June 21, 2001

SEC pores over pro forma

Author: JT Smith

CNET News.com reports that the U.S. Securities and Exchange commission is investigating companies for possible deception through the use of pro forma financial results. Pro forma results often exclude items like one-time charges for mergers or restructuring activities, and go against the grain of Generally Accepted Accounting Principals (GAAP) that companies are required to use for their SEC filings. From the article: "It's no wonder that companies love pro forma results. The difference between pro forma results and those based on GAAP can be startling.

Take Red Hat, for instance. The Linux company reported first-quarter results Tuesday in a press release titled "Red Hat Achieves Positive Cash Flows
From Operations and Shows a Profit for the First Time in First Quarter."

But further down in the press release, the company revealed that "on a reported basis," it had a net loss of $27.6 million, or 16 cents per share."

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