OCC and OTS Report on Payment Option ARMS Performance

In the September report, the OCC and OTS reported performance data on Payment Option Adjustable Rate Mortgages (ARMs), which allow borrowers to choose from a variety of payment options each month, including payments that reduce principal, cover interest only, or result in unpaid interest being added to the balance of the loan, resulting in an increased amount owed. The risks of these loans and geographical concentration caused them to perform significantly worse than the overall portfolio. In the second quarter, 15.2 percent of the more than 900,000 Payment Option ARMs in the portfolio were seriously delinquent, compared with 5.3 percent of all mortgages, and 10 percent were in the process of foreclosure, more than triple the 2.9 percent rate for all mortgages.

Basel Committee and Fair Value

The Basel Committee on Banking Supervision recently met and issued, in response to a meeting in April of the G20, recommendations to the IASB regarding fair value measurement and related disclosures. These principles are in response to the recent financial crisis and include discussions related to procyclicality and systemic risk.

The principles reflect accounting lessons learned from the financial crisis, and note that the new standard should:

· Reflect the need for earlier recognition of loan losses to ensure robust provisions

· Recognize that fair value is not effective when markets become dislocated or are illiquid

· Permit reclassifications from the fair value to the amortized cost category; which should be allowed in rare circumstances following the occurrence of events having clearly led to a change in the business model

· Promote a level playing field across jurisdictions.

Discontinued Operations - FASB's Recent Discussion

FASB met recently and decided that discontinued operations should continue to be presented in a separate section on the face of an entity’s financial statements. Now the Board must tackle the task of defining a discontinued operation, around which there has been some confusion. New guidence should include qualitative indicators of significance as part of the definition.

FASB Board Discusses Contracts with Customers and Revenue Recognition

Recently the FASB Board met to discuss various issues including those related to the presentation of contracts with customers. Those issues include:

1. When, if ever, an entity should present contractual rights and obligations as assets and liabilities, respectively.

2. Whether an entity should present net contract assets separately from net contract liabilities.

3. Whether and how an entity should present short-term contracts separately from long-term contracts.

4. The relationship between an entity’s contract position and accounts receivable.

The Board did not reach any decisions and indicated that further analysis was necessary and should be presented at the next board meeting.

Loss Mitigation and Conflict of Interest - FFIEC Guidence

The Federal Financial Institutions Examination Council (FFIEC) is concerned about responsible loss mitigation activities and the preservation of homeownership. On August 6th, the FFIEC issued a statement which outlines the key duties and responsibilities of loan servicers in situations where there is a 1st and 2nd lien and the decision to modify might be influenced by a conflict of interest. The basic, but firmly worded, guidance indicates that decisions that are not anticipated to produce a greater recovery to investors given the alternatives may constitute a breach of that duty.

Fannie Mae Releases Economic Projections

Fannie Mae recently looked into its crystal ball to forecast where we might be headed in this economic crisis. The really good news is that GDP is projected to start climbing into positive territory beginning in 3Q09 with 0.8% growth. Contrast this with a negative 5.5% decline in 1Q09. This growth continues throughout 2010 reaching 3.3% GDP by 4Q10.

Expect unemployment to stabilize, albeit at a high level, at around 9.8%, through 2010. Despite all the dollars being pumped into the economy, expect inflation to be at a modest 1.5%. Business inventories continue to get leaner, until 4Q10, when some growth is seen at that time showing 5.5% growth.

An encouraging sign is the growth of business fixed investment which starts to increase as soon as 3Q09.

Expect the Fed Funds rate to remain low at around 24bps throughout 2010.

Consumer Financial Protection Agency

The Comptroller of the Currency John Dugan recently expressed his thoughts regarding the proposed Consumer Financial Protection Agency. He is in favor of such an agency, but expressed the following concerns:

"It makes sense to consolidate all consumer protection rule writing in a single agency, with the rules applying to all financial providers of a product, both bank and nonbank," Mr. Dugan said in testimony before the House Financial Services Committee. "But we believe the rules must be uniform, and that banking supervisors must have meaningful input into formulating them. Unfortunately, the proposed CFPA falls short on both accounts."

IFRS for SME's Released July 9th

The IFRS issued a press release on July 9th announcing the issuance of IFRS standards for small and medium size entities, referred to as SME’s. SME’s represent 95% of all businesses. This release comes after 5 years of significant work.

These standards are available for free on the IASB website and are comprised of 230 pages especially tailored for smaller businesses which have not yet entered public capital markets (which require full IFRS standard adoption).

Some benefits:
1. Allows improved comparability for users of accounts
2. Enhances the overall confidence in the accounts of SME’s
3. Reduces the significant cost involved of maintaining standards on a national basis.

Compared to full IFRS standards, SME standards:
1. Are simplified.
2. Disclosures are reduced.
3. Topics not relevant to SME’s have been removed.

FFIEC Speaks out on Charter Conversions

Imagine for a moment that your bank is being subjected to a serious or material enforcement action. You are contemplating changing your charter as a result to move to another regulatory authority. Not so fast, says the Federal Financial Institutions Examination Council, better known as the FFIEC. In these turbulent times, the FFIEC recognized that given the current stressed environment, rating downgrades and supervisory actions it is essential that the charter conversions not undermine current or prospective supervisory actions.

The FFIEC purpose is to maintain uniform supervisory principles and standards for all regulated entities, regardless of chartering authority. The FFIEC recently issued a statement in July emphasizing that conversion requests made while there are pending enforcement actions with the current chartering authority should not be entertained.

Chartering conversions are for purposes of business and strategic needs, according to the FFIEC, not for purposes of avoiding enforcement actions.

In the event that a conversion does move forward either through direct conversion or as the result of a merger, the FFIEC recommends:

1. Enforcement actions in place prior to conversion should carry over to the new agency.
2. Current agency should provide prospective agency a summary of existing examination program.
3. If there is not a recent examination to review, the prospective agency should, if deemed necessary, conduct an eligibility examination.
4. Prospective agency should factor existing ratings into their examination planning process as well as in–process ratings downgrades only after the completion of an appropriately scoped on-site examination.

OCC to Allow 50% Risk Weighting on Some Modified Loans!

The OCC has issued an interim final ruling allowing mortgage loans modified under Making Home Affordable Program to retain the same risk weighting that the loan had just prior to modification. Mortgage loans are weighted at either at 50% or 100%, depending on certain criteria, such a delinquency status. Loans with a higher risk weighting require more capital and, as such, are less desirable. Previous OCC guidance required that a 50% risk weighted loan that had been restructured be classified as 100% risk weighted. At a time when banks are under the microscope for their capitalization levels, every little bit helps.

The Making Home Affordable Program, announced on March 4th, is a partnership between the Treasury and lenders with loan services to offer at-risk homeowners loan modifications under which the homeowners may obtain more affordable monthly mortgage payments. The program has stipulations around debt to income levels as well as monetary incentives to both borrower and lender to promote performance of the loan.

The Program requires that a borrower’s front-end debt-to-income ratio on a first-lien mortgage modified under the Program be reduced to no greater than 31 percent—which should improve the borrower’s ability to repay the modified loan—and, importantly, provides for Treasury to match reductions in monthly payments dollar-for-dollar to reduce the borrower’s front-end debt-to-income ratio from 38 percent to 31 percent.

Will all these changes help borrowers and lenders...time will tell.

FASB Codification Access – How much will it cost me?

The FASB recently released information regarding its pricing structure for access to its codification of accounting rules. I was very pleased to see that the FASB offers a FREE tier of service that allows basic access along with a limited selection of features. These basis features include the ability to browse and print topics as well as identify locations of legacy standards. Sign up is easy. Just provide some basic personal information and setup a login and password for access.

For those that want and can afford some nice bells and whistles, the FASB offers a yearly subscription program called the “Professional View” priced at $850 per individual. For this charge, the user acquires enhanced navigation and printing capabilities. A very useful feature, among other features offerred, includes the ability to keep personal notes about selected content.

As with most purchases in life, the more you buy, the lower the price. FASB is no different. Tiered pricing is offered for concurrent multiple users. For example, if 49 associated individuals sign up, the pricing drops to $510 per user (there are multiple tiers from 2 to 49 users). FASB offers even better pricing for 50+ users, but the discount is not disclosed on their website. FASB recommends one person purchase the licenses for the group and then serve as a point of contact.

A very important distinction to be made when considering purchasing multiple liceneses is the concept of “concurrent multiple user”. This is defined as the number of individuals that can access the website at any one time. FASB allows the addition of 9 registered individuals per concurrent license purchased at no additional charge. Therefore, if is makes sense for a business to determine how often individuals need to access system at a given point in time to determine how many concurrent licenses should be purchased. By having users stagger usage, fewer user licenses need to be purchased.

For those in academia, FASB allows FREE enhanced access for students and faculty after the institution pays a $150 fee.

My recommendation: First utilize the free access option to determine if it adequately meets your needs. If the additional features are attractive to you, determine how many concurrent users will be needed and then purchases together to take advantage of lower pricing tiers.

Understanding "Deed in Lieu of Foreclosure" Process

In this tumultuous mortgage market, a lender and borrower may decide to enter a “deed in lieu of foreclosure” agreement. This agreement requires the borrower to relinquish his or her rights in a property to the lender in exchange for being released from liabilities specifically named in the loan documents. In effect, the lender becomes the new owner. Such agreements are a common form of mortgage contract settlement.

A central requirement for this arrangement is that the appraised market value of the property must be less than the outstanding debt from the original agreement. Generally the property must not be subject to any 3rd party creditor claims or liens. A lender should perform a thorough title search. Unlike a foreclosure, other liens are not eliminated if proceeds from a sale come up short.

The borrower is freed from having a foreclosure, and the associated notoriety, on his or her credit history, and generally, the terms are more generous than a formal foreclosure proceeding. From the borrower’s perspective, this usually occurs when mortgage payments cannot be met and selling the property at market value has been unsuccessful.

Advantages to the lender include:
1. Takes title sooner, often by months, than a foreclosure.
2. Considerable savings on legal fees and court costs
3. Savings on other costs associated with the foreclosure
4. Allows lender to resell property sooner

A preferred alternative to the deed in lieu of foreclosure is a short sale. A short sale occurs when the borrower lists the home for less than market value and the lender agrees to accept proceeds less than the loan amount. This method allows the homeowner to avoid the credit impact and the lender can clear a non-performing loan without the associated costs of foreclosure, eviction and property rehabilitation.

A borrower should be aware that there may be tax consequences related to the amount of forgiven debt. The IRS learns of the deficiency generated by the deed in lieu of foreclosure transaction when the lender sends it an IRS Form 1099C. Some relief, however, was recently given as part of the Mortgage Forgiveness Debt Relief Act of 2007. Consult your local CPA to discuss your individual situation.

FASB Codification of Standards Went Live Today!

The FASB indicated today that:

Financial Accounting Standards Board (FASB) today launched the FASB Accounting Standards Codification as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards documents are superseded as described in FASB Statement No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles. All other accounting literature not included in the Codification is nonauthoritative.

OCC and OTS Issue Joint Release on Major Mortgage Trends

A joint release by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) was issued on June 30th. The report was for the 1st Quarter 2009 and included information on recent 1st lien mortgage performance.

Trends show:

• The number of loan modifications significantly increased.


• The proportion of payment-reducing modifications also increased


• Modifications that reduce payments have lower delinquency rates over time.


• Seriously delinquent mortgages increased


• Foreclosures in process increased.

Robert Herz Speech to the National Press Club June 26th

Robert Herz, Chairman of the FASB, gave a speech to the National Press Club on June 26, 2009. There he commented on his perspective of the financial crisis root causes as well as possible solutions going forward.

In the speech he said, “History does not repeat itself—people repeat history”.

Highlights from his speech include:

1. Need to improve and strengthen certain accounting and reporting standards.
2. Transparency is not just a buzz word or a cliché. It is a fundamental and absolutely essential attribute of sound financial markets.
3. Need to strike the right balance—between regulation that’s respected and that effectively recognizes and manages risks—and regulation that fosters sound economic growth and competitiveness and that lets institutions fail.
4. Must clearly acknowledge the need to have proper infrastructures supporting financial markets to facilitate the timely flow of relevant and reliable information that enable informed decisions, ready price discovery and effective clearing mechanisms.
5. Must stop exploitation of regulatory gaps at many levels and the failure of regulators, rating agencies, leaders of financial institutions, investors, and others to appreciate the risks.
6. The proper operation of capitalism depends on the appropriate regulation of institutions, of financial products, and of market participants and on the existence of infrastructures that support transparency and the smooth functioning of markets.
7. Proper accounting and valuation require that companies and market participants identify, understand, and reasonably calibrate risks and returns emanating from financial assets and obligations, and be able to readily ascertain transaction prices in exchange markets.

8. Supports a greater decoupling between the determination of bank regulatory capital and FASB standards.
9. Regulations must not stifle innovation and appropriate risk taking.

Making Strawman Proposals Effective

When I first heard the term “strawman” proposal, I could not help but think of the scarecrow accompanying Dorothy in the Wizard of Oz. Rather than a character from a beloved movie, a Strawman proposal is a very useful business tool in an environment which fosters creative thought.

A Strawman proposal is a preliminary presentation of ideas at the early stages of conceptualization with the intent to “blow away” or tear down certain pieces and replace with better, more efficient, more productive and/or less costly ideas. Basically it serves as a starting point for brainstorming.

It is critical when presenting such a proposal to ensure that the audience understands up front that it is a “strawman” and that the intent is to generate ideas and critique. As such, the audience should understand that information presented is incomplete and not intended to stand on its own merit without alteration. It should also be made clear that the main reason it is an incomplete solution was to disseminate ideas as quickly as possible and without spending significant additional time on ideas that will not ultimately be utilized.

The attempt to prepare an initial presentation that is complete and strong, and therefore not considered a strawman, may result in a presentation which is not timely or result in analysis paralysis for the individual or team that prepares the proposal.

Strawman proposals are very useful and a company would be wise to strengthen its culture to embrace such types of presentations. The environment in which such a proposal is made must be one that does not criticize the presenter for ideas that are not fully developed. The audience receiving the presentation should also feel comfortable sharing their ideas as well.

Please share your ideas on ways to make strawman proposals more effective.

FAS 165 – Clarification on Subsequent Events Disclosures

FASB issues statement 165.

GAAP requires disclosure of events or transactions that occurred after the balance sheet date, but before financial statements are issued. These events or transactions provide evidence about conditions that existed at the date of the balance sheet.

This guidance is generally straightforward for public companies that have a universally understood issuance date. For companies, generally non public, which may not widely distribute their financial statements, FAS 165 introduces the concept of “Financial Statements are Available to be Issued”. FASB defines this by stating that, “Financial statements are considered available to be issued when they are complete in form and format that complies with GAAP and that all approvals necessary for issuance have been obtained, for example, from management, the board of directors, and/or significant shareholders.”

As a result of this clarification, companies that do not widely distribute their statements will not need to continue to evaluate subsequent events for an extended period of time following their completion. The date through which subsequent events have been evaluated must be disclosed.

This statement effective for interim and annual financial statements ending after June 15, 2009.

Obama Unveils Sweeping Changes To Financial Regulation

Obama is unveiling on June 17th some very broad and significant changes to the financial regulatory environment including:

1. Creation of a Consumer Financial Protection Agency.
2. New oversight over largely unregulated derivatives markets .
3. Requirements on how banks turn their investments, such as mortgages, into complex securities (possibly retention of 5% will be required).
4. Create of a Financial Services Oversight Council, headed by the Treasury secretary.
5. Eliminating the Office of Thrift Supervision (OTS), the regulator for savings and loan institutions.

Resource for the Economic Crisis - AICPA Launches Site

AICPA introduces a very useful and information packed website entitled “Economic Crisis and Resource Center”. This resource allows researching by:

Topics Include:
a. Accounting and Auditing
b. Finance, Risk Management, and Specialties
c. Human Resources and Career Information
d. Tax

The Website also allows searching business category such as Business & Industry, Government, and Public Practice. For those who enjoy the interactive nature of a blog, there is a link located on the site for just such activity.

Examples of recent articles include:

1.The American Reinvestment and Recovery Act of 2009: A Primer for Audit Committees

2.Infocast: Scouring Your Balance Sheet …Where Cash is King

3.CPA Job Finder – The Official CPA Job Board of the AICPA

Here is the link which will take you directly to this site:

http://economy.aicpa.org/

FASB Board Discussing "Going Concern"

FASB is continuing its discussion around the concept of "Going Concern" and will likely continue to discuss at future meetings the following:

1. Enhancing the disclosures of short-term and long-term risks, specifically risks for which there is more-than-remote likelihood of occurrence.
   
2. Defining substantial doubt in terms of an entity’s ability to continue as a going concern.
   
3. Defining when it is appropriate for an entity to apply the liquidation basis of accounting.

FASB indicated that general time horizon to be 12 months, but indicated that reasonably foreseeable events beyond 12 months should also be disclosed.

Reverse Mortgages - OCC Controller Dugan Wants Protections

Comptroller of the Currency John C. Dugan, while acknowledging the benefit of reverse mortgages for some consumers, would like to see regulators step up their efforts towards ensuring that these type of loans, which have some of the same characteristics of subprime lending, are done in such a way that is prudent for both borrower and lender.

He expressed several concerns:

1. Aggressive cross selling of other products, sometimes as a condition of getting a loan.
2. Targeting the elderly, a group perceived to be more vulnerable.
3. Complexity of this loan type.
4. Substantial fees.
5. Inappropriateness of this loan type for some consumers.
6. Lack of escrows for insurance and taxes raises the risk of foreclosure.

“We need to be on constant alert to emerging risks and vigilant in our regulatory compliance responsibilities,” he said.

True Cost of Layoffs and Lost Productivity

In some cases, layoffs are a necessary evil of business. The overall real cost savings of such an action, however, are difficult to determine. Simplistically, the savings could be determined by netting the salaries and benefits, less severance and retention, of impacted employees. The problem with this simple approach is that it does not consider the impact to productivity of remaining employees. A recent article in the Dallas Morning News by Cheryl Hall cited a study by Leadership IQ which indicated that, “Leadership IQ recently surveyed more than 4,100 layoff survivors at 318 companies and found that nearly 75 percent felt their productivity had declined significantly. Nearly as many said that their cohorts' work had slacked off, too”. Respondents in the survey attributed these feelings to guilt, anxiety and anger. Ms. Hall refers to this as "post-traumatic layoff syndrome." Couple layoffs with a salary freeze or reduction, and the impact can be devastating. A company, therefore, should give significant thought to the total impact of a right sizing action. If a layoff is inevitable, a company should be very vocal about providing both tangible and intangible resources and support for the remaining staff.

Say Goodbye to QSPE's

Qualified Special Purpose Entities (QSPE’s) days appear to be numbered. When new FASB guidance is issued in June 2009, effective sometime in the beginning of 2010, it will eliminate the exemption from consolidation for QSPE’s. This was announced in a FASB briefing document issued May 18th.

This change in direction will, in essence, eliminate QSPE’s, which have been a tool primarily used by banks to keep assets off their balance sheets through a process called securitization. The process of moving assets off the balance sheet involved the repackaging of loans into securities which were sold off to investors.

Consolidation will now center on “effective control” along with increased usage of “fair value” accounting. Once this change goes into effect, look for banks to potentially move substantial amounts of assets back on their books.

So your Bank Lender Just Failed - Now What?

On May 5th, the Federal Deposit Insurance Corporation (FDIC) issued short, but helpful, guidance directed towards borrowers of failed financial institutions. Businesses with a borrowing relationship with a failed institution should be aware of procedures adapted by the FDIC to ensure a smooth transition. Some points covered by their guidance:

Communications with Borrowers during Interim Servicing - The FDIC will be responsible for interim servicing of a loan until transferred to another institution. The FDIC strongly encourages refinancing of loans with other institutions. In some instances the FDIC will offer an incentive to refinance in the form of reimbursement of closing costs.

Modifications and Reductions in Principal - If borrower experiences financial difficulties, the FDIC encourages contacting them for possible modification of terms or reduction of principal.

Lines of Credit - If a borrower has a line of credit or a construction/development loan, the FDIC prefers not to continue to loan additional funds, but will do so to protect or enhance collateral value.

Additional Funds Requested - If a borrower seeks additional funds, the FDIC will first utilize information in the failed bank's loan file. In many situations, documentation is incomplete and therefore, it is not unusual for a business to be asked to provide additional documentation.

Get ready for More Disclosures on Variable Interest Entities

In the post Enron world, considerable ongoing attention has been given to the consolidation of variable interest entities (VIE), which are generally thinly capitalized. An amendment to FIN46(R) being issued by the FASB in June 2009 will require companies to perform periodic qualitative analysis on VIE's to determine if consolidation is necessary.

Focus is given on the amount of control a company exercises over the significant activities of the entity. This includes the right to receive benefits and the obligation to absorb losses as well as changes in risk exposure. After issuance of this new amendment, it is no long sufficient to base consolidation decisions solely quantitative analysis. A company should plan on disclosing significant judgments and assumptions used in this analysis. Effective date likely to be the beginning of 2010.

IAS 39 Fair Value – Will it be replaced?

The International Accounting Standards Board (IASB) met on May 5th to continue its work on the replacement of IAS 39, Financial Instruments: Recognition and Measurement. IAS 39 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. IAS 39 officially was issued in 1998 and has been amended multiple times over the last 11 years.

In the KPMG 'Top Ten' of IFRS standards, IAS 39 was rated number one i.e. likely to have the most dramatic effect on reported results.

Work on this project began in 2008, with discussions dating back to 2005.

Why replace this standard? It is viewed by many as too complex. A replacement needs to improve the decision usefulness of the information for users. There is a high likelihood that it will be replaced.

At the May 5th meeting, focus was given to a possible remeasurement method based on discounted cash flows. Other possibilities being considered include amortized cost and “exit price” as defined in FAS 157.

FDIC Special Assessment Ruling Issued - OCC's John Dugan not Happy

The FDIC announced on May 22nd it's final ruling on the special assessment to bolster funds used to protect depositors. The final rule establishes a special assessment of five basis points on each FDIC-insured depository institution's assets, minus its Tier 1 capital, as of June 30, 2009. The special assessment will be assessed against assets minus Tier 1 capital rather than domestic deposits, but the assessment will be capped at 10 basis points of an institution's domestic deposits so that no institution would pay an amount higher than they would have paid under the interim rule. The special assessment will be collected September 30, 2009.

Comptroller of the Currency John C. Dugan is not too pleased with the final ruling. According to his press release shortly after the FDIC issuance, he expressed concern that the FDIC has in effect opened the door for a total of three special assessments. He indicated that “The revised special assessment in today’s final rule uses an asset-based assessment base, but if translated into the normal assessment base of domestic deposits, it results in the following totals: 7 1/3 basis points for the second quarter, and up to an additional 7 1/3 basis points each for the end of the third quarter and the end of the fourth quarter. Thus, instead of voting on a one-time special assessment today of 20 basis points, we’re voting on the ability to impose three special assessments before the end of the year totaling 22 basis points. While the second two assessments would require separate Board votes, they would not require additional public comment, and I don’t think that’s appropriate”.

He also indicated in the release that he felt that the assessment unfairly penalized larger banks and could have very negative economic consequences since it is very procyclical.

World Economy on the Mend? LIBOR Rate Declines

The London Interbank Offered Rate, better known as LIBOR, ended the week of May 22nd down 17 basis points driven not only by increased confidence in Banks, but also growing customer deposits. The LIBOR rate is derived from a survey conducted by the British Banker’s Association requesting banks to provide details regarding cost to lend to each other for 15 different periods across several currencies.

Why is LIBOR so significant? LIBOR is used to set borrowing costs on about $360 trillion of financial products globally. When LIBOR rate goes down the cost of bank borrowing is reduced.

Is this a sign that the world economy may be on the mend? Perhaps. Clearly this is a sign that credit is thawing and banks are beginning to lend to each other again.

SEC Proposal to Allow Shareholder Board of Director Nominations

Shareholders are angry. In the current economic crisis, shareholders want more power to ensure that Boards of Directors are aligned with their interests.

The SEC recognizes this and issued a proposal on May 20th for comment to allow shareholders who meet certain criteria, based primarily on percentage of shares owned, to put someone of their choosing on the shareholder proxy sent to all shareholders. The current process allows shareholders to present nominations, but only at the annual shareholder meeting. This has little to no impact due to proxy votes already having been cast by this time. In most cases, currently shareholders have no input in choosing the slate of candidates presented.

The proposal does indicate that shareholders would not be able to submit a nomination on the proxy if specifically prohibited by applicable state law or a company's charter/bylaws.

Spreadsheet Errors… more common than you think

Spreadsheets are dangerous. Very dangerous. Unlike other software development that utilizes rigid complex testing strategies worked on by a team, spreadsheets are deceptively easy to use and are typically created by a single individual.

A groundbreaking study in 1998 by Raymond R. Panko at the University of Hawaii, delves into the psychological reasons why the majority of spreadsheets contain at least 1 error, often materially significant.

Mr. Panko concludes that when complex tasks are performed, the average human error rate is approximately 5%. This error rate, he says, is fairly consistent along a wide range of complex human tasks. This error rate also does not correlate to the experience of the individual performing the task.

Several factors come into play including human nature to be overconfident when producing a spreadsheet as well as the inability to see one’s own errors.

Two suggestions, among many, to lessen the percentage of errors in a spreadsheet is to have a person other than the original creator of the spreadsheet check for errors. According to John F. Raffensperger in a different article, a creator of a spreadsheet should use a simple and well laid out design with short arcs of precedence.

The following link will lead to Mr. Panko's study and conclusions:

http://panko.shidler.hawaii.edu/SSR/Mypapers/whatknow.htm