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transactions as part of Northwest‟s ongoing operations. While an airline is not in the business of
selling airplanes, its business does require that it manage its aircraft fleet. So we would expect these
dispositions to recur. Rather than eliminate them altogether, an alternative would be to smooth them
by including an average value (e.g., $46 million for Northwest for the period 2002 to 2006) over some
period of time. A third approach is to attempt to acquire information on planned aircraft dispositions
that would make possible a better prediction of the effects of aircraft dispositions on future results.
While the last approach may appear to be the most appealing, it may prove to be difficult to
implement due to lack of information, and it may also be less attractive when viewed from a costbenefit
perspective. Unless the amounts are consistently substantial, most financial statement users
either remove the gains (losses) or use a recent average value in making earnings projections.
First Solar, Inc., offers another example of the impact of a recurring but irregular item on the
evaluation of earnings performance. Listed in Exhibit 3.3 are First Solar‟s foreign currency gains
(losses) and their effects on pretax profit margins.
As with Northwest Airlines, it may seem questionable to classify as nonrecurring foreign currency
gains (losses) that appear repeatedly. However, in line with the definition of the key characteristics of
nonrecurring items given earlier, First Solar‟s foreign currency effects are irregular in amount,
direction, and significance, and they are unlikely to be consistent contributors to results in future
years. In 2006 more than half of First Solar‟s pretax earnings were generated by foreign currency
gains, a proportion that is unlikely to be repeated.
Exhibit 3.3 First Solar, Inc., foreign currency gains (losses) and effects on pretax profit margins,
years ended December (in thousands).
Source: First Solar, Inc., annual report, December 2007.
Other examples of irregular items of revenue, gain, expense, and loss abound. For example, the
recent loss of liquidity in the credit markets affected more than financial services firms. Bristol-Myers
Squibb reported a $225 million write-down of its investments in auction-rate securities (ARS) in 2007
when the ARS market froze. 8 Natural disasters may also affect corporate earnings. Whole Foods
Market recorded a $16.5 million charge in 2005 for the loss of its stores caught in the path of
Hurricane Katrina and then $7.2 million in income the next year from insurance proceeds. 9 Temporary
revenue increases have been associated with expanded television sales due to World Cup soccer and
the Olympic Games. Temporary expense increases have resulted from adjustments to loan-loss
provisions in economic downturns.