What is a Special Item
A special item is a large expense or source of income that a company does not expect to recur in future years. Special items are reported on the income statement and are separated out from other categories of income and expenses so investors can more accurately compare the company's numbers across accounting periods. Examples of special items include extraordinary expenses, restructuring charges, gains from the elimination of debt, and earnings from discontinued operations.
BREAKING DOWN Special Item
There is a bias toward assuming that special items are used to manipulate investors. However, special items are often legitimate, and it is normal for businesses to occasionally experience one-time events that are not expected to have an ongoing effect on income. These items can include fines, gains from elimination of debt, and earnings from discontinued operations. However, if a company reports special items on its income statement year after year, this can be a red flag for investors because not only do the recurring special items make it difficult to gauge the company's performance across time, but they also indicate instability in the business.
Example of a Special Item
For example, XYZ company manufactures widgets. The government of the country where XYZ company operates has decided it is going to fine widget makers who don't use a certain type of widget press that the government favors. XYZ company decides not to adopt the new widget press, and so is fined $100,000,000. After paying the fine, XYZ company decides this fine is extremely costly and immediately decides to purchase the government mandated widget press so as not to incur the penalty in future years. This $100,000,000 fine would be listed on the income statement as a special item.