1. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Income Tax Accounting and Reporting Matters - Current Developments Kayreen Handley Edward Moragas Tax Executives Institute New Jersey Chapter Full Day Seminar – February 26, 2016

2. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Agenda 1. Welcome and introduction 2. Recent SEC and PCAOB comments 3. ASU 2015-16: Simplifying the Accounting for Measurement Period Adjustments 4. ASU 2015-17: Balance Sheet Classification of Deferred Taxes 5. Exposure Draft: Intra-entity Asset Transfers 6. Exposure Draft: Improvements to Employee Share-Based Payment Accounting 7. Forthcoming Developments8. Wrap-up and Q&A 2

3. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Notice The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 3

4. Recent SEC and PCAOB Comments

5. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - 2014 AICPA National Conference  At the 2014 AICPA National Conference on Current SEC and PCAOB Developments, representatives of the SEC indicated the trend of frequent comments on income taxes has continued  The Division of Corporate Finance (DCF) Staff discussed circumstances where there could be improvements in income tax disclosures, including situations in which there are: –Significant differences between the expected income tax expense and the actual income tax expense –Significant changes in the annual effective income tax rate or materially volatile but offsetting components –Material components in the rate reconciliation that significantly impact the effective income tax rate –Foreign earnings that are a significant component of a registrant’s total pretax earnings 5

6. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - 2014 AICPA National Conference (continued)  DCF Staff have been and will continue to be focused on foreign income and related taxes  The Staff observed that they continue to see registrants making generic disclosures about changes in foreign taxes that are not sufficient for investors to understand the material risks and uncertainties associated with an entity’s foreign taxes  When foreign pretax earnings are significant, the Staff recommended disclosing the following: –A description of what is included in the foreign earnings line of the rate reconciliation –The material jurisdictions that are included in the foreign earnings Pretax earnings Statutory and effective tax rates Material reconciling items between the statutory and effective rates –Trends, uncertainties and expectations associated with the specific jurisdictions in which the company operates 6

7. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - Rate Reconciliation  There are examples of the Staff asking for detail regarding significant reconciling items in the rate reconciliation as well as considerations of additional disclosures, including further detail by jurisdiction  An example comment received from the SEC Staff includes (emphasis added): –We note that the foreign taxes and credits line item in your rate reconciliation contributed to a decrease of 10 percent of your effective tax rate during the current period. Please clarify the nature of the items in the foreign taxes and credits line item in your effective tax rate reconciliations. Please also explain to us your consideration of providing additional disclosures, either in the income tax footnote or MD&A, regarding the impact of material component(s) of this reconciling item on your income taxes. Such disclosures should have the objective of providing information about the quality of, and potential variability of, your earnings and cash flow, so an investor can ascertain the likelihood that past performance is indicative of future performance. The disclosures may include identifying your material tax jurisdictions along with their corresponding pre-tax earnings, statutory tax rates, effective tax rates, and whether the mix has changed materially in the past or is reasonably likely to change in the future. 7

8. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - Management Discussion and Analysis  There are examples of the staff asking for detail regarding factors that caused change in effective tax rate.  An example comment received from the SEC Staff includes (emphasis added): –We note that your effective tax rate has had significant variability between periods presented with a continuing reference to changes in the mix of income in tax jurisdictions among other factors. In future filings, please expand upon this disclosure to provide investors with additional insight into the tax jurisdictions materially impacting your effective tax rate for each period presented that includes quantified information. Please refer to Item 303(a)(3) of Regulation S-K and Section 501.12.b. of the Financial Reporting Codification for guidance. Please provide us with the disclosures that you would have included in your first quarter of fiscal year 2014 Form 10-Q in response to this comment. 8

9. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - Investments in Subsidiaries  There are examples of the Staff asking for additional information on the reasons for repatriation as well as how remaining amounts for which no deferred taxes are provided meet the assertion  An example comment received from the SEC Staff includes (emphasis added): –We note from your disclosure on page 54 that you repatriated $X million and $X million of foreign accumulated earnings in 2014 and 2013, respectively. We also note that you began to repatriate earnings from your foreign subsidiaries in 2008 and you currently plan to repatriate an additional $X million. Further, we note that the undistributed earnings of your foreign subsidiaries in excess of the amount you plan to repatriate (i.e. $X million) are considered permanently reinvested. Under your current plan to repatriate earnings, a $X million tax benefit is estimated whereas you estimated an $X million cost in 2013. Please respond to the following: –Tell us the underlying reasons for your repatriation of foreign earnings –In light of your repatriation of earnings since 2008, tell us how you are able to conclude that your undistributed earnings in excess of $X million are permanently reinvested. If you believe that any of your foreign earnings continue to be permanently reinvested, indicate the specific countries in which these earnings are located 9

10. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - Investments in Subsidiaries (continued) –Tell us why it is not practical for you to disclose an unrecognized deferred income tax liability when you are able to estimate tax benefits and costs in 2014 and 2013, respectively. Refer to ASC 740-30-50-2 –Expand your disclosure of estimated tax benefits (i.e. $X million) to identify whether this tax benefit is based on your repatriations in fiscal year 2014 (i.e. $X million) or the projected income tax consequences of your planned repatriations (i.e. $X million) or both. If your estimated tax benefits are based on projected repatriations, also revise your filing to disclose the actual tax consequence of current year repatriations –Revise your future filings to disclose the amount of investments (and other liquid assets) held by your foreign subsidiaries as of each balance sheet date 10

11. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - Valuation Allowance  The Staff may request additional information be disclosed regarding the relative magnitude of income required to realize the deferred tax assets  An example comment received from the SEC Staff includes (emphasis added): –In a manner similar to the information provided in your Form 10-K for the year ended December 31, 20X1, please expand your disclosures to address the character and amount of income/profit required to fully realize your deferred tax assets related to your federal net operating loss and credit carryforwards as of December 31, 20X1 11

12. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - Valuation Allowance  There are examples of the Staff asking whether the adjustment is reflected in the proper period  An example comment received from the SEC Staff includes (emphasis added): –We note your disclosure that in the fourth quarter of fiscal 2014, management increased its estimate of the amount of tax benefits to be realized from certain foreign tax credit carryovers. Please tell us whether any portion of the resulting $X million credit to income tax expense in the fourth quarter is attributable to information that was known or could have been known in prior accounting periods. If so, please tell us how you concluded that the increase in the amount of tax benefits expected to be realized from the foreign tax credit carryovers is a change in estimate as opposed to an error correction. In this regard, we understand that in the fourth quarter of 2014, management increased its estimate of the amount of annual pretax income to be earned in future periods from $X million to $X million. Please clarify whether the increase in the amount of tax benefits expected to be realized from the foreign tax credit carryovers is attributable entirely to the fourth quarter increase in management’s estimate of the amount of annual pretax income to be earned in future periods or whether a portion of the increase in tax benefits relates to the $X million in annual pretax income previously forecast in fiscal 2012. 12

13. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. SEC Comments on Income Taxes - Internal Controls  There are examples of the Staff asking for additional detail on an entity’s income tax process  An example comment received from the SEC Staff includes (emphasis added): –Please address the following related to your income tax process: Explain in greater detail your process and controls surrounding income taxes for financial reporting. Clarify whether your control process was complete at the time of the identification of the mathematical error in the tax schedule. Tell us the specific controls you had in place that would have caught mathematical errors in the tax schedules prepared by the third-party expert prior to the review by your outside auditor. Tell us whether your controls include recording of all tax entries before the auditor begins its review. Tell us the nature and amounts of the mathematical errors and the tax schedules impacted. Also describe the financial statement impact (i.e. line items affected) if the error had not been caught 13

14. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. PCAOB Findings - Areas of Common Questions  Recent findings issued by the PCAOB to firms indicate that accounting for income taxes and related disclosures under ASC 740, Income Taxes, continue to be an area of focus  The following are common areas of questions and focus: –Internal controls –Valuation allowance –Unrecognized tax benefits –Substantive procedures 14

15. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. PCAOB Findings - Internal Controls  In this audit, the firm failed in the following respects to obtain sufficient appropriate audit evidence to support its audit opinion on the financial statements and on the effectiveness of ICFR–the firm failed to perform sufficient procedures related to the provision for income taxes and the related balance sheet accounts –Specifically, the firm's testing of certain controls related to income taxes was insufficient. The controls included the reconciliation of certain projected and actual tax credits, the review of reconciliations of certain timing differences, and the monitoring of the effective tax rate. The firm's procedures were limited to inquiring of the control owners and noting signatures as evidence of the performance of the controls, without evaluating whether the controls operated at a level of precision that would prevent or detect material misstatements. In addition, the firm failed to identify and test any controls over the accuracy of certain data used in the performance of those controls. (AS No. 5, paragraphs 39, 42, and 44) –The firm failed to test any controls that addressed the accuracy of certain system-generated data that the issuer used in the income tax calculation. (AS No. 5, paragraph 39) 15 [Emphasis Added]

16. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. PCAOB Findings - Internal Controls  In this audit, the firm failed in the following respects to obtain sufficient appropriate audit evidence to support its audit opinion on the effectiveness of ICFR. The firm selected for testing certain controls over the issuer's accounting for income taxes; however, it failed to sufficiently test these controls. Specifically, the firm's procedures to test the operating effectiveness of these controls were limited to (1) inquiring of the control owner, (2) obtaining evidence of the control owner's review, and (3) comparing certain information to supporting documentation. These procedures failed to (1) address the criteria used by management to identify items for investigation and (2) determine whether specific items that were investigated were appropriately resolved. Therefore, the firm failed to evaluate whether the controls operated at level of precision that would prevent or detect material misstatements. (AS No. 5, paragraph 44) 16 [Emphasis Added]

17. ASU 2015-16: Simplifying The Accounting for Measurement Period Adjustments

18. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Existing Guidance  Recognition –ASC 805 requires retrospective adjustment of provisional amounts recognized at the acquisition date and the recognition of additional assets or liabilities that were not recognized at the acquisition date Provisional amounts, in this context, are related to when purchase accounting for a business combination is incomplete as of the reporting date  Disclosure –The comparative information for prior periods presented in financial statements should be revised as needed, including making any change in depreciation, amortization or other income effects recognized in completing the initial accounting  The guidance applies to adjustments impacting income taxes and other accounts as a result of pretax adjustments or income taxes only adjustments 18

19. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Revised Guidance  Recognition –An acquirer should recognize adjustments to provisional amounts with a corresponding adjustment to goodwill in the reporting period in which the adjustment amount is determined and recognize the effects of changes in depreciation, amortization, or other income effects, by line item, arising from changes to the provisional amounts, if any, in the income statement in the reporting period in which the adjustment to the provisional amount is determined  Disclosure –Acquirers may present on the face of the income statement or disclose the effect on current period earnings, by line item, that would have been recognized in a previous period if the adjustment to provisional amounts had been recognized as of the acquisition date  The guidance applies to adjustments impacting income tax accounts as a result of pretax adjustments or income taxes only adjustments 19

20. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Effective Date and Transition  Public business entities: Effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015  All other entities: Effective for annual periods beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017  Prospective application required  Early application is permitted, including application to any period for which the entity’s annual or interim financial statements have not yet been made available for issuance 20

21. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Reporting and Disclosure  Disclosure is required of the impact that recently issued accounting standards will have on the financial statement of the Registrant when adopted in a future period (SAB 74) –Brief description of the new standard, the date adoption is required and the date the Registrant plans to adopt (if earlier) –Discussion of the method of adoption allowed by the standard as prospective application –Discussion of the impact of adoption or a statement that it is not known or reasonably estimable –Disclosure of the potential impact of other significant matters that the Registrant believes might impact from the adoption of the standard 21

22. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Reporting and Disclosure (Cont’d)  In the first annual period of adoption and in the interim periods within the first annual period if there is a measurement-period adjustment during the first annual period in which the changes are effective, an entity shall disclose the following: –The nature of and reason for the change in accounting principle –A statement that prior periods were not restated 22

23. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Example  Acquirer acquires Target in a nontaxable stock acquisition on September 30, 20X7  Acquirer seeks an independent appraisal for an item of PP&E acquired in the combination which was not finalized as of the acquisition date  The PP&E had a remaining useful life of five years at the acquisition date  Acquirer issued its financial statements for the 20X7 year with a provisional fair market value of $30,000 and tax basis of $20,000  Six months after the acquisition date, Acquirer received the independent appraisal which estimated the acquisition date fair market value at $40,000  Assume a 40% tax rate 23

24. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Example (Cont’d)  At acquisition date, Acquirer records the following entry associated with PP&E:  Within the 20X7 financial statements, Acquirer discloses that the initial accounting for the business combination has not been completed because the appraisal of PP&E has not yet been received 24 DR (CR)Account DescriptionAmountExplanation DRPP&E$30,000Provisional fair value of $30,000 CRGoodwill$(26,000) CRDeferred Tax Liability$(4,000)Taxable Temporary Difference of $10,000 at 40 percent

25. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. ASU 2015-16: Measurement Period Adjustments Example (Cont’d)  During 20X8, Acquirer records the following entry associated with the receipt of the PP&E independent appraisal:  Within the 20X8 financial statements, Acquirer discloses an increase to fair value of PP&E of $10,000 and an increase to deferred tax liability of $4,000, with a corresponding decrease to goodwill and the change to the provisional amount resulted in an increase in depreciation expense and accumulated depreciation of $1,000 of which $500 relates to a previous reporting period, and a decrease to deferred tax expense and deferred tax liability of $400, of which $200 relates to a previous reporting period 25 DR (CR)Account DescriptionAmountExplanation DRPP&E$10,000Provisional fair value of $30,000 DRDepreciation Expense$1,000$10,000 gross book adjustment divided by five years times six months over twelve months CRDeferred Income Tax Expense$(400)Reversal of $1,000 at 40 percent due to depreciation expense recorded for book on $10,000 adjustment CRGoodwill$(6,000)$10,000 adjustment net of deferred tax liability of $4,000 CRDeferred Tax Liability$(3,600)$9,000 net book adjustment at 40 percent CRAccumulated Depreciation$(1,000)$10,000 gross book adjustment divided by five years times six months over twelve months

26. ASU 2015-17: Balance Sheet Classification of Deferred Taxes

27. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Balance Sheet Classification of Deferred Taxes Existing Guidance  In a classified statement of financial position, deferred tax assets (liabilities) are separated into a current and a noncurrent amount based upon the related asset or liability for financial reporting  If the deferred tax asset (liability) is unrelated to an asset or liability for financial reporting, it is classified as current or noncurrent based upon the expected timing of reversal  Valuation allowances are allocated on a pro rata basis between current and noncurrent deferred tax assets for the tax-paying component  Deferred taxes for each tax-paying component of an entity in each tax jurisdiction shall be offset and presented in two classifications –Net current asset (liability) –Net noncurrent asset (liability) 27

28. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Balance Sheet Classification of Deferred Taxes ASU 2015-17  Guidance –To simplify the presentation of deferred income taxes, the ASU requires entities to offset all deferred tax assets and liabilities and any valuation allowance for each tax- paying jurisdiction –Entities will present that net deferred tax as a single noncurrent amount for each tax- paying component –Deferred taxes for each separate tax-paying component of an entity will be presented as either a net noncurrent deferred tax asset or a net noncurrent deferred tax liability  Impact –Eliminate the current requirement to allocate valuation allowance on a pro-rata basis to net current and net noncurrent deferred tax assets –Total current assets and total current liabilities likely will be reduced as a result of the ASU. Companies that have significant current deferred tax assets and liabilities may want to evaluate how the adoption will affect key financial ratios such as current ratios. –The change to balance sheet classification will result in convergence with International Financial Reporting Standards 28

29. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Balance Sheet Classification of Deferred Taxes Effective Date and Transition  Public Business Entities: Annual periods, and interim periods within such years, beginning after December 15, 2016  All Other Entities: Annual periods beginning after December 15, 2017 and interim periods in annual periods beginning after December 15, 2018  Early adoption is allowed for all entities  Prospective and retrospective application is allowed 29

30. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Balance Sheet Classification of Deferred Taxes Reporting and Disclosure  Disclosure is required of the impact that recently issued accounting standards will have on the financial statements of the Registrant when adopted in a future period (SAB 74) –Brief description of the new standard, the date adoption is required and the date the registrant plans to adopt (if earlier) –Discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined –Discussion of the impact of adoption or a statement that it is not known or reasonable estimable –Disclosure of the potential impact of other significant matters that the Registrant believes might result from the adoption of the standard 30

31. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Balance Sheet Classification of Deferred Taxes Reporting and Disclosure (Cont’d)  In the first interim and annual period of adoption, a public business entity shall disclose the following: –The nature of and reason for the change in accounting principle –A statement that prior periods were not restated  An entity choosing retrospective adoption shall disclose quantitative information about the effects of the accounting changes to prior periods in addition to the nature of and reason for the change in accounting principle 31

32. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Balance Sheet Classification of Deferred Taxes Example  Facts: –An entity consists of a single tax-paying component and has the following deferred tax assets (liabilities) Inventories: $1,000 Accrued expenses: $750 Property, plant & equipment: $(3,000) Other intangible assets: $(1,500) Net operating loss carryforward: $5,000 –The entity is not more likely than not to realize all of its deferred tax assets and has established a valuation allowance of $(2,250)  Question: –What would be the balance sheet classification of the deferred taxes under existing guidance and the new guidance? 32

33. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Balance Sheet Classification of Deferred Taxes Example (Cont’d) 33 Existing Guidance New Guidance InventoriesCurrent$1,000 Accrued ExpensesCurrent$750 Property, Plant & EquipmentNoncurrent$(3,000) Other Intangible AssetsNoncurrent$(1,500) NOL CarryforwardNoncurrent$5,000 Valuation Allowance$(2,250) Net Deferred Tax Asset (Liability)-- Total Current Deferred Tax Assets$1,750N/A Total Noncurrent Deferred Tax Assets$ 5,000$ 6,750 Current Valuation Allowance$(583)($1,750/$6,750) x $(2,250)N/A Noncurrent Valuation Allowance$(1,667)($5,000/$6,750) x $(2,250)$ (2,250) Total Noncurrent Deferred Tax Liabilities$(4,500) Total Current Deferred Tax Asset (Liability)$1,167N/A Total Noncurrent Deferred Tax Asset (Liability)$(1,167)-

34. Exposure Draft: Intra- entity Asset Transfers

35. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Intra-entity Asset Transfers Exposure Draft Existing Guidance  ASC 810 provides intra-entity balances and transactions shall be eliminated; accordingly, any intra-entity profit or loss on assets remaining within the consolidated group shall be eliminated  ASC 810 provides the selling entity defers recognizing, for financial reporting purposes, any tax expense resulting from an intra-entity asset transfer, including taxes currently payable or paid  ASC 740 provides the buying entity does not recognize deferred income taxes for any basis differences for the transferred asset  Current guidance under U.S. GAAP is an exception to the accounting model for comprehensive recognition of income taxes in ASC 740 35

36. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Intra-entity Asset Transfers Exposure Draft Proposed Guidance  Proposal to eliminate the exception in U.S. GAAP that prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset or assets have been sold to an outside party  Proposal requires that an entity recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs 36

37. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Intra-entity Asset Transfers Exposure Draft Example  Facts: –ABC Corp and DEF Corp are wholly owned subsidiaries of Parent Z –ABC and DEF file separate tax returns in different tax jurisdictions –ABC sells inventory with a book basis of $100 and a tax basis of $120 to DEF for $150 –The tax rate is 40% percent in ABC’s tax jurisdiction and 30 percent in DEF’s tax jurisdiction  Question: –What are the income statement and balance sheet effects for ABC, DEF and in consolidation for the above sale under the existing guidance and the proposed guidance? 37

38. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Intra-entity Asset Transfers Exposure Draft Example (Cont’d) 38 EXISTING GUIDANCEABCDEFEliminationsConsolidated Income Statement Sales Price$150$-$(150)$- Cost of Sale100-(100)- Reported Pretax Gain50-(50)- Income Taxes Current Tax12-(12)- Deferred Tax8-(8)- Total Income Taxes20-(20)- Net Income$30$-$(30)$- Balance Sheet Deferred Tax Asset before Sale$8$- $8 Deferred Charge after Sale--20 Inventory before Sale100-- Inventory after Sale-150(50)100 Income Tax Liability before Sale--- Income Tax Liability after Sale12--

39. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Intra-entity Asset Transfers Exposure Draft Example (Cont’d) 39 PROPOSED GUIDANCEABCDEFEliminationsConsolidated Income Statement Sales Price$150$-$(150)$- Cost of Sale100-(100)- Reported Pretax Gain50-(50)- Income Taxes Current Tax12-- Deferred Tax8-(15)(7) Total Income Taxes20-(15)5 Net Income$30$-$(35)$(5) Balance Sheet Deferred Tax Asset before Sale$8$- $8 Deferred Tax Asset after Sale--15 Inventory before Sale100-- Inventory after Sale-150(50)100 Income Tax Liability before Sale--- Income Tax Liability after Sale12--

40. Improvements to Employee Share- Based Payment Accounting

41. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Employee Share-based Payments - Existing Guidance  Accounting for income taxes upon settlement of an award –Net operating loss carryforwards related to excess tax benefits do not result in deferred tax assets –Excess tax benefits are recognized as additional paid-in capital in the period in which the tax deduction is realized through a reduction of taxes payable –Deficiencies are recognized as reductions to additional paid-in capital to the extent of prior realized excess tax benefits with any residual recorded as income tax expense  Presentation of excess tax benefits on the statement of cash flows –Excess tax benefits are presented as a cash inflow from financing activities and a cash outflow from operating activities 41

42. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Employee Share-based Payments - New Guidance  The Board decided (final ASU expected in Q1 2016): –Accounting for Income Taxes upon Settlement of an Award Remove the requirement to delay recognition of an excess tax benefit until the tax benefit is realized All excess tax benefits and tax deficiencies should be recognized in the income statement The tax effects of exercised or vested awards are discrete items in the reporting period in which they occur –Presentation of Excess Tax Benefits on the Statement of Cash Flows Remove the requirement that employers present excess tax benefits as a cash inflow from financing activities and a cash outflow from operating activities. All excess tax benefits would be recorded as an operating activity –The Board’s decisions eliminate the need to maintain a pool of excess tax benefits 42

43. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Employee Share-based Payments - Effective Date  The amendments will be effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period  The amendments will be effective for nonpublic companies for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018  Early adoption will be permitted in any interim or annual period 43

44. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Employee Share-based Payments - Transition  The recognition of previously unrealized excess tax benefits would apply the modified retrospective approach and be reflected through a cumulative effect adjustment to equity as of the beginning of the annual period in which the guidance is effective  The classification in the Statement of Cash Flows as operating activities could be applied retrospectively or prospectively  The recognition of excess tax benefits and deficiencies through the income statement would be reflected on a prospective basis 44

45. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Employee Share-based Payments - Reporting and Disclosure  In the first interim and annual period of adoption, an entity shall disclose the following: –The nature of and reason for the change in accounting principle –The method of applying the change, including: Prior-period information that has been retrospectively adjusted, if any The cumulative effect of the change on retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the period of adoption –An entity that issues interim financial statements shall provide the required disclosures in the financial statements of both the interim period of the change and the annual period of the change 45

46. Forthcoming Developments

47. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. FASB Tentative Decisions - Disclosure Review: Income Taxes  The Board reached tentative decisions related to the disclosures of income taxes associated with foreign earnings  Entities would be required to disclose the following: –Income before taxes disaggregated between domestic and foreign earnings with foreign earnings further disaggregated for any country that is significant to total earnings –Domestic tax expense recognized in the period for taxes on foreign earnings –Undistributed foreign earnings that are no longer asserted to be indefinitely reinvested during the current period and an explanation of the circumstances that cause the entity to make that assertion. Separate disclosure should be made for any country that is significant to the disclosed amount –A further disaggregation of the current requirement to disclose the temporary difference for the cumulative amount of indefinitely reinvested foreign earnings if any country represents at least ten percent of the disclosed amount 47

48. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. FASB Tentative Decisions - Disclosure Review: Income Taxes (continued)  The Board reached tentative decisions related to the disclosures of income taxes associated with unrecognized tax benefits  Entities would be required to disclose the following: –Enhancements to the tabular reconciliation of unrecognized tax benefits at the beginning and end of the period by including: Settlements using existing tax assets separate from those that are ultimately settled in cash A breakdown of the ending balance of the liability for unrecognized tax benefits by the line items in the balance sheet in which the liability is recognized  The Board also tentatively decided that neither public nor private entities would be required to disclose the nature and an estimate of the range for a reasonably possible change in the unrecognized tax benefit balance in the next 12 months or a statement that an estimate of the range cannot be made 48

49. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. FASB Tentative Decisions - Disclosure Review: Income Taxes (continued)  The Board reached tentative decisions related to the disclosures of income taxes associated with the rate reconciliation, deferred taxes, valuation allowances and income taxes paid  Tentatively decided that entities would be required to disclose the following: –That a change in tax law that has been enacted, and it is probable that the change will affect the reporting entity in a future period –If deferred taxes are not presented as a separate line item in the balance sheet, the line item(s) in which the amount is presented –Domestic income taxes paid and foreign income taxes paid –An explanation of the nature and amounts of the valuation allowance recorded and released during the reporting period 49

50. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. FASB Tentative Decisions - Disclosure Review: Income Taxes (continued)  The Board also decided that all entities should disclose the rate reconciliation currently required in GAAP only for public companies. Furthermore, the current requirement would be modified to include –If an individual reconciling item amounts to more than 5 percent of the amount computed by multiplying the income before tax by the applicable statutory federal income tax rate, disclose that amount separately –A qualitative description of those items that have caused a significant movement in the rate year over year.  The Board decided to revise the carryforward disclosure requirements to require that all entities disclose: –The amounts and expiration dates of the carryforwards recorded on the tax return (not tax effected) –The amounts and expiration dates of the carryforwards that will give rise to a deferred tax asset (tax effected) –The total amount of the unrecognized tax benefit that offsets the tax-effected carryforwards 50

51. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. FASB Projects The Board’s presentation and disclosure project for Government Assistance Disclosures  Applies to legally enforceable agreements with a government to receive value  Does not apply to transactions in which the government is either –Legally required to provide a nondiscretionary level of assistance simply because the entity meets the eligibility requirement, or –Solely a customer  Disclosure objectives –Nature of assistance, related accounting policies, and effect on financial statement amounts –Significant terms and conditions of the agreement  Exposure draft issued November 12, 2015  Comments due February 10, 2016 51

52. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. FASB Projects (continued)  ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities –Includes an element on the evaluation of a valuation allowance on deferred tax assets related to debt securities classified as available for sale  The Board’s potential project on Accounting for Income Taxes: Presentation of Tax Expense/Benefit is in the research stage  ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items was finalized and included within ASC 225-20 –Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted 52

53. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Resources available to help you stay current  Visit the Financial Reporting Network for KPMG’s latest news and insights www.kpmg.com/us/whats-happening-now  Publications …Online CPE Events …Online Resource Pages on Key Topics  Topic pages for Revenue Recognition, Leases, Financial Instruments, Insurance and Private Company Financial Reporting  Sign up for KPMG’s Weekly Review for an email update on accounting and financial reporting topics us-kpmgweeklyreview@kpmg.comus-kpmgweeklyreview@kpmg.com  Subscribe to KPMG’s Accounting Research Online for in-depth technical research www.kpmg.com/ARO  Focus on US GAAP and IFRS  Practical guidance from KPMG with exclusive access to KPMG’s ‘Insights into IFRS’ and the FASB Accounting Standards Codification® with KPMG Interpretation 53

54. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Questions? 54

55. © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. Today’s Presenters Kayreen Handley KPMG Partner, Audit Department of Professional Practice 212-954-8288 khandley@kpmg.com Edward Moragas KPMG Partner, Tax Federal Tax 973-912-6428 emoragas@kpmg.com

56.  © 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.  The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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