48 Understanding the Numbers
from those that have been or are being discontinued. Only the discontinuance
of operations that constitute a separate and complete segment of the business
have normally been reported in this special section. The current segment-
reporting standard, SFAS 131,Disclosures about Segments of an Enterprise and
Related Information,identifies the following as characteristics of a segment:
- It engages in business activities from which it may earn revenues and
incur expenses (including revenues and expenses relating to transactions
with other components of the same enterprise). - Its operating results are regularly reviewed by the enterprise’s chief op-
erating decision maker to allocate resources to the segment and assess its
performance. - Discrete financial information is available.^12
Some examples of operations that have been viewed as segments and
therefore classified as “discontinued operations” are provided in Exhibit
2.10. Most of the discontinued operations that are disclosed in Exhibit 2.10
appear to satisfy the traditional test of being separate and distinct segments
of the business. The retail furniture business of insurance company Atlantic
American is a good example. The case of Textron is a somewhat closer call.
Textron reports its operations in four segments: Aircraft, Automotive, Indus-
trial, and Finance. The disposition of Avco Financial Services could be seen
as a product line within the Finance segment. However, it may very well qual-
ify as a segment under the newer guidance of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information,prev iously pre-
sented. The treatment of vegetables as a separate segment of the food proces-
sor Dean Foods also suggests that there are judgment calls in deciding
whether a disposition is a distinct segment or simply a product line and thus
only part of a segment.
Extraordinary Items
Income statement items are considered extraordinary if they are both(1) un-
usual and (2) infrequent in occurrence.^13 Unusual items are not related to the
typical activities or operations of the firm. Infrequency of occurrence simply
implies that the item is not expected to recur in the foreseeable future.
In practice the joint requirement of “unusual and nonrecurring” results
in very few items being reported as extraordinary. GAAPs identify two types of
extraordinary transactions the gains or losses from which do not have to be
both unusual and nonrecurring. These are (1) gains and losses from the extin-
guishment of debt^14 and (2) gains or losses resulting from “troubled debt re-
structurings.”^15 Included in the latter type are either the settlement of
obligations or their continuation with a modification of terms.
A tabulation of extraordinary items, based on an annual survey of
600 companies conducted by the American Institute of CPAs, is provided in