Legal Definitions - extraordinary item

An extraordinary item refers to an event or transaction that is both highly unusual in nature and infrequent in occurrence for a particular entity. These items are distinct from the typical, recurring operations of a business or organization and are not expected to happen again in the foreseeable future. Because they can significantly impact an entity's financial results in a way that doesn't reflect its normal performance, extraordinary items are often reported separately on financial statements.

Here are some examples illustrating the concept of an extraordinary item:

• Major Natural Disaster Loss: Imagine a regional bakery chain that operates primarily in a landlocked area. A sudden, unprecedented earthquake causes extensive structural damage to its main production facility, leading to significant repair costs and uninsured losses. This would be considered an extraordinary item because earthquakes are highly unusual and infrequent in that specific region, and the scale of damage is far beyond the normal risks or operational expenses the bakery typically faces.

• Expropriation of Assets by a Foreign Government: Consider a multinational energy company that has invested in a drilling operation in a politically unstable country. If the government of that country suddenly and without warning seizes the company's assets and operations without compensation, the resulting massive loss would be an extraordinary item. Such an event is both highly unusual for most international businesses and infrequent, as it represents a complete and unexpected loss of a significant investment due to an external political action, rather than a normal business risk.

• Large, Unforeseen Litigation Settlement: A software development firm, after years of legal battles, is ordered to pay a massive, one-time settlement for a patent infringement claim related to a technology it acquired and subsequently discontinued a decade ago. This settlement is so large it significantly impacts the company's annual profits. This would qualify as an extraordinary item because while lawsuits can occur, a settlement of this magnitude, stemming from a historical, non-core technology, is highly unusual and not expected to recur as part of the company's ongoing business operations.