Analyzing Business Earnings 71Quarterly financial data of Office Depot Inc. disclosed inventory write-
downs of $56.1 million for the third quarter of1999, a store closure and reloca-
tion charge of $46.4 million in the third quarter of1999, and a $6.0 million
reversal of the charge in the fourth quarter of 1999. Office Depot also disclosed
merger and restructuring charges as part of the reporting for its segments.^43
To complete this review of selected financial statement notes, we discuss
one last item before illustrating the summarization of information on nonre-
curring items and the development of the sustainable earnings series. This
topic is the most recent standard-setting activity with a focus on the funda-
mental structure and content of the income statement.
EARNINGS ANALYSIS AND OTHER
COMPREHENSIVE INCOME
The last section in the AK Steel Holdings income statement in Exhibit 2.9 is de-
voted to the reporting ofother comprehensive income.This is a relatively new
feature of the income statement and was introduced with the issuance by the
FASB of SFAS No. 130, Repor ting Comprehensive Income.^44 The goal of the
standard is to expand the concept of income to included selected items of non-
recurring revenue, gain, expense and loss. Under the new standard, traditional
net income is combined with a new component, “other comprehensive in-
come,” to produce a new bottom line, “comprehensive income.”
The principal elements of other comprehensive income are listed in the
other comprehensive income section of the AK Steel Holdings comprehensive
income statement (Exhibit 2.9). They include:
- Foreign currency translation adjustments.^45
- Unrealized gains and losses on certain securities.
- Minimum pension liability adjustments.
Each one of these items was already recognized prior to the issuance of SFAS
No. 130. However, they were reported not as part of net income but directly in
shareholders’ equity. The items made their way into the income statement only
if they became realized gains or losses by, for example, selling securities. No-
tice that the AK Steel disclosures in Exhibit 2.9 list the reclassification of gains
on securities that had previously been recognized in other comprehensive in-
come. When these gains were realized they were reported in net income. How-
ever, since they had earlier been included in other comprehensive income,
avoiding double counting them requires an adjustment to other comprehensive
income in the year of sale.
SFAS No. 130 permitted other comprehensive income to be reported in
three different ways. The preferred alternative was the income statement for-
mat of AK Steel, though reporting other comprehensive income in a separate
income statement was also permitted. The third option permitted other com-
prehensive income to be reported directly in shareholders’ equity. It should