Analyzing Business Earnings 41The distinguishing feature of the multistep statement is that it provides
intermediate earnings subtotals that are designed to measure pretax operating
performance. In principle, operating income should be composed almost en-
tirely of recurring items of revenue and expense, which result from the main
operating activities of the firm. In practice, numerous material nonrecurring
items are commonly included in operating income. For example, “restructur-
ing” charges, one of the most common nonrecurring items of the past decade,
is virtually always included in operating income.
Shaw Industries’ single-step income statement does not partition results
into intermediate subtotals. For example, there are no line items identified as
either “gross profit” or “operating income.” Rather, all revenues and expenses
are separately listed and “income before income taxes” is computed in a single
step as total expenses are deducted from total revenues. However, the Toys “R”
Us multistep income statement provides both gross profit and operating in-
come/(loss) subtotals.
Note that Shaw Industries has a number of different nonrecurring items in
its income statements. While they vary in size, the following would normally be
considered to be nonrecurring: charges related to residential retail operations,
EXHIBIT 2.4 Consolidated single-step statements of income: Shaw
Industries Inc. (in thousands).
Year Ended
Jan. 3 Jan. 2 Jan. 1
1998 1999 2000
Net sales $3,575,774 $3,542,202 $4,107,736
Cost of sales $2,680,472 $2,642,453 $3,028,248
Selling, general and administrative 722,590 620,878 627,075
Charge to record loss on sale of residential
retail operations, store closing costs and
write-down of certain assets — 132,303 4,061
Charge to record plant closing costs — — 1,834
Pre-opening expenses 3,953 — —
Charge to record store closing costs 36,787 — —
Write-down of U.K. assets 47,952 — —
Interest, net 60,769 62,553 62,812
Loss on sale of equity securities — 22,247 —
Other expense (income), net (7,032) 4,676 1,319
Income before income taxes 30,283 57,092 382,387
Provision for income taxes 5,586 38,407 157,361
Income before equity in income of joint ventures 24,697 18,685 225,026
Equity in income of joint ventures 4,262 1,947 2,925
Net income $ 28,959 $ 20,632 $ 227,951
Note:Per share amounts omitted.
SOURCE: Shaw Industries Inc., annual report, January 2000, 24.