Revenue Recognition and Income measurement.pptx

Revenue Recognition and Income measurement.pptx - Financial...

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1 Financial Reporting definitions and classifications GAAP net income Operating versus non-operating income Recurring vs Non-recurring income Write-downs (operating or non-operating) Restructuring expenses (operating) Discontinued operations (non-operating) Other “performance” labels Core vs transitory income, Pro-forma earnings, EBITDA, EPS, ‘Below the line’ items
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2 Operating and Non-operating Income Components
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STARBUCKS (page 46 ) CONSOLIDATED STATEMENTS OF EARNINGS In millions
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4 Recurring vs Non-recurring items Can be “operating” or “non-operating” Examples include: 1. write-downs or write-offs of receivables, inventories, equipment, or intangibles, 2. gains or losses from the sale of equipment or investments 3. Discontinued operations 4. One-time charges resulting from corporate restructurings. 5. “extraordinary” items – classification discontinued as of 2015
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5 Blackberry Limited CONSOLIDATED STATEMENTS OF OPERATIONS In millions (unaudited)
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6 Blackberry Limited CONSOLIDATED STATEMENTS OF OPERATIONS In millions (unaudited)
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7 Discontinued Operations Business operations are treated as a discontinued operation provided that the following conditions are met: Business unit has its own identifiable operations and cash flows. Operations and cash flows of the business unit have been or will be removed from the ongoing company operations as a result of the disposal transaction. The company will have no significant continuing involvement in the operations of the business unit after the disposal transaction
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STARBUCKS (page 46 ) CONSOLIDATED STATEMENTS OF EARNINGS In millions
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9 Restructuring Expenses Restructuring costs typically consists of two components: Employee severance or relocation costs Asset write-downs Accounting standard: A company is required to have a formal restructuring plan that is approved by its board of directors before any restructuring charges are accrued. Also, a company must identify the relevant employees and notify them of its plan . Example: Starbucks restructuring in 2008-2010 From 2011 annual report: “The restructuring efforts we began in fiscal 2008 to rationalize our store portfolio and the non-retail support organization were essentially completed in fiscal 2010. On a cumulative basis we closed 918 stores on a global basis as part of this effort.” Costs incurred and charged to expense in fiscal 2010 $ 53.0 million Costs incurred and charged to expense in fiscal 2009 $332.4 million Costs incurred and charged to expense in fiscal 2008 $266.9 million
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10 Non-GAAP Earnings Core (derived from a company’s main business) vs Transitory Earnings. S&P Core earnings: Earnings excluding certain items (e.g., pension gains/losses and net revenues from sale of assets) .
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