Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is required as part of annual reports and quarterly reports required to be filed by reporting companies under the Securities Exchange Act of 1934 and in some filings prepared in connection with registration under the Securities Act of 1933. An MD&A section also is often included as part of disclosure documents for securities offerings that are exempt from registration under the Securities Act of 1933. MD&A is an important source of information about management’s views concerning the quality and potential variability of a company’s earnings and cash flow.

On December 19, 2003, the Securities and Exchange Commission (the “SEC”) issued an interpretative release (the “Release”) providing up-to-date guidance on the preparation of MD&A. The issuance of the Release suggests that the SEC staff may place more emphasis on MD&A in reviewing future filings. The Release is not intended to create new requirements or to modify existing requirements. Instead, the purpose of the Release is to encourage the preparation of MD&A that is both more easily understood and more meaningful. Some points made in the Release are summarized below. Readers seeking more complete information should refer to the full text of the Release.

Overall Approach to MD&A The Release discusses the need to rethink MD&A and makes a number of suggestions concerning the overall approach to preparation of MD&A. Some highlights relating to overall approach are listed below:

• Take a fresh look at MD&A in an effort to enhance the quality of MD&A.
• Identify key disclosure themes and items that should be included in MD&A.
• Consider use of tables and descriptive headings to make information more accessible.
• Identify and discuss key financial and non-financial performance indicators.
• Identify and disclose known trends, events, demands, commitments and uncertainties that are likely to have a material effect.
• Consider all relevant information, even if that information is not required to be disclosed.
• Focus on material information and eliminate immaterial information.
• Make the most important information most prominent.
• If adequate disclosure was made in the annual report or in intervening quarterly reports, repetitive disclosure in a current quarterly report is unnecessary..
• Provide analysis that explains management’s view of the underlying reasons for changes and their implications and significance.
• Consider discussion of prospective matters and inclusion of forward-looking information.
• Provide a balanced view of the underlying dynamics of the business and its material successes and failures.
• Consider including quantitative disclosure of known material trends and uncertainties if reasonably available.
• Disclose the effect on earnings and cash flow of material unusual or non-recurring items, aberrations or other significant fluctuations.
• Consider the need to disclaim trends that appear from historical results but that management does not consider to be indicative of future financial condition or results.
• Consider starting MD&A with an introduction or overview to provide context.
• Include in an introduction or overview relevant information about (1) economic or industry-wide factors, (2) how revenues and income are earned, (3) how cash is generated, (4) lines of business, (5) locations of operations, (6) principal products and services and (7) material opportunities, challenges and risks.
• An effort should be made to avoid (1) mere recitation of financial statements in narrative form or otherwise uninformative technical responses to MD&A requirements, (2) unnecessary information overload for investors, (3) disclosure that is poorly organized, difficult to understand and confusing and (4) disclosure that is unnecessarily lengthy and duplicative.

Liquidity and Capital ResourcesThe discussion of liquidity and capital resources is an important part of MD&A. In discussing this aspect of MD&A, the Release provides guidance concerning discussion of (1) cash requirements, (2) sources and uses of cash, (3) debt instruments, guarantees and related covenants, and (4) cash management. Some highlights relating to the liquidity and capital resources portion of MD&A are listed below:

With respect to discussion and analysis of cash requirements, MD&A should:

• Attempt to provide a clear picture of the company’s ability to generate cash and to meet existing and known or likely future cash requirements over both the short and long term;
• Include material information about what funds will be needed to (1) maintain current operations, (2) complete project underway and achieve stated objectives, (3) meet commitments for capital and other expenditures and (4) meet future cash requirements associated with known trends or uncertainties;
• Provide, if appropriate, a table showing the company’s contractual obligations with appropriate supplemental information;
• Where material, address the difficulties involved in assessing the effect of the amount and timing of uncertain events on cash requirements and liquidity.

With respect to sources and uses of cash, MD&A should:

• Focus on the extent of and the reasons for material changes in the underlying drivers of cash flow.
• If applicable, explain (1) the operational reasons for negative cash flow from operations, (2) the plans for meeting cash flow requirements and maintaining operations despite this condition and (3) the terms and availability of external financing which is involved in such plans.

With respect to debt covenants, the Release identifies the following two scenarios in which expanded treatment within MD&A is appropriate:

• If a company is, or is reasonably likely to be, in breach of one or more debt covenants, MD&A should include disclosure of material information about the breach and provide analysis of the effect on the company, which should include (1) any steps being taken to avoid the breach, (2) steps to be taken to cure, obtain a waiver of or otherwise address the breach, (3) the impact of the breach (including the effects of any cross-default or similar provisions) and (4) alternate sources of funding.
• If additional financing is required, MD&A should address the impact of debt covenants on the company’s ability to undertake additional debt or equity financing.
• With respect to cash management, MD&A should include a description of known material trends or uncertainties that relate to the company’s determinations of when and how to use cash resources to satisfy obligations and make capital expenditures.

Critical Accounting Estimates and Assumptions In a release dated December 12, 2001, the SEC encouraged the inclusion as part of MD&A of an explanation of critical accounting policies and their application. In a release dated May 10, 2002, the SEC proposed additional requirements concerning disclosure of critical accounting policies which remain under consideration. In a release dated January 28, 2003, the SEC adopted additional requirements that expanded MD&A to include off-balance sheet arrangements and aggregate contractual obligations. Some highlights relating to the preparation of a discussion and analysis of critical accounting estimates and assumptions as part of MD&A are listed below:

• Companies should identify and provide disclosure concerning accounting estimates or assumptions which are material because of (1) the levels of subjectivity and judgment necessarily applied to highly uncertain matters or the susceptibility of such matters to change and (2) the impact of the accounting estimates and assumptions on financial condition or operating performance.
• Disclosure concerning such material accounting estimates and assumptions should go beyond the description of accounting policies contained in the notes to the financial statements and should provide insight into the quality and variability of information regarding financial condition and operating performance by presenting management’s analysis of the uncertainties involved in the application of the accounting principle.
• To the extent material, analysis of such material accounting estimates and assumptions should include such factors as (1) how the estimate was arrived at, (2) how accurate the estimate or assumption has been in the past, (3) how much the estimate or assumption has changed in the past, (4) whether the estimate or assumption is reasonably likely to change in the future and (5) for each item the specific sensitivity to change, based on other outcomes that are reasonably likely and that would have a material effect.
• If it is reasonably available and will provide material information to investors, quantitative as well as qualitative disclosure should be provided concerning such material accounting estimates and assumptions.