BDO Seidman, LLP
Accountants and Consultants
330 Madison Avenue
New York, NY 10017
(212) 885-8000

December 9, 2002

Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609

Re: Release No. 33-8144
Disclosure in MD&A About Off-Balance Sheet Arrangements,
Contractual Obligations and Contingent Liabilities and Commitments
File No. S7-42-02

Dear Mr. Katz:

This letter is the response of BDO Seidman, LLP to your request for comments regarding the above-captioned proposal.

Given the number, breadth, and complexity of the Commission's recent proposals, we are concerned that issuers, auditors, and others have not had sufficient time to fully consider and comment on them. We recognize that the short comment periods for this and other Commission proposals are necessary to meet Congressionally mandated final rule adoption dates. Unfortunately, we feel that this creates a significant risk that the rules the Commission adopts could have unintended or inappropriate consequences. We urge the Commission and its staff to be sensitive to this concern in considering the possible need to modify these rules in the future if such consequences become evident.

We support the Commission's efforts to provide investors with a better understanding of a company's off-balance sheet arrangements, contractual obligations and contingent liabilities and commitments. We also support the general approach the Commission has proposed for achieving this objective. With regard to disclosures about off-balance sheet arrangements, we encourage the Commission to provide flexibility and enable registrants to use judgment in preparing their disclosures. We also encourage the Commission to clarify one aspect of its definition of off-balance sheet arrangements. Our comments related to the proposed disclosures covering contractual obligations and contingent liabilities and commitments focus on making the rules more clear and operational. Our specific comments and recommendations are set forth below.

Off Balance Sheet Arrangements

We encourage the Commission to provide flexibility and enable registrants to use judgment in preparing their disclosures about their off-balance sheet arrangements. We also encourage the Commission to clarify one aspect of its definition of off-balance sheet arrangements.

Enable registrants to use judgment - The purposes and structures of off-balance sheet arrangements are, of course, highly diverse, and many are complex. Given these characteristics, we think the best approach for eliciting disclosures that meet investors' needs is for the rules to (1) state disclosure objectives, (2) permit registrants to use judgment in deciding what they need to say to meet those objectives, and (3) provide guidelines to help registrants make the right decisions.

While it appears to us that this is the basic approach the Commission is taking, we encourage the Commission to better communicate this. In that regard:

• We would support changes to the wording of the rules to better achieve this goal.

• We encourage the Commission to clearly convey this message in the text of the release that accompanies the final rules. Some of the text in the proposing release conveys the opposite impression.

  An example of this apparent contradiction is the discussion in Section II.B.4., which states, "The proposals would require a registrant to disclose the nature and amount of the total assets and total obligations and liabilities (including contingent obligations and liabilities) of an entity in which off-balance sheet activities are conducted" (emphasis added). The proposed rules appear to only require a registrant to disclose this information "to the extent necessary to an understanding of the effect of the off-balance sheet arrangements..." (emphasis added).

• We encourage the Commission to provide examples of disclosures that would illustrate alternate approaches to complying with the disclosure objectives. The Commission provided examples in Release 33-8098, Proposed Rule: Disclosure in Management's Discussion and Analysis about the Application of Critical Accounting Policies, and we thought this approach was very helpful.

Clarify the definition - One aspect of the proposed definition of off-balance sheet arrangements is not clear to us. Section II.B.2. of the Release contains a number of references to liabilities that are not recorded at fair value and implies that any liability recorded at an amount that differs from its fair value is an off-balance sheet arrangement. The Release states that "the proposed definition also includes any obligation or liability ... to the extent it is not `fully reflected' on the face of the financial statements." It also states that "a liability is considered to be fully reflected in the financial statements, and therefore outside the scope of the proposed definition, if it is recorded at its fair value." It is not unusual for GAAP to require liabilities to be "fully reflected" on balance sheets at amounts that differ from fair value. Examples of this are debt and asset retirement obligations. We assume that the Commission did not intend for the implication described above, since the proposed rules do not mention fair value as a factor to consider in evaluating whether a liability is "fully reflected" in the financial statements. We suggest that the Commission clarify this in the release covering the final rules.

Contractual Obligations and Contingent Liabilities and Commitments

Our comments related to the proposed disclosure requirements covering contractual obligations and contingent liabilities and commitments focus on making the rules more clear and operational. In the comments below, whenever we refer to an item in Regulation S-K, our comment also applies to the companion items in Forms 20-F and 40-F.

Clarify and limit the scope of the items to be reported - We believe the Commission should clarify and narrow the scope of the items to be reported in the contractual obligations table and the contingent liabilities and commitments disclosure required by Item 303(a)(5) of Regulation S-K. The rules as proposed appear to require a registrant to accumulate, quantify and disclose information about too wide a range of items. For example, it is not clear to us how a literal reading of proposed Item 303(a)(5)(i) would permit a registrant to exclude items such as accounts payable from the contractual obligations table, although we do not think the Commission intends for registrants to include such items. We also believe the range is too wide because it appears to cover a number of "normal" operating items that do not seem to have historically been the source of major disclosure problems, probably because existing disclosure requirements provide sufficient information. Examples of such items include the following:

• Purchase commitments for normal purchases of goods and services

• Purchase commitments for significant purchases of plant and equipment

• Commitments under executive compensation contracts

• Commitments under union contracts

• Unfunded obligations under pension and postretirement benefit plans

• Potential withdrawal liabilities under multi-employer pension plans

• Potential product warranty obligations

• Needs to purchase additional equipment to provide sufficient capacity to fill customer orders in situations where the company has not yet entered into a contractual obligation to do so

In one respect, Item 303(a)(5)(i) may be too narrow in articulating the items to be presented. The proposed rule requires registrants to report only contractual obligations. Some obligations (e.g., asset retirement obligations) are legal obligations, rather than contractual obligations. We believe it would be appropriate to require registrants to report asset retirement obligations in the table, but it is not clear to us whether this would be required. We suggest that the Commission clarify whether legal obligations must be reported.

Make it clear that off-balance sheet arrangements must be disclosed - The text of the Release indicates that all contractual obligations and contingent liabilities and commitments related to off-balance sheet arrangements discussed pursuant to Item 303(a)(4) of Regulation S-K must also be reported in the disclosures provided pursuant to Item 303(a)(5). We agree with that approach, and we suggest that the Commission add an instruction to more formally communicate this.

Clarify the disclosure threshold - It is not clear what level of likelihood requires a registrant to disclose a contingent liability or commitment pursuant to Item 303(a)(5)(ii) of Regulation S-K. The Commission should modify the rule so it is clear whether disclosure is required when the likelihood of the event occurring is (1) more than remote (i.e., reasonably possible or probable), (2) reasonably likely, or (3) probable. We believe the Commission should adopt a more than remote threshold so the disclosures will be consistent with those provided in the Item 303(a)(4) disclosures and in the financial statements pursuant to FASB Statement 5.

Reconsider the requirements in Item 303(a)(5)(ii) - We believe the Commission should reconsider the contingent liabilities and commitments disclosure requirements in Item 303(a)(5)(ii) to ensure that they result in meaningful disclosures. For example:

• The proposed rule permits a company to disclose only the expected amount of a contingent liability. We believe the rule should not ignore the need to disclose reasonably possible additional amounts, consistent with FASB Statement 5.

• If a registrant chooses to disclose a range, it is not clear what the high number in the range should represent. We believe it should represent the highest amount that has a more than remote chance of being paid. We do not believe it should be a higher number, reflecting an incremental amount that has only a remote chance of being paid.

• In some cases, a range or the maximum liability would be meaningful, but the "expected" liability disclosure option would not (e.g., when any number from zero to the maximum potential loss has an equal chance of being incurred).

Clarify the interim disclosure requirements - The Commission should make the rules more clear regarding the disclosures about contingent liabilities and commitments that are required in MD&As covering interim periods. The text of the Release (in Section II.C.2.) clearly indicates that none of the disclosures required by Item 303(a)(5) of Regulation S-K would need to be repeated in interim MD&As. Rather, interim MD&As would only need to disclose material changes to the disclosures in the annual MD&A. We believe such an approach is appropriate.

However, we think the proposed rules are either unclear on this or could be read to require the opposite approach. Instruction 7 to paragraph (b) of Item 303 says only that a registrant can omit the table required by paragraph (a)(5), perhaps implying that the textual discussion of contingent liabilities and commitments pursuant to Item 303(a)(5)(ii) is required. Instruction 1 to Item 5.F. of Form 20-F permits a registrant to exclude only the table required by paragraph 5.F.1. This instruction could be read to say that the contingent liabilities and commitments disclosure (required by paragraph 5.F.2.) cannot be removed from interim MD&As. We presume that the Commission thinks that registrants will look to Instruction 3 to paragraph (b) of Item 303, which requires registrants to focus only on material changes, and conclude that they can also omit the textual discussion of contingent liabilities and commitments that have not changed materially. Since other rules require registrants to discuss contingencies in interim reports even when there have been no changes, we are not confident registrants will reach this conclusion. We suggest that the Commission clarify these instructions. (It also appears that neither the text of the Release or the proposed rules specifically discuss the interim MD&A requirements for the off-balance sheet arrangements disclosures required by Item 303(a)(4). We think the Commission should also clarify these requirements in these instructions.)

In addition, the Commission should change the reference to "a quarterly report on Form 10-Q" in Instruction 7 to paragraph (b) of Item 303. This narrow reference could lead one to think the information would be required in an interim MD&A included in a filing on a different form (e.g., Form S-1), even though that does not appear to be the intent. To avoid confusion, the Commission should make a broader reference to interim MD&As in general.

* * * * * * * *

We appreciate this opportunity to express our views to the Commission. We would be pleased to answer any questions the Commission or its staff might have about our comments. Please contact Wayne Kolins (at (212) 885-8595 or via electronic mail at wkolins@bdo.com) or Lee Graul (at (312) 616-4667 or via electronic mail at lgraul@bdo.com).

Very truly yours,

/s/ BDO Seidman, LLP