1

27322677v1

LAW AND ACCOUNTING COMMITTEESUMMARY OF CURRENT FASB DEVELOPMENTS

2015 Annual Meeting Chicago, IL

Randall D. McClanahan Butler Snow LLPrandy.mcclanahan@butlersnow.com

ACCOUNTING STANDARDS UPDATE NO. 2015-15 – PRESENTATION OF DEBT ISSUANCECOSTS

In August, 2015, the FASB issued Accounting Standards Update No. 2015-15, Interest– Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of DebtIssuance Cost Associated with Line of Credit Arrangements, Amendments to SEC Paragraph Pursuantto Staff Announcement at June 18, 2015 EITF Meeting. This update amends SEC guidanceregarding the presentation and subsequent measurement of debt issuance costs associatedwith line of credit arrangements.

ACCOUNTING STANDARDS UPDATE NO. 2015-14 – REVENUE RECOGNITION DEFERRAL

In August, 2015, the FASB issued Accounting Standards Update No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This updatedefers the effective date of Update No. 2014-09 by one year. Accordingly, public entitiesshould apply the guidance of Update No. 2014-09 to annual reporting periods beginningafter December 15, 2017, including interim periods within such period. Early application willbe allowed only for reporting periods beginning after December 15, 2016. All other entitiesshould apply the standard for periods beginning after December 15, 2018 and interimreporting periods within annual reporting periods beginning after December 15, 2019.

ACCOUNTING STANDARDS UPDATE NO. 2015-13 – DERIVATIVES AND HEDGING

In August, 2015, the FASB issued Accounting Standards Update No. 2015-13,Derivatives and Hedging (Topic 815): Application of the Normal Purchase and Normal Sales ScopeException to Certain Electricity Contracts with Nodal Energy Markets, a consensus of the FASBEmerging Issues Task Force. This update provides the use of locational marginal pricing by theindependent system operator does not result in the contract’s failure to meet the physicaldelivery criteria of the normal purchases and normal sales exception. Consequently, anentity may designate the contract as a normal purchase or sale if the physical deliverycriterion is met. These amendments would be applied prospectively.

ACCOUNTING STANDARDS UPDATE NO. 2015-12 – PLAN ACCOUNTING

In August, 2015, the FASB issued Accounting Standards Update No. 2015-12, PlanAccounting: Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic

2

27322677v1

965): Fully Benefit Responsive Investment Contracts; Plan Accounting; Defined Benefit Pension Plans(Topic 960); Health and Welfare Benefit Plans (Topic 965); Plan Investment Disclosures; PlanAccounting; Defined Benefit Pension Plans (Topic 960): Defined Contribution Pension Plans (Topic 962):Health and Welfare Benefit Plans (Topic 965): Measurement Date Practical Expedient; each aConsensus of the Emerging Issues Task Force. This update simplifies some aspects of pensionplan accounting. It is effective for fiscal years beginning after December 15, 2015 for parts 1and 2 with a retrospective application. Part 3 is also effective for fiscal years beginning afterDecember 15, 2015, but on a prospective basis.

ACCOUNTING STANDARDS UPDATE NO. 2015-11 - INVENTORY

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory(Topic 330)-Simplifying the Measurement of Inventory. The purpose of this update is to simplifythe measurement of inventory by providing that the inventory will be measured at the lowerof cost or net realizable value, for inventory measured at other than LIFO or the retailmethod. This eliminates the requirement that the other factors of replacement cost and netrealizable value less normal profit margin should also be taken into account. The update is aresponse to criticisms that the definition of “market” often leads to different outcomes. Theupdate will be applied prospectively and the effective date for public entities will be forannual periods beginning after December 15, 2016 and for interim periods within thoseannual periods. For all other entities, the effective date will be for fiscal years beginning afterDecember 15, 2016, and for interim periods beginning after December 15, 2017. Earlyadoption is permitted.

ACCOUNTING STANDARDS UPDATE NO. 2015-10 – TECHNICAL CORRECTIONS

In June, 2015, the FASB issued Accounting Standards Update No. 2015-10, TechnicalCorrections and Improvements. This update provides some technical corrections andimprovements to the codification. It is effective immediately.

ACCOUNTING STANDARDS UPDATE NO. 2015-09 – INSURANCE

In May, 2015, the FASB issued Accounting Standards Update No. 2015-09, FinancialServices Insurance (Topic 944): Disclosures about Short Duration Contracts. This update providesfor insurance companies to enhance their disclosures concerning their liability for unpaidclaims and claim adjustment expenses for short-term contracts. The update is effective forpublic entities for periods beginning after December 15, 2015, and for interim periods withinannual periods beginning after December 15, 2016. For all other entities, the effective dateis for annual periods beginning after December 15, 2016 and for interim periods beginningafter December 15, 2017.

ACCOUNTING STANDARDS UPDATE NO. 2015-08 – PUSHDOWN ACCOUNTING

In May, 2015, the FASB issued Accounting Standards Update No. 2015-08, BusinessCombinations (Topic 805): Pushdown Accounting – Amendments to SEC Paragraphs Pursuant to Staff

3

27322677v1

Accounting Bulletin No. 115. This update removes all SEC guidance regarding pushdownaccounting from the codification, consistent with Accounting Standards Update No. 2014-17and Staff Accounting Bulletin No. 115.

ACCOUNTING STANDARDS UPDATE NO. 2015-07 – FAIR VALUE MEASUREMENT

In May, 2015, the FASB issued Accounting Standards Update No. 2015-07, Fair ValueMeasurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net AssetValue Per Share (or its Equivalent), a Consensus of the Emerging Issues Task Force. This updateprovides that investments will no longer be categorized in the fair value hierarchy for whichfair value is measured at net asset value, or its equivalent, pursuant to the practicalexpedient approach. Additionally, this update provides that an entity is only required tomake applicable disclosures if the investment is measured at fair value (as opposed to beingeligible for valuation at fair value under current standards). Update No. 2015-07 should beapplied for public entities for fiscal years beginning after December 15, 2015 and interimperiods within those years, and, for all other entities, for fiscal years beginning afterDecember 15, 2016.

ACCOUNTING STANDARDS UPDATE NO. 2015-06 – EARNINGS PER SHARE

In May, 2015, the FASB issued Accounting Standards Update No. 2015-06, EarningsPer Share (Topic 260): Effect on Historical Earnings Per Unit of Master Limited Partnership DropdownTransactions, a consensus of the Emerging Issues Task Force. This update provides that in thecontext of calculating historical earnings per unit under the two-class method, earnings andlosses of a transferred business before the dropdown date should be allocated entirely tothe general partner’s interest. This update is effective for fiscal years beginning afterDecember 15, 2015 and for interim periods within those fiscal years.

ACCOUNTING STANDARDS UPDATE NO. 2015-05 - INTANGIBLES – GOODWILL

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Intangibles– Goodwill and Other, Internal Use Software (Subtopic 350-40) – Customer’s Accounting for Fees Paidin a Cloud Computing Arrangement. This update provides guidance concerning whether a cloudcomputing arrangement includes a software license. If a software license is included, thenthe software license element will be accounted for as an acquisition of a software license. If asoftware license is not included, then the arrangement would be accounted for as a servicecontract. This update does not change current accounting for software licenses or servicecontracts by a customer or vendor under current GAAP.

The update will be effective for public entities for annual periods, including interimperiods within such periods, beginning after December 15, 2015. For nonpublic entities, theamendments will be effective for annual periods beginning after December 15, 2015 andinterim periods beginning after December 16, 2015. The amendments can be appliedrespectively or retroactively.

4

27322677v1

ACCOUNTING STANDARDS UPDATE NO. 2015-04 - COMPENSATION – PLAN ASSETS

In April 2015, the FASB issued Accounting Standards Update No. 2015-04,Compensation-Retirement Benefits (Topic 715), Practical Expedient for the Measurement Date of anEmployer’s Defined Benefit Obligation and Plan Assets. The update allows an employer with anon-month-end fiscal year to measure defined benefit plan assets and obligations as of themonth-end closest to such fiscal year end.

The update is effective for public entities for fiscal years beginning after December15, 2015 and for interim periods within such years. For all other entities, for fiscal yearsbeginning after December 15, 2016, and interim periods within such years beginning afterDecember 15, 2017.

ACCOUNTING STANDARDS UPDATE NO. 2015-03 - DEBT ISSUANCE COST

In April, 2014, the FASB issued Accounting Standards Update No. 2015-03, Interest-Imputation of Interest (Subtopic 850-30), Simplifying the Presentation of Debt Issuance Cost. Theupdate provides that debt issuance costs would be presented in the balance sheet as adirect deduction from the carrying amount of the liability. Currently, such costs are reportedas a deferred charge. The update is effective for public business entities for fiscal yearsbeginning after December 15, 2015, and interim periods within those fiscal years. Fornonpublic entities, the effective date is for fiscal years beginning after December 15, 2015,and interim periods within fiscal years beginning after December 15, 2016.

ACCOUNTING STANDARDS UPDATE NO. 2015-02 - CONSOLIDATIONS

On February 18, 2015, the FASB issued Accounting Standards Update No. 2015-02,Consolidations (Topic 810), Amendments to the Consolidation Analysis. This update rescinds theindefinite deferral of Update 2010-10.

This update was issued primarily to respond to criticism that current guidance insome cases requires consolidating in situations where the reporting company appeared tobe directing the legal entity on behalf of others.

The primary modifications are as follows:

The presumption that a general partner has to consolidate a limited partnershiphas been eliminated.

Changes the evaluation of whether a limited partnership is a variable interestentity or a voting interest entity.

A limited partnership is a voting interest entity if it provides partners with eithersubstantiative kick-out rights or participating rights.

5

27322677v1

Eliminates two applicable consolidation models, so that entities must applyeither the voting interest entity model or the variable interest entity model.

Three conditions for evaluating whether a fee paid to a decision makerrepresents a variable interest have been eliminated.

Customary and commensurate fees paid to a decision maker are notincluded in the analysis.

The indefinite deferral from VIE analysis for investment companies and certainother entities has been eliminated.

Related party relationships are generally considered only on a proportionatebasis.

Exceptions are if the common control group has characteristics of a primarybeneficiary or substantially all of the activities of the VIE are conducted onbehalf of a single variable interest holder.

A scope exception has been added for reporting entities that are required tocomply with requirements similar to those for registered money market funds.

The update is effective for public entities for fiscal periods beginning after December 15,2015, and for fiscal periods beginning after December 15, 2016 for non-public entities. Earlyadoption, however, is permitted.

ACCOUNTING STANDARDS UPDATE NO. 2015-01 - EXTRAORDINARY ITEMS

In January 2015, the FASB issued Accounting Standards Update, No. 2015-01,Income Statement Extraordinary and Unusual Items (Sub Topic 225-20) – Simplifying FinancialReporting by Eliminating the Concept of Extraordinary Items. The update eliminates the concept ofextraordinary items from GAAP. The stated reason for the update is that constituents haveexpressed that the elimination would save time and cost in the preparation of financialstatements and would also possibly eliminate auditor uncertainty.

Update No. 2015-10 adds two definitions:

Infrequency of Occurrence – an underlying event or transaction that would notbe reasonably expected to recur in the foreseeable future.

Unusual nature – underlying event or transaction with a high degree ofabnormality and of a type unrelated to or incidental to ordinary activities of theentity.

6

27322677v1

An event or transaction that is unusual or infrequent should be separately disclosedon the face of the income statement as a component of income from operations.

The effective date is for annual periods beginning after December 15, 2015 and forinterim periods within those annual periods. Early adoption is permitted.

ACCOUNTING STANDARDS UPDATE NO. 2014-18 - BUSINESS COMBINATIONS – PRIVATECOMPANIES

In December 2014, the FASB issued Accounting Standards Update 2014-18, BusinessCombinations (Topic 805), Accounting for Indefinite Intangible Assets in a Business Combination, aProposal of the Private Company Council. The update provides that private entities can elect notto recognize separately from goodwill (i) customer related intangible assets that are notcapable of being sold separately from other assets of the business and (ii) non-competeagreements. This accounting may be elected: (i) applying the acquisition method to abusiness combination; (ii) applying the equity method of accounting and assessing thedifference between the carrying amount and equity in net assets or (iii) fresh-startaccounting. This amendment is effective for fiscal years beginning after December 16, 2015.

If an entity elects this alternative accounting treatment, it must also adopt thealternative accounting treatment for goodwill provided in ASC 350-20, and amortizegoodwill on a straight-line basis over ten years (or less than ten years if appropriate). Theelection must be made for first qualifying transaction in fiscal years beginning afterDecember 15, 2015.

ACCOUNTING STANDARDS UPDATE NO. 2014-17 - PUSHDOWN ACCOUNTING

On November 18, 2014, the FASB issued Accounting Standards Update No. 2014-17,Business Combinations (Topic 805), Pushdown Accounting, a consensus of the FASB Emerging IssuesTask Force. The update applies to the separate financial statements of an acquired entity andits subsidiaries and provides guidance for the optional election of pushdown accounting. Theupdate applies to both public and private companies, and will be optional for an acquireeonce the acquiror obtains control in a business combination. Disclosure of the election willbe required. If the acquiree does not make the election in the reporting period during whichthe change in control occurs, it will have the option to elect pushdown accounting in asubsequent reporting period as a change in accounting principle. The election is irrevocable.The update was effective on November 18, 2014.

ACCOUNTING STANDARDS UPDATE NO. 2014-16 - DERIVATIVES AND HEDGING

In November 2014, the FASB issued Accounting Standards Update No. 2014-16,Derivatives and Hedging (Topic 815), Determining Whether the Host Contract in a Hybrid FinancialInstrument Issued in the Form of a Share is More Akin to Debt or Equity, a consensus of the FASBEmerging Issues Task Force. This update would apply to all reporting entities that are issuersof hybrid financial instruments issued in the form of a share. The purposes of this update

7

27322677v1

are to eliminate diversity in the practice of determining whether the nature of a hostcontract with a hybrid financial instrument issued in the form of a share is more akin to debtor equity. This update provides that the determination would be based on a consideration ofall economic characteristics and the risk of the entire hybrid financial instrument, includingthe embedded derivative function. Upon adoption, each issued hybrid share instrumentmust be evaluated.

The amendments would be applied on a modified retrospective basis. Retrospectiveapplication and early adoption would both be permitted. The update is effective (i) for publicentities for all fiscal years, and periods within those years, beginning after December 15,2015, and (ii) for non-public entities, for fiscal years beginning after December 15, 2015 andinterim periods within fiscal years beginning after December 15, 2016.

REVENUE RECOGNITION

On May 28, 2014, the FASB issued Accounting Standards Update, No. 2014-09,Revenue Recognition (Topic 605), Revenue from Contracts with Customers. The core objectives ofthis update are (i) eliminating inconsistencies in current rules; (ii) creating a singleframework; (iii) standardizing revenue recognition practice; (iv) improving usefulness ofdisclosures; and (v) making financial statements easier to prepare.

The update only applies to contracts with customers. A customer is a contracts partyfor purposes of acquiring goods and services.

The overriding principles are as follows:

Revenue should be recognized in a manner that reflects the transfer of goods orservices.

The consideration expected to be received should be equal to the revenuerecognized.

The following five steps would be applied in analyzing revenue recognition:

Step 1 - Identify the contract with a customer.

Contracts are considered on an individual basis but would be combined if(i) they were negotiated as a package, (ii) the amount of considerationdepends on the price or performance of the other, or (iii) all goods andservices are considered part of a single obligation.

A contract modification would be approved when it created enforceablerights and obligations. For example, before a change order would affectrevenue recognition, the change order must create an enforceable right.

8

27322677v1

A contract modification is a separate contract if the modificationincreases the scope because of the addition of distinct promised goods orservices and the price of contract increases by an amount that reflectsthe standalone price of the additional goods or services.

Step 2 - Identify the separate performance obligations in the contract.

Each promised good or service is accounted for separately if it is distinct.A good or service is distinct if the entity regularly sells it separately, orthe customer can benefit from the good or service on its own or withother resources available.

If the good or service is not distinct, an entity would combine the good orservice until the bundle of goods or services is distinct (obviously, thismay mean that all contracted goods and services for a particularcontract are treated as a single performance obligation).

A good or service should be accounted for as a distinct good or service ifthe customer can benefit from the good or service on its own or togetherwith other resources that are readily available to the customer. Factorsin determining whether a good or service is distinct include:

Whether the entity provides a significant service ofintegrating the good or service into the bundle of goods orservices that the customer has contracted.

Whether the customer is able to purchase the good or servicewithout affecting the other goods or services in the contract.

Whether the good or service significantly modifies orcustomizes another good or service in the contract.

Whether the good or service is part of a series ofconsecutively delivered goods or services promised in thecontract, the performance obligations are satisfied over timeand the entity uses the same method for measuring progressof the transfer of the goods or services.

Step 3 - Determine the transaction price (the amount to which an entity expectsto be entitled).

The transaction price (and correspondingly, revenue) is not adjusted forcustomer credit risk. This is a reversal from the 2010 Exposure Draft

Effect of credit risk (such as a price concession) must be considered indetermining if there is an impairment loss.

9

27322677v1

The transaction price is reassessed at each reporting date.

The transaction price should include the minimum amount of variableconsideration that is expected to be received and that would not result ina subsequent revenue reversal.

If the contract has a financing component, then the consideration shouldbe adjusted to reflect the time value of money.

Non-cash consideration should be measured at fair value.

If an entity expects to pay consideration to a customer, the entity wouldaccount for the consideration as a reduction of the transaction price(unless payment is in exchange for a distinct good or service).

If a sale involves a loan, the entity would consider a customer’s creditrisk.

Step 4 - Allocate the transaction price to separate performance obligations in thecontract.

If there are multiple performance obligations, allocate the transactionprice to each separate performance obligation based on relative stand-alone selling prices. If there are no separate observable selling prices,the entity should estimate them. Methods used to estimate wouldinclude: (i) adjusted market measurement approach; (ii) expected costplus a margin approach; or (iii) a residual approach.

If an entity gives discounts to a customer, and selling prices indicateevidence of a separate performance obligation to which discounts shouldbe allocated, then the discount should be allocated to these performanceobligations, as opposed to all performance obligations.

The residual approach for allocating price of a good or service should beused if the stand-alone price is variable or uncertain and also forcontracts when there are two or more goods or services that have highlyvariable prices, but at least one of the other goods or services has astand-alone price that is not highly variable.

Step 5 - Recognize revenue when (or as) the entity satisfies a performanceobligation.

Defined by when the customer obtains control of that good or service.

Indications of transfer of control include the following: (i) the entity hasthe present right to payment for the asset; (ii) the customer has legaltitle to the asset; (iii) the entity has transferred physical possession of the

10

27322677v1

asset; (iv) the customer has significant risks and rewards of ownership ofthe asset; (v) the customer has accepted the asset.

If a performance obligation is satisfied over time, then a method ofmeasuring progress, such as outputs or inputs, would be determined.

For variable consideration, recognize revenue when the entity isreasonably assured of being entitled to the consideration in exchange fora performance obligation. Both of these criteria must be met for anentity to be reasonably assured of variable consideration: (i) the entityhas experience with similar types of performance obligations and (ii) theentity’s experience is predictive of the amount of consideration to whichthe entity is entitled.

A performance obligation will be deemed satisfied over time (in suchcase, control is transferred over time) if at least one of the following testsis met.

The asset created does not have an alternative use and the entity hasa contractual right to payment for performance to date. Theassessment of alternative use will be made at the inception of thecontract.

The customer consumes the benefits of the service performance asthroughout the process, and another entity would not have tosubstantially re-perform such work.

The customer controls the asset as it is being produced or enhanced.

If performance obligation is satisfied over time, the entity would berequired to recognize revenue over time. This could result in an entityrecognizing revenue before the product is delivered.

The standard was supposed to apply to public entities for annual reporting periodsbeginning after December 15, 2016, including interim reporting periods therein. Theeffective date for nonpublic entities was supposed to be for annual reporting periodsbeginning after December 31, 2017 and interim periods after that date. Early applicationwas prohibited, and the standard would be applied retrospectively.

In subsequent rediliberations, the FASB has decided to clarify guidance for:

Sales tax reporting

Contract modifications Transition disclosures Non-cash consideration Collectability

11

27322677v1

Identifying performance obligations Licenses

The Boards have decided to keep the method for assessing the likelihood of collectability.The Board has also affirmed its decision that in determining whether a contract exists,collectively should be assessed.

Accounting Standards Update No. 2015-14 delayed the effective date for one year.

EQUITY METHOD OF ACCOUNTING

In June, 2015, the FASB issued a Proposed Accounting Standards Update No. 2015-280, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Equity Method ofAccounting. This proposed update eliminates the requirement that for an investment underthe equity method, the entity must account for the difference between the investment costand the investor’s proportionate share of investee’s net assets as an adjustment toinvestment income. Instead, the investment may be accounted for on a cost basis.Constituents expressed concern that the current method adds cost and complexity tofinancial statement reporting without a pertinent benefit. Comments were due August 4,2015.

SHARE-BASED PAYMENT TRANSACTIONS

In June, 2015, the FASB issued Proposed Account Standards Update No. 2015-270,Accounting for Various Aspects of Share-Based Payment Transactions. This proposed updatepurports to simplify accounting for share-based payment arrangements for the following: (i)income tax accounting; (ii) classification of awards; (iii) classification of cash flows and thestatement of cash flows; (iv) estimating the term of an award by non-public entities and (v)the use of intrinsic value by non-public entities for all awards classified as liabilities uponinitial adoption after final amendment. The comment deadline ended August 14, 2015.

BUSINESS COMBINATIONS – MEASUREMENT PERIOD ADJUSTMENTS

In May, 2015, the FASB issued Proposed Accounting Standards Update No. 2015-260, Accounting for Measurement Period Adjustments to Provisional Amounts in a BusinessCombination. This proposed update would eliminate the requirement of a retrospectiveadjustment to prior period statements for measurement period adjustments. Consequently,the acquiring company would recognize adjustments to provisional amounts in the reportingperiod in which the adjustments are determined. The comment deadline ended July 6, 2015.

In August 2015, the Board affirmed the recognition principles of the propose update.The effective date will be for public entities for annual periods, and interim periods withinsuch periods, beginning after December 15, 2015. Early adoption will be permitted. Thestaff is drafting a final update.

12

27322677v1

REVENUE RECOGNITION – CLARIFICATION – PERFORMANCE OBLIGATIONS AND LICENSING

In May, 2015, the FASB issued Proposed Accounting Standards Update No. 2015-250, Revenue from Contracts with Customers (Topic 606): Identify Performance Obligations andLicensing. This proposed update would clarify issues regarding guidance for (i) identifyingpromised goods or services in the context of identifying performance obligations within acontract and (ii) concerning the determination of whether an entity’s promise to grant alicense provides either the right to access or use the intellectual property. The commentdeadline ended June 30, 2015.

REVENUE RECOGNITION – PRINCIPAL VERSUS AGENT CONSIDERATIONS

On August 31, 2015, the FASB issued Proposed Accounting Standards Update No.2015-290, Revenue from Contracts with Customers (Topic 606): Principal Versus AgentConsiderations (Reporting Revenue Gross versus Net). The proposed update would amendcurrent guidance for situations in which a second party is involved in providing goods orservices to a customer. In such situations, the reporting entity must determine whether itspromise constitutes a promise to provide the goods or services (acting as a principal) or toarrange from them to be provided (acting as an agent). A principal shall recognize the grossamount of consideration. An agent should recognize the fee or commission to which it isentitled. The determination must be made for each specified good or service. Commentsare due October 31, 2015.

DERIVATIVES AND HEDGING

On August 6, 2015, the FASB issued an Exposure Draft, Proposed Accounting StandardsUpdate, Derivatives and Hedging (Topic 815), Derivative Contract Novations on Existing HedgeAccounting Relationships, a consensus of the FASB Emerging Issues Task Force. The proposedupdate clarifies that if there is a change in the counter-party to a derivative instrument thathas been designated as a hedging instrument, this does not require a re-designation of thathedge accounting relationship if all other criteria are met. These amendments would beapplied prospectively. An effective date has not been determined. Comments are due byOctober 5, 2015.

LEASES

The FASB and the IASB issued a Discussion Paper/Preliminary Views document onMarch 19, 2009, to examine and reconsider FAS 13, Accounting for Leases, and IAS 17, Leases.On August 17, 2010, the FASB issued an Exposure Draft, Leases (Topic 840). This documentwas deliberated over a period of years. On May 16, 2013, the FASB and IASB issued a revisedExposure Draft, Leases (Topic 840).

13

27322677v1

Certain key provisions of the Exposure Draft include the following:

Definition of a Lease

Leased asset must be specifically identifiable.

A contract does not contain a lease if an asset is incidental to the deliveryof specified services.

A lease conveys the right to use the asset.

The Exposure Draft does not provide guidance in distinguishing betweena lease and a sale of an underlying asset.

If the structure of the transaction does not constitute a lease, then itsproper accounting is governed by another standard.

An entity will determine whether a contract is a lease based on thesubstance of the contract, such as whether the fulfillment of the contractdepends on the use of an asset and conveys the right to control the useof the asset.

Scope

The following are within the scope of the standard:

Right of use assets in a sublease

Leases of noncore assets

Long-term leases of land

The following are not within the scope of the standard:

Leases for the right to explore for minerals, oil and gas, etc.

Leases of biological assets

Short-term leases

Lessee Accounting

Lessee will recognize a right of use asset for all leases except short-termleases.

14

27322677v1

Lessees would apply one or two accounting approaches: (i) a financingapproach or (ii) a straight-line approach.

For leases of property; the straight-line approach should be used unless:

The lease term is for the majority of the economic life of theunderlying asset; or

The present value of the fixed lease payments representssubstantially all of the fair value of the underlying asset.

For leases of assets other than property, the lease should be accountedfor on a financing approach (i.e., interest and amortization) unless:

The lease term represents an insignificant portion of theeconomic life of the underlying asset.

The present value of the fixed lease payments is insignificantrelative to the fair value of underlying asset.

The lessee’s general rule for assets other than property:

Initially recognize a liability to make lease payments and aright of use asset.

The liability will be subsequently measured using the effectiveinterest method.

Right of use asset will be amortized on a systematic basisthat reflects the pattern of consumption, resulting in greatertotal expense in earlier years.

Recognize interest expense and amortization expenseseparately in the income statement.

The lessee’s general rule for leases of property:

Initially recognize a liability to make lease payments and aright of use asset, both measured at present value of thelease payments.

Measure the liability to make lease payments using theeffective interest method.

Measure the right of use asset as a balancing figure such thatthe total lease expense is recognized on a straight-line basis(i.e., effectively meaning that amortization is a “plug figure”).

15

27322677v1

Recognize lease expense as one amount in the incomestatement.

Lessor Accounting

Lessor would account for lease under one of two approaches: (i)receivable and residual; or (ii) operating lease.

If the lessee acquires and consumes more than an insignificant portion ofthe leased asset, or the present value of lease payments accounts forsubstantially all of the value of the asset, a lessor would recognize a rightto receive lease payments and a residual asset at the commencement ofthe lease.

The right to receive lease payments would initially bemeasured as the sum of the present value of the leasepayments, and subsequently measured at amortized cost.

A residual asset would be measured as a combination of (i)the gross residual asset and (ii) the deferred profit.

If the lessee acquires less than an insignificant portion of the leasedasset, then the lessor should account for the underlying asset andrecognize lease income over the lease term (i.e., similar to currentoperating lease format).

Deferred profit is not recognized until the residual asset is sold or re-leased to another lessee.

A lessor’s lease of investment property would not be treated under thereceivable and residual approach. In such cases, the lessor shouldcontinue to recognize the underlying asset and recognize lease incomeover the lease term.

Subleases

The head lease and the sublease should be accounted for as separatetransactions. Sublessors utilize lease accounting on the head lease andlessor accounting on sublease.

Lease Term

The lease term would be the non-cancellable base period plus anyperiods for which there is a significant incentive to extend the lease term.

Contract, asset, market and entity specific factors would be considered indetermining the economic incentive for renewal.

16

27322677v1

The lessor and lessee would only reassess the lease term when there is asignificant change in relevant factors that would affect the lessee’sdecision to exercise or eliminate an option to extend the lease period.

Accounting for Purchase Options

The exercise of a purchase option should be included in the computationof a lessee’s liability for lease payments if the lessee has a significanteconomic incentive to exercise the purchase option.

If the lessee does have a significant economic incentive to exercise thepurchase option, then the right of use asset should be amortized overthe economic life of the asset, rather than the lease term.

Short-Term Leases

A short-term lease will be a lease with a maximum possible term of 12months or less.

The lessees and lessors will have the option to elect to account for allshort-term leases of a portfolio asset class by recognizing leasepayments in profit or loss on a straight line basis, rather than byrecognizing a lease asset or liability, unless another rational basis ismore representative.

Residual Guarantees

Lease payments should include the amount expected to be payableunder residual value guarantees, except if provided by an unrelated thirdparty.

The lessor should not recognize amounts to be received under a residualvalue guarantee until the end of the lease.

Discount Rate

The lessor uses the rate it charges the lessee.

The lessee should use the rate the lessor charges the lessee, unless thatrate is not available. In that case, the lessee should use its incrementalborrowing rate.

Nonpublic entities will have the election of using a risk-free discount ratefor all leases.

17

27322677v1

Contract Modifications

If there is a substantive change to the existing contract, the modifiedcontract should be accounted for as a new contract. A substantivechange is a change in contractual terms that results in a differentdetermination of whether the contract is or contains a lease.

If there are changes other than to the contractual terms that affect theassessment of whether the contract is a lease, then the contract shouldbe reassessed to determine whether it is a lease.

Separating Lease and Non-Lease Components

The lessor and lessee have to identify and separately account for thelease and non-lease components of a contract.

Payments should be allocated in accordance with the guidance onrevenue recognition.

Each separate lease component should be accounted for as a separatelease.

Sale and Leaseback

If a sale has occurred, the transaction should be accounted for as a saleand then a separate leaseback. The revenue recognition guidance will beapplied to determine whether a sale has occurred.

If sale has not occurred, then the contract should be accounted for as afinancing.

If the seller/lessee has the ability to direct the use of, and obtainsubstantially all of the remaining benefits from the asset, a sale has notoccurred.

Cancellable Leases

If a lease is cancellable by both the lessor and lessee with minimumtermination payments, then such lease meets the definition of a short-term lease if the initial noncancellable period is less than one year.

This analysis does not change the definition of short-term lease and leaseterm.

18

27322677v1

Transition Guidance – Lessees

For capital leases, a lessee is not required to make any adjustments tothe carrying amount of the lease assets and lease liability, and canreclassify such assets and liabilities as right-of-use assets and liabilities.Otherwise, the lessee may apply a full retrospective application.

For operating leases subject to the interest and amortization method: (i)recognize liabilities for lease payments at the present value of remaininglease payments, discounted using the lessee’s incremental borrowingrate; (ii) recognize right-of-use assets at an amount equal to theproportion of the liability to make lease payments calculated on the basisof the remaining lease payments; and (iii) record any difference toretained earnings. Otherwise, the lessee may apply a full retrospectiveapplication.

For operating leases subject to straight line approach: (i) recognize aliability to make lease payments measured as present value of remaininglease payments, discounted by lessee’s incremental borrowing rate; and(ii) recognize a right of use asset equal to the related liability to makelease payments.

Transition Guidance – Lessors

Lessors may apply a full retrospective approach.

For finance/sales and direct finance leases, a lessor can reclassify thecarrying amount as a lease receivable.

For operating leases:

Recognize a right to receive lease payments equal to presentvalue of the remaining lease payments.

Recognize a residual asset consistent with the measurementof the residual asset.

De-recognize the underlying leased asset.

Disclosures

Nonpublic entities will be exempt from the requirement to provide areconciliation of the opening and closing balance of the lease liability.

19

27322677v1

Potential Effects of these Proposals:

The lessee’s balance sheet would “grow” due to the recognition of anasset and liability for all previously accounted for operating leases.

Lessee’s leverage ratios would decrease.

Lessee’s interest coverage ratios computed on an earnings basis woulddecrease.

Any lessee measures involving EBIT or EBITDA would improve sinceportions of the lease payments would now be characterized as interestexpense and depreciation expense.

Operating cash flow for a lessee would improve since payments forleased assets would be classified as financing activities rather thanoperating activities.

For leases previously accounted for as operating leases, the lessor’sbalance sheet would grow under the proposals. Consequently, thelessor’s ratios would also be affected.

For leases accounted for as finance leases, the effect on lessors woulddepend on the specific characteristics of the lease.

Loan covenants, financing agreements, and regulatory requirementscould be affected.

The Boards have been redeliberating the Exposure Draft. As of its meetings through May2015, the FASB has decided as follows:

Private companies will follow the same accounting as public companies (exceptfor the use of risk-free rate to measure liabilities).

FASB and IASB have agreed to a converged definition of a lease, which will be the“right to use an asset for a period of time in exchange for consideration.” Acustomer must use and obtain “substantially all” of the benefits of an asset.

A dual approach will be used for lessee accounting, with existing capital/financeleases accounted for as Type A leases (i.e., interest and amortization) and mostexisting operating leases as Type B leases. For type A leases, lessee’s wouldrecognize the amortization of a right of use asset, and a single total leaseexpense for Type B leases.

If a lease (i) does not transfer control of the underlying asset to the lessee and (ii)collectability is not probable, it should be classified as Type B lease.

20

27322677v1

Leases that transfer control of the underlying amount to lessee shall beaccounted for in accordance with the collectability guidance applicable to allsales of nonfinancial assets.

A lessor must determine whether the lease is a sale or a financing (Type A or B),based on whether substantially all the risks and rewards incidental to ownershiphave been transferred.

For a sale to occur in context of sale-leaseback, the sale must meet requirementsfor sale in the new revenue recognition standard.

Lease guidance may be applied at a portfolio level by both lessees and lessors.

Only incremental costs should qualify as initial direct costs.

Final standard will include a disclosure objective to enable uses to assess theamount, timing, and uncertainty of cash flows arising from leases.

Lessee will disclose a maturity analysis of its lease liabilities.

Qualitative disclosure requirements will be retained.

Lease options will only be considered in lease term if it is reasonably certain thatthe lessee will exercise the lease. The term “reasonably certain” is basically thesame threshold as “reasonably assured” in existing GAAP.

The short-term lease period will remain at 12 months.

Lease modifications are accounted for as a new lease if: (i) the lease grants thelessee an additional right of use and (ii) the additional right of use is pricedaccordingly. If a modification is not accounted for as a separate new lease andchanges the scope or consideration of the lease, the lessee should remeasurethe lease liability using a discount rate determined at the effective date of themodification.

Companies with variable lease payments that depend on index or benchmarkmay only remeasure expenses when they must readjust liability for otherreasons.

Deliberations are continuing. The effective date is not expected to be before at leastJanuary 1, 2017. The staff is drafting a final standard.

Members of the IASB’s global advisory panel have expressed disappointment thatthe FASB and the IASB won’t produce converged lease accounting standards. Additionally,

21

27322677v1

at least one remaining issue is that there are parts of the lease standard that depend onprovisions in the revenue standard that have not yet been written and/or clarified.

INSURANCE CONTRACTS

In July 2013, the FASB issued a Proposed Accounting Standards Update – No. 203-290, Insurance Contracts (Topic 834). This update represents a significant overhaul to themanner of accounting for insurance contracts.

Insurance contracts would be measured by either (i) the building block approach or(ii) the premium allocation approach. The building block approach would typically apply tolife annuity and long-term health contracts. The premium allocation approach wouldgenerally apply to property, liability and short-term health contracts.

Modifications from current GAAP would include the following:

Current insurance accounting applies only to insurance entities, whereas theproposed guidance would apply to any entity issuing an insurance contract.

Assumptions concerning the contract are usually fixed at inception under currentGAAP, whereas the update would require expected cash flows to be measuredeach reporting period.

Liability under the premium allocation approach would be based on probabilityweighted expected cash outflows, as opposed to best estimate of expected cashoutflows under current GAAP.

The margin for contracts accounted for in the building block approach wouldgenerally be presented in financial statements, as opposed to include as a partof the insurance contract liabilities under the current long duration model.

Comments were due on October 25, 2013. The FASB held a series of public round tables inlate 2013. The FASB subsequently began redeliberations and decided that the project’semphasis should be on targeted improvements to existing GAAP. Decisions during therediliberations include:

Requiring underwriters of property and casualty, healthcare and other short-term insurance policies to disclose more information about their estimates ofliabilities from incurred and paid claims.

Disclosure about life insurance liabilities and assumptions used to calculate suchliabilities.

Requiring insurance entities to update all assumptions regarding calculations ofliabilities for future benefits at least annually during the fourth quarter of eachyear.

22

27322677v1

All years in claims development table and associated history of claims should bepresented as supplementary information.

For each year presented in the claims development table, the amount of IBNRplus expected developed and reported claims should be disclosed.

On July 24, 2015, the FASB decided that cash flow assumptions should be updatedusing a retrospective approach and discount rate assumptions should be updated using animmediate approach. Deliberations are continuing.

FINANCIAL INSTRUMENTS – CLASSIFICATION AND MEASUREMENT

On April 12, 2013, the FASB issued a Proposed Accounting Standards Update,Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assetsand Liabilities. This update proposes to classify and measure most financial instrumentsdepending on (i) the business model in which they are managed and (ii) their contractualcash flow characteristics.

For financial assets with contractual cash flows solely based on payments ofprincipal and interest, the classification and measurement categories are as follows:

Fair value with changes in fair value recognized in other comprehensive income(“FV-OCI”), if the objective is to (i) hold assets to collect contractual cash flowsand (ii) sell assets.

Amortized cost, if the asset is held within a business model whose objective it isto hold assets for purpose of collecting contractual cash flows.

Fair value for which all changes in fair value are recognized in net income (“FV-NI”), if assets are not held and managed under either of the other two businessmodels.

Financial liabilities would generally be measured at amortized cost, unless (i) thebusiness strategy at the incurrence of the liability is to transfer the obligation to a thirdparty and (ii) the financial liability results from a short sale. Nonrecourse financial liabilitiesrequiring settlement with cash flows from the related financial asset would be measured onsame basis as the related financial assets.

For financial assets and liabilities measured at FV-OCI, the following changes in fairvalue would be recognized in net income:

Current period interest or expense

Current period credit losses on financial losses

23

27322677v1

Charges in fair value attributed to the hedged risk

Realized gains and losses on sale

Foreign currency gains and losses

Equity investments would be measured at FV-NI, unless they qualify for equitymethod accounting or consolidation. The initial measurement of financial assets andliabilities would be as follows:

If measured at amortized cost or FV-OCI, transaction price.

If measured at FV-NI, measured at fair value.

If the business model changes, then the financial assets would be prospectivelyreclassified as of the last day of the reporting period in which the change occurs. Commentswere due May 15, 2013.

The FASB is still continuing rediliberations. During redeliberations, the FASB hasdecided as follows:

Entities will follow US GAAP for classification and measurement forfinancial assets, except for investments in equity securities. Suchinvestments will be measured at fair value, and subsequent changes infair value will be measured in net income (FV-NI).

Entities would follow current GAAP classifications and measurementmodels for financial liabilities.

Entities would follow the statement of financial position presentationrequirements in current GAAP.

A modified retrospective transaction approach will be used, requiring acumulative-effect adjustment to the statement of financial position.

Disclosures about core deposit liabilities will not be retained in the finalupdate.

The Board directed its staff to draft a proposed Accounting Standards Update.

24

27322677v1

GOODWILL FOR PUBLIC ENTITIES AND NOT-FOR-PROFITS

The FASB added this project to its agenda on November 25, 2013. This topic wasaddressed at Board meetings on February 12, 2014 and March 26, 2014. At its March 26,2014 meeting, the Board decided to consider the following four alternatives to account forgoodwill after a business combination:

Amortize goodwill over ten years, or less than 10 years if another useful life ismore appropriate. Goodwill would be tested only when a triggering event occurs,and the test would be either at the entity level or reporting unit level.

Amortize goodwill over its useful life not to exceed a maximum number of years.

Write off goodwill at the acquisition date.

Account for goodwill under a nonamortization approach that uses a simplifiedimpairment test.

Further discussions were deferred until after the IASB has issued findings on theimplementation of IFRS 3, Business Combinations, which was expected in late 2014. OnNovember 5, 2014, the FASB held an educational meeting. The Board expects to continuediscussions in September.

CLARIFYING THE DEFINITION OF A BUSINESS

On May 29, 2013, the FASB decided to add a project to clarify the definition of abusiness. This project will clarify guidelines regarding whether acquired nonfinancial assetsshould be accounted for as acquisitions of nonfinancial assets or of businesses. On October8, 2014, the FASB held a non-decision making meeting, and on December 17, 2014, theBoard held its latest meeting on this issue. The Board met again on April 7, 2015 and May21, 2015. The FASB has decided to develop a framework to determine if a substantiveprocess is included in a set of acquired assets and activities. The Board decided that if all buta de minimis amount of the fair value of the transferred set of activities and assets wasrepresented by one asset, this indicates that the transferred set constituted an asset insteadof a business. The analysis is similar for the acquiror. The Board directed its staff to draft aproposed update.

FINANCIAL INSTRUMENTS – CREDIT IMPAIRMENT

On December 20, 2012, the FASB issued an Exposure Draft, Proposed AccountingStandards Update, Financial Instruments – Credit Losses (Subtopic 825-15), Under currentGAAP, credit losses are recognized when probable. This Exposure Draft proposes to requirean entity to determine impairment by estimating the amount of contractual cash flows notexpected to be collected on financial assets held at the reporting date. Entities would beprohibited from estimating expected credit losses solely on the basis of the most likely

25

27322677v1

outcome. Instead, entities would consider historical loss experiences with similar assets,reasonable forecasts, and current conditions. The Board would determine an effective datewhen the proposals are finalized. Comments were due on April 30, 2013, but the FASBextended the comment period to May 31, 2013. The Board subsequently decided toreconsider the Exposure Draft.

During the rediliberations, the FASB has determined as follows:

In estimating a credit loss, all contractual cash flows should be considered, andthe risk of loss should be considered, even if remote.

An entity would apply the current expected credit losses model (“CECL”) forfinancial assets measured at amortized cost.

If a security is classified as available for sale, then it is excluded from the CECLModel.

An entity should consider historical average loss experience forecasts for futureperiods beyond that which entity is able to make reasonable forecasts.

An entity should consider all contractual cash flows over the life of the asset.

An entity may develop an estimate of credit losses using a discounted cash flowmethod or other methods it develops.

The FASB will forgo write-off guidance in the proposed update and maintainexisting write-off principles in GAAP. An entity would write-off an asset in theperiod in which it is deemed uncollectable.

For assets classified as “available for sale,” an allowance approach would beused (allowing an entity to recognize reversals).

Significant disclosures will be required.

Transition disclosures will be required in each interim financial statement in theyear of change and the annual financial statement in the period of change.

The FASB intends to issue a final update in 2015.

ACCOUNTING FOR FINANCIAL INSTRUMENTS – HEDGE ACCOUNTING

On February 9, 2011, the FASB issued a Discussion Paper, Invitation to Comment –Selected Issues about Hedge Accounting, Soliciting Comments on the IASB’s Exposure Draft, HedgeAccounting. The FASB’s purpose in issuing this Discussion Paper was to solicit comments onthe IASB’s proposed revisions to hedge accounting. Written comments were requested byApril 25, 2011. The Board began rediliberations on February 25, 2015, and directed the staff

26

27322677v1

to conduct additional research on various items. The Board met again on this issue on April7, 2015, but did not make any decisions. As of its June 29, 2015 meeting, the FASB hasdecided as follows:

Generally speaking, initial quantitative testing of all hedges will be required. Anexception will be if the hedging relationship meets requirements.

The qualification threshold of Topic 850 will retained for hedging relationshipsthat require a quantitative assessment methodology.

The change in fair value of derivative will be recorded in same income statementline as a hedged item for fair value hedges.

In the case of cash-flow value hedges, change in fair value of the derivative willbe recorded in other comprehensive income and reclassified to the same incomestatement line as the hedged item when the hedged item affects earnings.

Disclosure for cumulative basis adjustments for fair value hedges will berequired.

DISCLOSURE FRAMEWORK

On July 12, 2012, the FASB issued an Invitation to Comment, Disclosure Framework.Comment letters were due on November 16, 2012. At its February 13, 2013 meeting, theFASB discussed the comments received and considered next steps. At its June 19, 2013meeting, the FASB decided to separate the entity’s decision process and the Board’sdecision process into two separate issues. On November 12, 2013, the FASB met further toaddress the role of notes, disclosures, forward-looking information, and otherconsiderations. The role of this project is to improve the effectiveness of disclosures in notesin the financial statements. The project is comprised of the Board’s Decision Process and theEntity’s Decision Process. The FASB has subsequently decided to consider potentialmodifications in the following areas: (i) fair value measurement; (ii) defined benefit plans; (iii)income taxes and (iv) inventory. Additionally, disclosure requirements for interim reportingare being considered.

Regarding income taxes, the Board has decided to enhance the existing requirementto disclose a tabular reconciliation of the unrecognized tax benefit. Regarding the Entity’sDecision Process, the Board has decided that proposed amendments would include thestatement that materiality is a legal concept.

NOT-FOR-PROFIT FINANCIAL REPORTING – FINANCIAL STATEMENTS

In April 2015, the FASB issued Proposed Accounting Standards Update No. 2015-230, Not-for-Profit Entities (Topic 958) and Healthcare Entities (Topic 954): Presentation of FinancialStatements of Not-for-Profit Entities. The purposes of the proposed update are to (i) simplify netasset classification and (ii) enhance reporting of financial performance.

27

27322677v1

The proposed update would include the following changes:

Require presentation of two classes of net assets: (i) those with donorrestrictions and (ii) those without donor restrictions. This would be achange from the current requirement to present three categories.

Change classification of underwater donor-restricted endowment funds.

Require disclosure of quantitative and qualitative information about theliquidity of assets.

Require presentation on a statement of activities of change in two classesof net assets.

Comments were due on August 30, 2015.

INVESTMENT COMPANIES - DISCLOSURES

On October 21, 2011, the FASB issued an Exposure Draft, Financial Services –Investment Companies (Topic 946), Amendments to the Scope, Measurement and DisclosureRequirements. These proposed amendments affect the scope, measurement, presentation,and disclosure requirements for investment companies in GAAP. These amendments:

Amend the investment company definition.

Require an investment company to consolidate another investment company oran investment property entity if it holds a controlling financial interest.

Amend the financial statements for situations in which an investment companyhas consolidated a less than wholly owned investment company.

Prohibits an investment company that is able to exercise significant influenceover another investment company from using the equity method of accounting.

Require additional disclosures.

The comment period ended February 15, 2012, and the Board held a series ofredeliberations. The Board has decided that an investment company should measure allcontrolling financial interests in another investment company at fair value, rather thanconsolidating both subsidiaries.

28

27322677v1

During the redeliberations, the Board has determined as follows:

An investment company should have all of the following characteristics:(i) multiple investments; (ii) multiple investors; (iii) investors that are notrelated to the parent entity or the investment manager; and (iv)ownership interests in the form of equity or partnership interests.

A mortgage REIT that meets the requirements to be an investmentcompany should follow investment company guidelines.

Disclosures would be required for: (i) investments in unconsolidatedinvestment companies; and (ii) the first level of investments in anotherinvestment company.

Certain disclosures would be required about each investment exceeding 5percent of the reporting entity’s net assets.

On December 4, 2014, the FASB issued an Exposure Draft, Financial Services –Investment Companies (Topic 946), Disclosures about Investments in Other Investment Companies.This Exposure Draft provides that investment companies regulated under the InvestmentCompany Act of 1940 should disclose information about funds exceeding 5 percent of its netassets in a manner similar to requirements for investment companies not regulated by the1940 Act. The comment period ended February 17, 2015.

ACCOUNTING FOR GOVERNMENT ASSISTANCE

On January 29, 2014, the FASB voted to add this project to its agenda. On October 8,2014, the Board began its initial deliberations. At its December 17, 2014 meeting, the FASBdecided disclosures should be required regarding contracts in which an entity receives valueor benefit from the government. The term “government” will include domestic and foreignlocal, regional and national governments, along with related entities. Outreach iscontinuing. At a recent meeting of the Financial Accounting Standards Advisory Council,concern was expressed regarding the approach, basically expressing that consistentaccounting for governmental assistance was more significant than disclosures. On July 24,2015, the FASB decided to exclude contracts from this proposal if: (i) the government islegally required to provide the assistance to an entity simply because it met eligibilityrequirements or (ii) the government is a customer. Additionally, the Board has decided notto provide alternative disclosures for private companies. The Board directed the staff todraft a proposed update.

29

27322677v1

ACCOUNTING FOR INCOME TAXES – DEFERRED TAXES

In January 2015, the FASB issued Proposed Accounting Standards Update No. 2015-210, Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes.

The proposed update would require that all deferred tax assets and liabilities wouldbe classified as non-current. The proposed update’s purpose is part of the goal of reducingcost and complexity in financial reporting, as many constituents have complained about thecost and relevance of separating deferred taxes between current and non-current. Theproposed update would be effective for public entities for all annual periods beginning afterDecember 15, 2016, and a year later for private entities. The comment deadline ended May29, 2015.

LIABILITIES & EQUITY – TARGETED IMPROVEMENTS

On November 5, 2014 the FASB added a project to make targeted improvements tosimplify accounting guidelines related to financial instruments with characteristics of debtand equity. The staff is researching issues related to the accounting for convertibleinstruments.

INCOME TAXES – INTRA-ENTITY ASSET TRANSFERS

In January 2015, the FASB issued Proposed Accounting Standards Update No. 2015-200, Income Taxes (Topic 740) – Intra-Entity Transfers. The proposed update would eliminate thecurrent exception that prohibits the recognition of current and deferred income taxconsequences for intra-entity asset transfers until the asset has been sold to an outsideparty.

The effective date for public entities would be for annual periods, including interimperiods within those annual periods, beginning after December 15, 2016. For nonpublicentities, the effective date would be for annual periods beginning after December 15, 2017.Early adoption will not be allowed for public entities.

The comment deadline was May 29, 2015.

DERIVATIVES AND HEDGING

In February 2015, the FASB issued Proposed Accounting Standard update No. 2015-220, Derivatives and Hedging (Topic 815) – Disclosures about Hybrid Financial Instruments withBifurcated Embedded Derivatives. The proposed update would amend current guidanceregarding disclosures about hybrid financial instruments with embedded derivatives. Undercertain conditions, embedded derivatives are required to be measured separately from theirhost contracts. The issue is that there is no information that allows the user to link the host

30

27322677v1

contract and the embedded derivative. This proposed update would require the disclosure ofinformation that links the embedded derivative and the host contract.

An effective date has not been proposed. Comments were due by April 30, 2015.

SIMPLIFYING THE BALANCE SHEET CLASSIFICATION OF DEBT

This project was added to the FASB agenda on August 13, 2014. On January 28,2015, the Board met and decided that a debt is noncurrent if one of the following criteria ispresent as of the balance sheet date: (i) the contractual settlement date is at least 12months after the balance sheet date or (ii) the entity can contractually defer the settlementof the liability for a period of 12 months or longer after the balance sheet date. The scope ofthe guidance will apply to all debt arrangements. On July 29, 2015, the Board decided thatconvertible debt instruments and liability-classified mandatorily redeemable financialinstruments would be included in the scope of the proposed guidance. Deliberations arecontinuing.

CLARIFYING CERTAIN EXISTING PRINCIPLES ON THE STATEMENT OF CASH FLOWS

The Board voted to add this project to its agenda on April 28, 2014. On April 1,2015, the Board decided to focus on nine specific cash flow issues, with the express goal ofreducing the existing diversity. On June 18, 2015, the Board decided that debt prepaymentcosts should be classified as cash outflows for financing activities.

FINANCIAL PERFORMANCE REPORTING

The Board added this project to the agenda in January 2014. The objective is toreview ways to improve relevance of information presented in the performance statement.At its July 24, 2015 meeting, the Board directed the staff to research other methods fordistinguishing between earnings components.

PRESENTATION OF NET PERIODIC PENSION COST AND POST-RETIREMENT BENEFITS COSTS.

On June 29, 2015, the FASB decided to add a project to its agenda to improve thepresentation of the net benefit cost in an employer’s financial statements. Service cost willbe presented in the same line item as other current employee compensation cost. Anyremaining components of net benefit costs would be presented in a separate line itemoutside operating costs. The Board directed the staff to draft a proposed update.

DISCLOSURES ABOUT INTEREST INCOME ON PURCHASE DEBT SECURITIES AND LOANS.

On March 18, 2015, the Board voted to add this item to its agenda. Deliberationshave not yet started.

31

27322677v1

ACCOUNTING FOR IDENTIFIABLE INTANGIBLE ASSETS IN BUSINESS COMBINATIONS.

In November 2014, the FASB added this project to its technical agenda. The purposeis to determine whether identifiable intangible assets acquired in a business combinationshould be accounted for as goodwill for public business entities and not-for-profit entities.Deliberations are expected to begin in September.