The difference between the EPS numbers reported by the analyst tracking services and the EPS in accordance with GAAP are due to pro-forma numbers presented by The Great Atlantic and Pacific Tea Company (GAP). These pro-forma differences are specifically related to a program called “Project Great Renewal” that was implemented by the board of directors of GAP. This project was implemented to improve the performance of the company. In the third quarter of fiscal year 1998, GAP closed two warehouse facilities in Canada. In the fourth quarter of fiscal year 1998, the board of directors decided to close 127 stores and dispose of two other properties. In the fourth quarter, GAP reported a Project Great Renewal charge of $213,153,000. This amount consisted of severance pay, occupancy costs, and a write-down of fixed assets. This huge expense led to a GAAP EPS of ($2.31). The pro-forma numbers eliminated all costs associated with Project Great Renewal. This is where the analysts derived their EPS of $0.19.
Pro-forma earnings are financial statements that seek to give a better indication of how well a company’s operations are actually performing. These earnings show what reported earnings would have looked like if some nonrecurring items were excluded. Pro-forma earnings are not in prepared in accordance with GAAP. Some common uses for pro-forma earnings are when a company has restructuring costs or impairment losses.
There are pros and cons associated with pro-forma reporting practices. One benefit is that these earnings exclude anything that can distort a company’s operating performance. In many cases, restructuring costs are a one-time expense, and taking such a huge hit in one period can distort the financial statements. Pro-forma earnings can provide investors with a better way to predict future earnings and performance. Furthermore, pro-forma