Date: July 2008

To: Interested Parties

Re: Proposed Amendment to FASB Statement No. 5 Expanding Disclosure Requirements for Loss Contingencies

On June 5, 2008, in an effort to enhance disclosures about loss contingencies, the Financial Accounting Standards Board (“FASB”) published an exposure draft of a proposed new statement of financial accounting standards that would amend the disclosure requirements for loss contingencies currently governed by FASB Statement No. 5, Accounting for Contingencies (“FAS 5”), and loss contingencies recognized in a business acquisition covered by FASB Statement No. 141, Business Combinations (“FAS 141”).1 The proposed statement would apply only to loss contingencies that are or would be recognized as liabilities, such as those related to pending or threatened litigation.2 The proposed statement would not change the recognition and measurement guidance for loss contingencies.

The proposed disclosures will create substantial burdens for issuers in litigation and may, in many cases, be prejudicial to their interests. Accordingly, this proposal is of great interest to issuers and their advisors as well as bar and other professional associations. The attached chart compares the current disclosure requirements with the new requirements being proposed by the FASB. As illustrated by the chart, the proposal would:

• require expanded qualitative and quantitative disclosures about loss contingencies;

• require a detailed tabular reconciliation of changes in the amount of loss contingency accruals in annual and interim financial statements;

• require expanded qualitative and quantitative disclosures for loss contingencies recognized in a business combination; and

• require disclosures in respect of remote contingencies that are expected to be resolved within a year and could have a “severe impact” (defined as a significant

1 The version of FAS 5 currently in effect is available at http://www.fasb.org/pdf/fas5.pdf. The

exposure draft is available at http://www.fasb.org/draft/ed_contingencies.pdf; and a summary of FASB decisions on the proposal is available at http://www.fasb.org/project/accounting_for_contingencies.shtml.

2 Accordingly, the proposed statement would not apply to loss contingencies that would be recognized as asset impairments, such as allowances for doubtful accounts. Other contingencies for which there is other applicable disclosure guidance, such as guarantees, are also excluded from the scope of the proposed statement.

2

This memorandum is a summary for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice.

financially disruptive effect on the normal functioning of the entity).

The new disclosures may be aggregated by the nature of the contingency. In anticipation of concerns that the new disclosure requirements could be prejudicial to an issuer’s position in a dispute, the FASB has included a limited exemption that would allow issuers to aggregate information about loss contingencies at a higher level. In “rare” instances in which aggregated disclosure at a higher level would still be prejudicial, issuers would be allowed to forego disclosure about their assessment of the most likely outcome of the contingency and insurance and indemnities that could lead to a recovery of the loss; however, the issuer would be required to disclose the fact that the information was not disclosed, as well as the reason for the omission. All other disclosures would still be required.

These new disclosure requirements would be effective for fiscal years ending after December 15, 2008 and interim and annual periods in subsequent fiscal years. Consequently, if adopted, the proposed statement would apply to 2008 Form 10-K filings for calendar year issuers.

Interested parties may wish to express their views on the proposed statement by submitting comments on the proposed statement to the FASB before the comment deadline of August 8, 2008. We would be happy to assist you in this regard. The FASB also intends to hold public roundtable meetings on the exposure draft. In order to participate in a roundtable, the FASB must receive an e-mail addressed to director@fasb.org by July 25, 2008.

If you have any questions regarding this memorandum, please contact your regular Davis Polk contact.

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