time, the Commission amended Instructions 8 and 9
to conform the requirement to the then-recently adopted SFAS No. 89
(Financial Reporting and Changing Prices) and stated ``Item 303(a)
does not require registrants to discuss the impact of inflation when
such impact does not materially affect the financial statements.''
See Disclosure of the Effects of Inflation and Changes in Prices,
Release No. 33-6681 (Dec. 18, 1986), [51 FR 47026 (Dec. 30, 1986)),
adopted in Release No. 33-6728 (Aug. 7, 1987), [52 FR 30917 (Aug.
18, 1987)].
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    Although Instruction 8 to Item 303(a) specifies that a discussion
of inflation and other changes in prices is required only when such
matters are considered material, we believe that the reference to
inflation and changing prices may give undue attention to the topic,
even when such information is not necessary to an understanding of a
registrant's financial condition or results of operations. In order to
encourage registrants to focus their MD&A on material information that
is tailored to their respective facts and circumstances, we propose to
eliminate Item 303(a)(3)(iv) and current Instruction 8 and Instruction
9 to Item 303(a).
    We do not believe that these proposed changes would result in a
loss of material information. Despite these proposed deletions,
registrants would still be expected to discuss the impact of inflation
or changing prices if they are part of a known trend or uncertainty
that has had, or the registrant reasonably expects to have, a material
favorable or unfavorable impact on net sales, or revenue, or income
from continuing operations.\149\ The Commission has also specifically
encouraged registrants to consider disclosure of economic or industry-
wide factors where relevant.\150\
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    \149\ See Item 303(a)(3)(ii) [CFR 229.303(a)(3)(ii)] and
proposed Item 303(b)(3)(ii).
    \150\ See 2003 MD&A Interpretive Release, at 75059.
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    In addition, the proposed amendments to current Item 303(a)(3)(iii)
\151\ would require registrants to provide the reasons underlying
material changes from period-to-period in one or more line items in the
statement of comprehensive income.\152\ Similarly, our proposed
amendment to Instruction 4 to Item 303(a) would require that, where the
financial statements reveal material changes in one or more line items,
registrants would be required to disclose the underlying reasons for
material changes in quantitative and qualitative terms. If there are
material changes from inflation or changing prices, registrants would
be required to discuss those reasons under both current Item 303 and
amended Item 303, as proposed.
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    \151\ Proposed to be renumbered as Item 303(b)(3)(iii).
    \152\ See supra Section II.C.4.
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Request for Comment
    27. Should we eliminate the references to inflation disclosure by
eliminating Item 303(a)(3)(iv) and Instructions 8 and 9 to Item 303(a),
as proposed? Would there be a loss of material information if we
eliminate these provisions?
6. Off-Balance Sheet Arrangements (Item 303(a)(4))
    Item 303(a)(4)\153\ requires, in a separately-captioned section, a