Julie Cassidy, a financial analyst with a major institutional investor, was puzzled by the large number of what appeared to be "nonrecurring" items in Proxim, Inc.'s 2001 income statement (Exhibit 1). In particular, she was confused as to what income figure or figures she should use to judge the performance of management and value of the company's common stock.

Questions
1. Why do you think Proxim has so many "nonrecurring"-type charges during 2001?
2. As the management of Proxim, what income figure do you believe best reflects your 2001 performance?
3. What 2001 income figure would you use to calculate Proxim's 2001 trailing year price-earnings ratio?
4. Should the Securities and Exchange Commission be concerned with any proliferation of pro forma earnings announcements? If you had to write a new Securities and Exchange regulation covering pro forma earnings announcements, what might your regulation require?
5. Should the Financial Accounting Standards Board issue guidance on reporting earnings information. I or example, should it define what constitutes acceptable measurements of pro forma earnings? What guidance, if any, do you recommend the financial Accounting Standards Board issue?

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EXHIBIT 1 PROXIM, INC. Statement of Operations for the Year Ended December 31, 2001 (in thousands, except per share data) GAAP Pro Forma 85,536 49,367 2,832 50,000 (16,663) 13,235 1.373 22,057 4,500 13,585 10,372 2.950 2,600 5,252 (92,587) 1,905 12,074) (102,756) 5,043 $85,536 49,367 Revenue Cost of revenue excluding amortization and provision Amortization of intangible assets Provision for excess and obsolete inventory Gross profit (loss) Research and development Purchased in-process research and development Selling, general, and administrative Provision for doubtful accounts Restructuring charges Impairment of goodwill and intangible assets Terminated merger costs Patent litigation costs Amortization of goodwill Income (loss) from operations Interest income, net Impairment gain (losses) on investments Income (loss) before taxes Provision for income taxes Net income (loss) 36,169 13,235 22,057 877 1,905 2.782 974 $1,808 $0.06 $0.06 S107,799) ($3.87) Basic net income (loss) per shane Diluted net income (loss) per share (33.87)