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• benefits of $13 million ($8 million after tax) resulting from favorable legal
settlements,
• a benefit of approximately $7 million ($5 million after tax) resulting from a favorable
resolution of franchise tax matters,
• net tax charges of approximately $6 million related to unfavorable settlements and
changes in estimates, and
• a gain of approximately $4 million resulting from the sale of an equity investment in a
malt business, and related income tax benefits of approximately $4 million, resulting in an
after tax gain of approximately $8 million. 26
Though helpful in locating nonrecurring items, such schedules must be viewed as useful
complements to, but not substitutes for, a complete search and restatement process.
The discussion to this point has taken us through the first six steps in the nonrecurring items search
process that was outlined in Exhibit 3.4. This last step illustrates how additional nonrecurring items
may be located in other selected notes to the financial statements.
Nonrecurring Items in Other Selected Notes
Typically, most material nonrecurring items will have been located by proceeding through the first six
steps of the search sequence outlined in Exhibit 3.4. However, additional nonrecurring items or further
details may be located in other notes. In fact, nonrecurring items can surface in virtually any note to
the financial statements. Three selected notes that frequently contain other nonrecurring items are now
discussed. These include notes on foreign currency exchange, restructuring, and quarterly and segment
financial data. Recall that inventory, income tax, and other income and expense notes were discussed
in steps 3 to 5.
Foreign Currency Exchange Notes
Foreign exchange gains and losses can result from both transaction and translation exposure.
Transaction gains and losses result from either unhedged or partially hedged foreign currency
exposure. 27 This exposure is created by items such as accounts receivable and accounts payable that
are denominated in foreign currencies. These foreign currency balances result from sales and
purchases denominated in foreign currencies. As foreign currency exchange rates change, the value of
the foreign currency assets and liabilities will expand and contract. This results, in turn, in foreign
currency transaction gains and losses. This is the essence of the concept of currency exposure.
Translation gains and losses result from either unhedged or partially hedged exposure associated
with foreign subsidiaries. Translation exposure depends on the mix of assets and liabilities of the
foreign subsidiary. In addition, the character of the operations of the foreign subsidiary and features of
the foreign economy are also factors in determining both exposure and the translation method applied.
There are two possible statement translation methods, and of the two only one results in translation