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gains or losses that appear as part of net income. With the other method, the translation adjustment
will be reported as part of other comprehensive income. 28
Foreign currency gains and losses can also result from the use of various currency contracts such as
forwards, futures, options, and swaps for purposes of both hedging and speculation. It is not
uncommon to observe foreign exchange gains and losses year after year in a company‟s income
statement. However, it is also the case that the amounts of these items, as well as whether they are
gains or losses, are often very irregular, making them candidates for nonrecurring classification.
To illustrate this, a portion of a note titled “Financial Instruments—Other Derivatives” from the
2007 annual report of Hewlett-Packard Company is reproduced here:
HP recognizes the gains or losses on foreign currency forward contracts used to hedge balance
sheet exposures in interest and other, net in the same period as the remeasurement gain and loss
of the related foreign currency denominated assets and liabilities. Interest and other, net, included
net foreign currency exchange gains of approximately $86 million in fiscal 2007, gains of
approximately $54 million in fiscal 2006, and gains of approximately $70 million in fiscal 2005. 29
While appearing in each of the past three years, Hewlett-Packard‟s foreign currency exchange gains
and losses are irregular. At 1% to 2% of pretax income during these years, the amounts are less
material than the effects for First Solar described in Exhibit 3.3. The significance of foreign currency
gains to First Solar‟s financial results explains why they appear on the face of its income statement
and are discussed in the MD&A, while for Hewlett-Packard, the only disclosure is in the foreign
currency section of the note on financial instruments.
Restructuring Notes
Throughout business cycles, but especially in economic contractions, companies continuously tinker
with their product lines, geographic reach, and organizational structure. Different firms call the
process by different names (e.g., streamlining, downsizing, rightsizing, redeploying, or strategic
repositioning), but the result is that firms often record nonrecurring—or at least irregular—charges for
these activities. The size and scope of these activities ensures that they leave their tracks throughout
the statements and notes. Notes on restructuring charges are among the most common of the
transaction-specific notes. An example of a restructuring note is provided in Exhibit 3.21.
Exhibit 3.21 Restructuring note: Kimberly-Clark Corporation, year ended December 31, 2007
(in millions).
Source: Kimberly-Clark Corporation, annual report, December 2007, Note 2.