396 Planning and Forecasting
include schedules reconciling earnings under U.S. and foreign GAAP (the 20-F
Report). An example of such disclosure is provided below from the 20-F report
of the Portuguese firm, Electricidade de Portugal SA (EP). As is required, EP
provides a reconciliation of Portuguese to U.S. GAAP for both net income (Ex-
hibit 12.26) and shareholders’ equity (Exhibit 12.27). A selection of the princi-
pal differences between U.S. and Portuguese GAAP underlying these
statements are discussed below:
- EP writes up the value of its fixed assets. It in turn records depreciation
on these revalued amounts. This causes depreciation in the Portuguese-
GAAP statements to be greater than it would be under U.S. GAAP, where
such revaluations are not permitted. This higher depreciation caused the
EP earnings to be reduced below their level under U.S. GAAP. This ex-
plains the addition to net income made for “depreciation of revaluation of
fixed assets” in the Exhibit 12.26 reconciliation of Portuguese GAAP to
U.S. GAAP net income. Also notice that the cumulative effect of this
GAAP difference results in a reduction in Portuguese GAAP shareholders’
EXHIBIT 12.26 Reconciliation of net income under Portuguese GAAP
to income under U.S. GAAP: Electricidade de Portugal,
year ended December 31, 1998 (in thousands except
for per-share amounts and shares outstanding).
Escudos U.S.$
Net income as reported under Portuguese GAAP 104,808,918 539,307
U.S. GAAP adjustments increase (decrease) due to:
a. Depreciation of revaluation of fixed assets 48,045,972 247,226
b. Capitalized overheads (949,690) (4,887)
c. Depreciation of exchange differences 5,121,052 26,351
d. Deferred costs (1,537,691) (7,912)
e. Hydrological correction adjustments — —
f. Distribution to management and employees (3,845,532) (19,788)
g. Pension and other post-retirement benefits — —
h. Self-insurance — —
i. Employee termination benefits 19,969,334 102,755
j. Accounts receivable—municipalities (10,429,115) (53,664)
k. Power purchase agreements (343,236) (1,766)
m.Income taxes (19,642,655) (101,074)
Net adjustments 36,388,439 187,241
Approximate net income in accordance with U.S. GAAP 141,197,357 726,548
Net income per share 235 1.21
Number of shares outstanding 600,000,000 600,000,000
SOURCE: Electricidade de Portugal SA, annual report, December 1998. Information obtained from Dis-
closure Inc., Compact D/SEC: Corporate Information on Public Companies Filing with the SEC
(Bethesda, MD: Disclosure Inc., June 2000).