Tag Archives: Business

IFRS Wherefore art thou? – A May Update!

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As you likely know, when James Schnurr took the reigns of OCA Chair White asked him to address IFRS. She asked Mr. Schnurr to review the staff’s IFRS work to date and develop a recommendation about “what action, if any, the Commission should take regarding the further incorporation of IFRS into the U.S. capital markets”.

Mr. Schnurr discussed the progress of this review in a May speech. In his remarks he said:

“Some of the key themes we heard from our discussions were as follows:

There is virtually no support to have the SEC mandate IFRS for all registrants.

There is little support for the SEC to provide an option allowing domestic companies to prepare their financial statements under IFRS.

There is continued support for the objective of a single set of high–quality, globally accepted accounting standards.”

He also said he would work to finish his recommendation in the “near term”.

You can read the speech at:

www.sec.gov/news/speech/schnurr-remarks-before-the-2015-baruch-college-financial-reporti.html

As always, your thoughts and comments are appreciated!

 

 

Form 10-K Tip – A Subtle Filed Versus Furnished Issue

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In our previous two posts dealing with the differences between the Form 10-K and the Annual Report to Shareholders (the ARS that accompanies the proxy), we delved into the differences between “filed” and “furnished” documents.

Here is another fairly subtle place that this “filed versus furnished” distinction comes into Form 10-K.

Regulation S-K Item 201(e) is the source of the requirement for the “performance graph” which does a five-year comparison of the return on a $100 investment in the company’s stock, a broad market index and an industry index. (The text of Item 201(e) is included below).

Here is an example of the graph from American Woodmark:

From this part of the Instructions to Item 5 of the Form 10-K it seems relatively straightforward that this graph should be in Item 5 of the 10-K:

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

  1. (a)  Furnish the information required by Item 201 of Regulation S-K (17 CFR 229.201)…

(Note: The rest of the Item 5 instructions are omitted as they do not affect this issue)

However, if you persevere (that is stay awake!) trying to read the whole of S-K Item 201, including the instructions (always an important part of the items!) you will find Instruction 7 to Item 201(e):

  1. The information required by paragraph (e) of this Item need not be provided in any filings other than an annual report to security holders required by Exchange Act Rule 14a-3 (17 CFR 240.14a-3) or Exchange Act Rule 14c-3 (17 CFR 240.14c-3) that precedes or accompanies a registrant’s proxy or information statement relating to an annual meeting of security holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting). Such information will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

The reason for this instruction goes back many years to when changes were made in the proxy rules and this graph was moved from the proxy statement to S-K Item 201.

And, as you read this instruction, you might be tempted to say “so what”! But the subtle and important issue is that the ARS is not a filed document!

So, if you put the graph in the Form 10-K, it is “filed” information, subject to 1934 Act liability provisions. However, if you put it only in the ARS, it is not subject to 1934 Act liability. While this might not be a major issue, it is still one to think about.

One path some companies use is to put the graph on the back page of a 10-K wrap, so it is not actually included in the 10-K itself.

Here is an example of a company, American Woodmark, that dealt with the issue by putting the graph in the 10-K wrap pages instead of the Form 10-K, in order to keep the graph from being filed. Check out page 12 of their ARS:

files.shareholder.com/downloads/AMWD/144697083x0x766550/DAD863ED-7D03-468B-BCCE-E5117F2C1E43/LowRes-14-10531-FSC_AWC-FinalPDF.pdf

Yes, this one is pretty subtle, even picky, but one to think about.

As always, your comments and thoughts are welcome!

Here is the main part text of S-K Item 201(e). You can see the whole Item at:

www.ecfr.gov/cgi-bin/text-idx?SID=8e0ed509ccc65e983f9eca72ceb26753&node=17:3.0.1.1.11&rgn=div5#se17.3.229_1201

S-K Item 201

(e) Performance graph. (1) Provide a line graph comparing the yearly percentage change in the registrant’s cumulative total shareholder return on a class of common stock registered under section 12 of the Exchange Act (as measured by dividing the sum of the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the difference between the registrant’s share price at the end and the beginning of the measurement period; by the share price at the beginning of the measurement period) with:

(i) The cumulative total return of a broad equity market index assuming reinvestment of dividends, that includes companies whose equity securities are traded on the same exchange or are of comparable market capitalization; provided, however, that if the registrant is a company within the Standard & Poor’s 500 Stock Index, the registrant must use that index; and

(ii) The cumulative total return, assuming reinvestment of dividends, of:

(A) A published industry or line-of-business index;

(B) Peer issuer(s) selected in good faith. If the registrant does not select its peer issuer(s) on an industry or line-of-business basis, the registrant shall disclose the basis for its selection; or

(C) Issuer(s) with similar market capitalization(s), but only if the registrant does not use a published industry or line-of-business index and does not believe it can reasonably identify a peer group. If the registrant uses this alternative, the graph shall be accompanied by a statement of the reasons for this selection.

Leases Update – Final Standard Drafting Underway!

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For years we have been watching the FASB/IASB project on lease accounting. And many of us wonder whether or not this project will ever finish. Well, checkout what the FASB is saying about their meeting this Wednesday, May 13. Yes, they are working on the project, working on it carefully and diligently and are actually in the process of drafting a final standard!

Wednesday May 13. 2015:

FASB Board Meeting, 9:00 a.m. EDT

  1. Leases. The Board will continue redeliberations of its May 2013 Exposure Draft, Leases, specifically discussing issues that have arisen during the drafting of the final standard.

They have said they hope to issue the final standard before the end of this year!

You can learn more at:

www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220079452

As always, your thoughts and comments are welcome and appreciated!

The Mystery of Filed versus Furnished

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In our last post we explored the difference between the Annual Report to Shareholders (ARS) and the Form 10-K. The ARS, required by the proxy rules, is an example of a document that is “furnished” to shareholders and not actually “filed” with the SEC.

Just what does this mean?

Filed versus furnished is essentially a legal distinction. It does not impact how information appears on the EDGAR system (as they look the same) or other practical filing issues (as they are filed in EDGAR the same way). For example, an Item 2.02 Form 8-K is a “furnished” document, but an Item 2.01 Form 8-K is a “filed” document. To learn what is going on with this distinction, let’s explore:

  1. What is the legal difference?
  2. How to determine if a document is furnished or filed?

Filed

When a document is “filed” it is formally “filed” with the SEC to meet the disclosure requirements under the laws the SEC administers, principally the 1933 and 1934 Acts. This means a “filed” document is subject to the liability provisions of the Acts, and is the principal difference between filed versus furnished.

Furnished

When a document is furnished, generally to shareholders, it is not actually filed with the SEC under one of the Acts, (even though it may be “filed” in the EDGAR system) so it is not subject to the liability provisions of the Acts.

This liability difference can be a substantial issue. For example, it is far easier to establish scienter in a 34 Act fraud case then in a non-34 Act fraud case. Generally in a non-34 Act action, to establish scienter it must be shown that the accused deliberately set out to cause harm. In a 34 Act action, gross negligence or reckless disregard can establish scienter, a much lower level of proof.

Another difference – if something is furnished rather than filed, it cannot be incorporated by reference into later filings. In the shelf registration process this is very important as furnished documents are not incorporated by reference into the S-3 on the shelf, and hence do not expose the company to the strict liability standards of the 33 Act! And, if you do later incorporate a furnished document into a filed document, it loses its furnished status, usually not a good thing!

So, how do you tell if something is filed or furnished? When they appear on the EDGAR system they look exactly the same! As discussed earlier, it is really a legal distinction, so you go back to the legal sources, in particular, the instructions to the forms.

Here is an excerpt from the Form 8-K instructions:

  1. The information in a report furnished pursuant to Item 2.02 (Results of Operations and Financial Condition) or Item 7.01 (Regulation FD Disclosure) shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, unless the registrant specifically states that the information is to be considered “filed” under the Exchange Act or incorporates it by reference into a filing under the Securities Act or the Exchange Act.

So, this legal distinction is actually spelled out in the instructions.

As a concluding thought, the most commonly encountered furnished documents are:

The Annual Report to Shareholders
Form 8-K Item 2.02
Form 8-K Item 7.01

There are others, so when in doubt, consult the instructions!

As a preview for our next topic in this discussion, check out the furnished versus filed status of the performance graph required by Regulation S-K Item 201(e). You may find that a surprise awaits!

 

10-K Tip of the Week – Annual Report to Shareholders vs Form 10-K

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In sort of a lighthearted way this week’s Tip is a “versus” tip. With big boxing matches coming up next week, or perhaps just remembering old movies with aliens and monsters, the issue of how the Form 10-K works versus how the Annual Report to Shareholders (ARS) works seems appropriate.

This question frequently comes up in our workshops, and many folks don’t know whether or not the ARS is actually required or where to find the ARS requirements. The ARS is actually a very distinct and separate document from the Form 10-K.

The Form 10-K is the Annual Report to the SEC. It is required by the rules of the SEC and is filed with the SEC. As such, it is not a document furnished directly to shareholders, although they clearly have an opportunity to use the information as it is publicly accessible.

The ARS is actually required by the proxy rules. Rule 14a-3, which deals with information that must be furnished to shareholders in the proxy solicitation process says:

“(b) If the solicitation is made on behalf of the registrant, other than an investment company registered under the Investment Company Act of 1940, and relates to an annual (or special meeting in lieu of the annual) meeting of security holders, or written consent in lieu of such meeting, at which directors are to be elected, each proxy statement furnished pursuant to paragraph (a) of this section shall be accompanied or preceded by an annual report to security holders …….”

When a company is having its annual meeting and will elect directors at this meeting, it must furnish each shareholder with the proxy statement containing information about the election and officers and directors, and also must furnish each shareholder the ARS.

The next logical question is what must be included in the ARS? Rule 14a-3 enumerates the requirements and they include, among lots of other information:

Financial statements
MD&A
Selected financial data

“a brief description of the business done by the registrant and its subsidiaries during the most recent fiscal year which will, in the opinion of management, indicate the general nature and scope of the business of the registrant and its subsidiaries”

For a complete list of all the required information in the ARS check out Rule 14a-3. It is on page 890 of our 2015 SEC Handbook and you can also find it here:

www.ecfr.gov/cgi-bin/text-idx?SID=8e0ed509ccc65e983f9eca72ceb26753&node=17:4.0.1.1.1&rgn=div5#se17.4.240_114a_63

Way back many years ago most companies did a separate ARS which was mailed in paper form to all shareholders along with the proxy statement. To see an example of this kind of traditional ARS check out this one from American Woodmark, a cabinet manufacturer:

files.shareholder.com/downloads/AMWD/107569654x0x673718/998BA1D0-743B-4BEC-A32F-8B7197D3B622/LowRes-13-10246_AWC-2013.pdf

The above link is to the ARS American Woodmark prepared for 2013, and it has wonderful photography and nicely typeset financial statements and MD&A. It is almost elegant in its presentation of information about the company. It is also a very expensive document to produce!

Because this kind of ARS is so expensive, many companies use a more cost effective ARS called the “10-K wrap”. This version of the ARS is actually a cover and perhaps a few pages of financial and company background “wrapped” around the Form 10-K. This approach works well because all the information required by rule 14a-3 that must be furnished to shareholders is in the Form 10-K.

American Woodmark switched to the 10-K wrap approach in 2014. You can find their 2014 ARS at:

files.shareholder.com/downloads/AMWD/107569654x0x766550/DAD863ED-7D03-468B-BCCE-E5117F2C1E43/LowRes-14-10531-FSC_AWC-FinalPDF.pdf

It would be interesting to know how much money American Woodmark saved going from the “pretty picture” ARS to the “10-K wrap” ARS!

To summarize, the Form 10-K is the formal annual report filed with the SEC as part of complying with the 34 Act, while the ARS is not filed with the SEC, it is actually furnished to shareholders.

(The proxy rules do require that copies of the ARS be sent to the SEC, one of the few paper filings companies still have to make.)

Lastly, if you are focusing on the words filed versus furnished in the above sentence, yes, they are very important and mean very different things! We will discuss that difference in our next post!

As always, your comments and thoughts are welcome and appreciated!

Comment of the Week – Its all About the Future!

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One of the most challenging disclosures we discuss in our workshops is the required forward-looking MD&A requirement to disclose “known trends”. (As a heads-up, this post contains some pretty long comments, but they raise some very important issues!)

This forward-looking information requirement is rooted in the overall objective of MD&A as articulated in FR 72. The relevant section of the release states that part of the objective of MD&A is:

“to provide information about the quality of, and potential variability of, a company’s earnings and cash flow, so that investors can ascertain the likelihood that past performance is indicative of future performance” (emphasis added)

And, of course, this is done “through the eyes of management”.

You can find the whole release at:

www.sec.gov/rules/interp/33-8350.htm

From this objective it is clear that if management knows about something that means past performance is not going to be predictive of future performance and the information is material, it should be disclosed in MD&A. This is made clear in S-K Item 303(a) (3) (ii):

“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. (emphasis added)

The SEC is watchful for companies that surprise the markets with disclosure of bad news, potentially driving down their stock price, where the companies have not said anything about the bad news issue in previous filings.

In many cases the Staff’s presumption is that the bad news did not surprise management, and that in fact they knew about the problem well before they disclosed it to investors. In that situation, management likely failed to meet the disclosure requirements in MD&A and S-K Item 303(a) (3) (ii) specifically.

In our workshops we discuss some of the classic enforcement actions where this has happened, including the “groundbreaking” cases against Caterpillar and Sony. The staff continues to search for problems in this area, and frequently starts with the comment letter process.

Here are example comments that were written to a grocery store chain that had decided to exit one of its “banners”. In this industry a “banner” is a brand name for the supermarket chain. Notice the subtle interaction of these comments from the initial letter:

  1. We note that you announced the sale and/or closure of all of your (name omitted) stores in May 2014. We further note that in the related press release, filed as Exhibit 99.2 to your March 29, 2014 Form 10-Q, your Chief Executive Officer stated, “The economic downturn over the last few years, coupled with an increased competitive footprint in the Minneapolis/St. Paul Market, has made it difficult for (the company) to keep the (name omitted) banner competitive.” We further note that the disclosures regarding negative factors impacting your business within this Form 10-K appear to broadly apply to your business and do not specifically refer to the (name omitted) banner. Please tell us how you determined additional disclosures were not required in this Form 10-K as it relates to your (name omitted) banner. In your response, specifically explain how you considered whether these stores were disproportionately impacted by any of the negative factors described in your disclosures, either in the periods of historical financial statements included in this Form 10-K or in your analysis of trends and uncertainties that you reasonably expected would have a material impact on your future results. If the decision to sell this banner was influenced by worse than expected results for this banner during the first quarter of 2014, then also apply this comment to your MD&A disclosures within your March 29, 2014 Form 10-Q. (emphasis added)

The first comment above puts the trend disclosure on the table. This next comment goes a bit further, clearly articulating the “does the past predicts the future?” requirement:

  1. We note your disclosures under the heading “Goodwill Impairment Charge.” Please tell us, and disclose in future filings, why your fair value declined such that you recorded this impairment charge. We remind you that one of the principle objectives of MD&A is to provide your investors with enough insight into the underlying factors that drove your historical results [so] that they can assess the likelihood that past results are indicative of future results. We also remind you of your obligation to describe known trends and uncertainties that have had or you reasonably expect will have a material impact on your results. (emphasis added)

The following comment directly quotes S-K 303(a)(3)(ii), asking some very challenging questions:

  1. We note you recorded $280.0 million of pretax goodwill impairment charges in the quarter ended September 27, 2014. Please tell us what consideration you gave to updating your goodwill critical accounting estimate disclosures in your September 27, 2014 Form 10-Q. In this regard, you refer your investors to the critical accounting estimates on goodwill contained in your annual report. Given the charge you recorded in the most recent quarter it would appear the assumptions used to assess goodwill for impairment have significantly changed. Further, you now have two reporting units as opposed to one reporting unit at December 28, 2013. Please advise. Additionally, given the significance of the impairment charges and the material amount of goodwill remaining on your balance sheet, please show us what critical accounting estimate disclosures you anticipate making in your upcoming Form 10-K filing. Please ensure your disclosures provide investors with sufficient information to assess the material implications of uncertainties associated with the methods, assumptions and estimates underlying this critical accounting estimate. Refer to Item 303(a)(3)(ii) of Regulation S- K, which requires a description of a known uncertainty and Section V of SEC Release No. 33-8350. (emphasis added)

After the company’s responses to the above comments, the staff wrote this follow-on comment in the second round of comments. Note the depth of the analysis asked for in the comment and the depth of the SEC’s review into material that was not even included in a 10-K or 10-Q!

 We have read your November 2014 “Company’s Investor Presentation” and note the strong growth in the Chicago Market with the ChicagoBanner’s format. Further, you highlight several differences between your Wisconsin and Illinois markets. For example, on slide five you point out the Chicago market has “2x the productivity of your Wisconsin stores.” The information presented on slide six indicates that your ChicagoBanner’s banner is a “highly differentiated food shopping experience.” You further indicate on slide seven the ChicagoBanner’s banner has 1) two times the average Wisconsin retail sales volume, 2) lower EBITDA margin and higher gross profit dollars, and 3) strong store-level ROIC. We also note on slide sixteen that ChicagoBanner’s represents a significant growth opportunity for the Company. It also appears from the disclosures in your filings and your response to our comments that your Wisconsin and Illinois markets were behaving differently during 2013 and 2014, leading you to “[shift] focus to stabilizing [your] Wisconsin market” in contrast to “growing [your] ChicagoBanner’s banner.” We further note a general trend of highly differentiated grocery stores having higher profit margins than value-oriented grocery stores. Based on this information, we continue to believe that your Wisconsin and Illinois markets likely have different current or future trends in per-store revenue and per-store profitability, and that the mix of stores between these two markets will therefore impact your consolidated results. Please explain to us in significantly more detail why the apparent differences between these types of stores were not addressed in your most recent Form 10-Q, either as part of your analysis of results of operations or as part of your discussion of trends and uncertainties, and also tell us how these matters will be addressed in your upcoming Form 10-K. 


So, the moral of this story, if you know of something that is reasonably likely to have a material impact on future results, don’t keep it secret! Even if you hope it will not be a problem, these MD&A requirements need to be carefully reviewed to determine when to share the information with investors!

As always, your thoughts and comments are welcome!

Audit Committee Challenges and Changes on the Horizon

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The role of the Audit Committee in corporate governance is continuously developing, expanding and becoming more complex. Even before the dramatic events at Enron and Worldcom (without going too much into history!) regulators and governance experts focused on clarifying and enhancing audit committee functions. After Enron, Worldcom and the rest of the wave of governance breakdowns in the early 2000’s the SEC began to require even more significant disclosures about audit committee function.

This process has continued. At the 2014 PLI SEC Speaks conference the Chief Accountant of the SEC delivered a speech entitled “Audit Committee – Back to Basics”. You can find the presentation materials at:

www.sec.gov/News/Files/1371146714240

Even matters as foundational as auditor independence have been issues for the SEC. Deputy Chief Accountant Brian Croteau focused on such areas in this December 2014 speech:

www.sec.gov/News/Speech/Detail/Speech/1370543616539

As Audit Committees deal with these challenges, PLI will have a great program on June 23, 2015 titled “Audit Committees and Financial Reporting 2015 – Recent Developments and Current issues”. Included will be the latest news on potential expanded audit committee reporting. You can learn more about the program at:

www.pli.edu/Content/Seminar/Audit_Committees_and_Financial_Reporting/_/N-4kZ1z129aq?fromsearch=false&ID=221246

As always your comments, thoughts and ideas are welcome!

Watch Out – Instructions to Form 10-K Typo’s?

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In all our workshops we always advise everyone to check the SEC’s webpage for the latest version of the instructions whenever it is 10-K or 10-Q time. And, recently, the SEC put updated instructions for Form 10-K on their webpage.

But this update has an interesting twist!

The updated instructions do not have any major changes. The only really new instructions relate to asset-backed issuers.

That said, there is something really strange about the new instructions. Check them out at:

www.sec.gov/about/forms/form10-k.pdf

Now, as you read them check out the cover page and as you look at the second line it says:

“For the fiscal yar ended”

While this looks like it might be a typo, we know the SEC is always VERY CAREFUL when they make these changes, and we think in all likelihood there has been some sort of a technical problem in the process of converting the instructions to PDF form and uploading them to the webpage.

So, how should we react? Should we literally follow these instructions? Include the likely technical issue errors?

Obviously NOT!

In fact, don’t forget what General Instruction C(1) says:

This form is not to be used as a blank form to be filled in, but only as a guide in the preparation of the report on paper meeting the requirements of Rule 12b-12. Except as provided in General Instruction G, the answers to the items shall be prepared in the manner specified in Rule 12b-13.

So, do it right!

As a last note, the 10-Q instructions have not been changed, but as we approach the First Quarter Form 10-Q, watch for updates!

As always, your thoughts and comments are welcome!

Foreign Corrupt Practices Act – Yikes?

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FCPA enforcement has become more and more of a priority for the SEC and a bigger and bigger issue for public companies in recent years. The SEC actually has a special section of its webpage devoted to FCPA Enforcement Actions!

www.sec.gov/spotlight/fcpa/fcpa-cases.shtml

Any business with foreign operations, or thinking of establishing one, even if they are modest, needs to pay attention to the challenges of FCPA compliance. Lawyers, accountants and professionals working in almost any aspect of a company with foreign operations need to understand this complex law.

To manage FCPA risks it is crucial to understand issues such as:

What are the Act’s anti-bribery provisions?

What are the Act’s “accounting and recordkeeping” (internal control) provisions?

What are the traps and major issues in the “accounting and recordkeeping” provisions?

How payments that may be immaterial for financial reporting still matter for FCPA compliance.

How internal audits and FCPA compliance audits differ.

What is the difference between a bribe and a “facilitating payment”, and does it matter for FCPA compliance?

What are the civil and criminal consequences of violating the Act?

What are the major parts of a compliance program?

How does a company build an effective compliance program?

If you need a good place to start understanding what is required to deal with FCPA issues, PLI’s One-Hour Briefing, Basics of the U.S. Foreign Corrupt Practices Act (FCPA) 2015, on April 17, 2015, is a great resource for understanding the issues and complying with the Act.

Heads-Up – A Revisit of Current vs. Non-Current Debt Restatements

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Heads-Up – A Revisit of Current vs. Non-Current Debt Restatements

In our discussions with Workshop participants we are hearing about a trend in how banks and companies are structuring new and revised lines of credit. And, one of the issues we are seeing is evoking a strong feeling of déjà vu!

You may remember that in the early days of the post-SOX era there was a wave of restatements relating to errors in the current versus non-current classification of revolving lines of credit.

The issues centered on an old EITF abstract – EITF 95-22 – Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement. The EITF abstract was about 10 years old when all the restatements happened. The issue involved is very arcane, and since it was very old, it almost seemed like we had all forgotten about this abstract. (This was pre-Accounting Standards Codification of course, so the original abstract is superseded with the guidance contained in ASC 470.)

The portion of the guidance that is relevant is in ASC 470-10-45 paragraphs 4, 5, 14(a) and other locations. It essentially requires that if a revolving line of credit has a bank-required lock-box arrangement where the bank controls the lock-box and a “subjective acceleration clause” then the debt is to be considered current. The issue here is that paragraph 14(a), which contains the guidance for short-term obligations expected to be refinanced long-term, contains a condition that the debt only be cancelable within one year of the borrower’s balance-sheet date by the lender if the borrower violates an objectively determinable or measurable provision of the agreement. The subjective acceleration clause does not meet this requirement, and therefore the related debt cannot be classified as non-current.

We know this is a pretty techy issue, but if you are negotiating a new or revised line of credit, watch out for this one! A very careful review of ASC 470-10-45 paragraphs 4 and 5 will be appropriate. The language here is very complex, and if you have the issue you will likely require some time to properly address!

Two other considerations:

First, for MD&A, it would likely be appropriate to discuss the nature of this financing in the Liquidity and Capital Resources section.

Second, this debt should be included in the table of contractual obligations. As frequently happens with the table, the question of where to include it arises. The likely appropriate answer may vary from company to company, and as the SEC says in FR 83:

“The purpose of the contractual obligations table is to provide aggregated information about contractual obligations and contingent liabilities and commitments in a single location so as to improve transparency of a registrant’s short-term and long-term liquidity and capital resources needs and to provide context for investors to assess the relative role of off-balance sheet arrangements”It then goes on to say:

“Uncertainties about what to include or how to allocate amounts over the periods required in the table should be resolved consistent with the purpose of the disclosure”

So, use of judgment is appropriate. Including the cash flows in the period you expect them to occur and a footnote could be one approach.

As always, your thoughts and comments are appreciated!