We want to start by thanking the staff in the Division of Corporation Finance, Office of the General Counsel, Division of Economic and Risk Analysis, and Office of the Chief Accountant who have worked on this rule. It has gone from proposal to adoption in less than one year’s time, which is not an easy task, particularly during a global pandemic. Due to the staff’s expertise, hard-work, and thoughtfulness, many of the changes adopted today will be beneficial for investors. For example, certain of the changes to Item 303 of Regulation S-K should enhance the quality of MD&A disclosures. [1] Nevertheless, there are two significant aspects of the rule that we cannot support. Therefore, we must respectfully dissent. [2]

First, the final rule eliminates certain disclosures and the tabular presentation of contractual information that currently provides investors with critical insight into supply chain and risk management. [3] More than 15 years ago, in the wake of several massive accounting scandals and pursuant to Sarbanes Oxley, the SEC issued a rule that required companies to include a table summarizing contractual obligations in annual filings. [4] The proponents of today’s rule argue that much of the information we are removing, or modernizing, is simply to eliminate duplicative disclosure of information that is readily accessible in filings required by other SEC rules or by the U.S. Generally Accepted Accounting Principles (“GAAP”). Yet one of the key categories of obligations disclosed in the table—purchase obligations—is not always required by U.S. GAAP and does not consistently appear elsewhere in filings. [5] Purchase obligation disclosures provides information about the amount and timing of payments due in future periods, providing insight into corporate supply chain risk management, financial hedging, and anticipated increases in product demand. [6] And in analyzing the impact of the COVID-19 pandemic on the cruise industry, researchers were able to use the contractual obligations tables to compare exposures and potential revenue shortfalls against near-term obligations. [7] Despite the utility of this information and over the objections of commenters, including the SEC’s own Investor Advisory Committee, [8] the final rule eliminates the contractual obligations table. At best, this obscures information investors need, and, at worst, makes some information, such as purchase obligations, inaccessible. [9] Given the relevance of these items to assessments of market performance, we disagree with the policy choice to eliminate them.

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