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Restructuring costs
Restructuring costs
Restructuring costs are costs associated with the shutdown or relocation of facilities or downsizing operations.
Recognition of restructuring costs
Recognition of restructuring costs
Restructuring costs are recorded in the period incurred.
Employees: Typically recognized when the employees are told they are being terminated.
Other costs: Typically recognized when the cost is incurred.
Many times restructuring takes years and a long-term liability needs to be established. Finally, if restructuring occurs frequently (based on company's recent history), restructuring costs need to be classified as an operating expense.
Other unusual items
Other unusual items
Anything that is out of the ordinary and included in operating income needs to be investigated to determine if it is permanent or temporary in nature. Examples:
Goodwill impairments,
asset impairments,
inventory write-downs,
earthquakes,
floods,
lawsuits, and
loss of a major customer.
Non-GAAP earnings
Non-GAAP earnings
Non-GAAP earnings is a measure of management's assessment of permanent earnings.
Financial statements must conform to GAAP.
Companies often assert that GAAP rules are overly restrictive.
So, companies will often make adjustments to GAAP net income and tell investors and creditors that the "adjusted" net income better depicts income from continuing operations than GAAP net income does.
Non-GAAP earnings are controversial. If companies report non-GAAP earnings, they need to show the math they did to get to the non-GAAP earnings number. Example here and below.
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