Cisco Systems, Inc., the world’s largest networking products company, announced on May 8, 2001, that itspro forma earnings for the quarter ended April 28, 2001, were $230 million. The company also disclosed that actual earnings for the quarter, determined according to generally accepted accounting principles, were a lossof $2.69 billion.
1. What is meant by the term pro forma earnings in this context?
2. How do pro forma earnings relate to the concept of earnings quality?
3. Access the company’s 10-Q (quarterly report) for the quarter ended April 28, 2001. You can go to the company’s Internet site, or EDGAR (www.sec.gov). Using the company’s income statement for the quarter and disclosure notes, reconcile the GAAP loss of $2.69 billion to the pro forma earnings figure of $230 million. Remember that both of these earnings (loss) figures are net of tax.