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philjoe
Special Items on the Income Statement

Does anyone know where this comes from? I was trying to reconcile it with actual financial statements and I can't figure out which line items this would include. Does anyone know which Compustat line items it includes? Or is it just one specific Compustat line item?

Mar 13, 2019 5:04:07 PM       
pdemartino
Re: Special Items on the Income Statement

It's one specific CompuStat line, code SPI. In our internal testing the lion's share of it was usually discontinued operations, but it's a consolidated line.

CompuStat, in order to normalize the data will sometimes combine several lines as reported in the 10-K or 10-Q into a more general line for use in programs like P123.

Imagine that a company reported an above the gross section on the income statement that looked like this:

Revenues from Widgets $1,000
Revenues from Butter $1,000
Revenues from Guns $1,000
Cost of Goods Sold $2,500
Gross Profit $500

You can pretty much expect that CompuStat is going to report

Revenues $3,000
COGS $2,500
Gross Profit $500

That's because the consolidated revenue line is more comparable in the CompuStat product -- and on P123, for that matter -- than the butter/guns/widget breakdown. I would also expect, though I've never seen the data entry interface for CompuStat, that there is no Revenues from Widgets line at all, so it's probably handled at the data entry level. (That is just my supposition, though.)

Anyway, special items is a consolidated line. Here's the S&P description of what goes into it:

This item, when reported above taxes, includes:
Adjustments applicable to prior years (except recurring prior year income tax adjustments)
After-tax adjustments to net income for the purchase portion of net income of partly pooled companies when the adjustment is carried over to retained earnings
Any significant nonrecurring items
Current year's results of discontinued operations and operations to be discontinued
Flood, fire, and other natural disaster losses
Impairment of goodwill/unamortized intangibles Interest on tax settlements (when reported separately from other interest expense)
Inventory writedowns when reported separately or called "nonrecurring"
Nonrecurring profit or loss on the sale of assets, investments, securities, among others
Profit or loss on the repurchase of debentures
Purchased research and development
Relocation and moving expense
Reserve for litigation
Restructuring charges (includes closing and exit costs)
Severance pay when reported separately on the Income Statement
Transfers from reserves provided for in prior years
Write-down of assets
Write-downs or write-offs of receivables, intangibles, among others
Write-offs of capitalized computer software costs
Year 2000 expenses

This item excludes:
Any special item listed above as "include" that appears every year for the last three years, unless it has specifically been called Restructuring, Special or Non-recurring. (Additionally, this does not apply to Year 2000 Expenses, Impairment of Goodwill, Extinguishment of Debt, Settlements, In Process R&D or Purchased R&D.)
Foreign exchange (currency) adjustments (included in Nonoperating Income [Expense]) Gain/Loss on Sale of Marketable Securities for companies that have adopted SFAS #115
Idle plant expense (included in Nonoperating Income [Expense])
Interest on tax settlements, when included by the company with other interest expense (included in Interest Expense)
Milestone Payments or One-Time Contract Reimbursements for R&D companies
Nonrecurring items that are included in equity in earnings
Profit or loss on sale of properties (except for securities, etc.) for the companies in the oil, coal, transportation, and other industries where these transactions are considered a normal part of doing business (included in Nonoperating Income [Expense])
Shipping firms' operating differential subsidies and estimated profit adjustments for preceding years. Prior years' operating differential subsidies are included in Nonoperating Income (Expense). Current year operating differential subsidy is included in sales. Adjustments by shipping companies to estimated profits reported by this method are ignored.


All of which you should take as it's possible, though by no means easy, to figure out what's in there for a single company looking at a single period. It's more or less hopeless across the whole universe.

Mar 14, 2019 10:03:38 AM       
philjoe
Re: Special Items on the Income Statement

Do you think that special items is consolidated at the data entry level as well?

Mar 14, 2019 12:08:42 PM       
pdemartino
Re: Special Items on the Income Statement

Probably, but that's just a guess.

Mar 14, 2019 12:19:10 PM       
primus
Re: Special Items on the Income Statement

Do you think that special items is consolidated at the data entry level as well?


That's a safe assumption, based on the fact that CompuStat was originally based on a normalized financial statement model.

And if it helps, here is how it works for the income statement:

In about 90% of cases:

OpInc = Sales - CostG - SGandA - DepAmort - RandD

IncBTax = OpInc - IntExp + ExpNonOp + SpcItems

NetIncBXorNonC = IncBTax - IncTaxExp

IncBXorForCom = NetIncBXorNonC - mii

About 6-7% of the time, RandD is not subtracted from operating income (especially for manufacturers).

About 6-7% of the time, SpcItems is not added back to operating income.

We don't get minority interest (mii) on the income statement, but we can recover this item through hacking the income statement.

Most of the rest of the 3-4% outliers should represent unhandled NAs and outliers on the consolidated statements of income (we don't have access to this statement in P123). While CompuStat's financial statement balancing model should be catching any outright errors, clearly data entry errors are possible.

"The world is. The world is. Love and life are deep maybe as his eyes are wide." - Rush, "Tom Sawyer"

Mar 17, 2019 5:50:22 PM       
Edit 1 times, last edit by primus at Mar 17, 2019 10:42:38 PM