Global Finance 397equity in the Exhibit 12.27 reconciliation of shareholders’ equity. Writing
up its fixed assets increased EP’s shareholders’ equity.- EP capitalized a portion of general and administrative overhead that
would not be permitted under U.S. GAAP. This called for a reduction in
both Portuguese GAAP net income and in shareholders’ equity. These ad-
justments follow the same pattern as those required by the revaluation of
fixed assets. - EP capitalized and amortized foreign exchange gains and losses. Under
U.S. GAAP, the capitalization of these items is not permitted. EP’s dis-
closures indicate that this practice is not followed for new exchange gains
and losses after 1995. The adjustment in Exhibit 12.26 required an addi-
tion to Portuguese GAAP income of $26,351,000. This is the amount by
which Portuguese GAAP earnings were understated in 1998. The adjust-
ment of $422,925,000 in Exhibit 12.27 represents the remaining cumula-
tive overstatement of shareholders equity that resulted from the
capitalization of net foreign exchange losses under Portuguese GAAP.
EXHIBIT 12.27 Reconciliation of shareholders’ equity under Portuguese
GAAP to income under U.S. GAAP: Electricidade de
Portugal, year ended December 31, 1998 (in thousands).
Escudos U.S. $
Shareholders' equity as reported under Portuguese GAAP 1,228,414,979 6,320,958
U.S. GAAP adjustments increase (decrease) due to:
a. Revaluation of fixed assets (476,437,696) (2,451,568)
b. Overheads capitalized (139,891,196) (719,287)
c. Exchange differences capitalized (82,191,222) (422,925)
d. Deferred costs (4,906,140) (25,245)
e. Hydrological correction account 77,688,063 399,213
f. Distribution to management and employees (3,736,760) (19,228)
g. Pension and other post-retirement benefits 21,868,807 112,529
h. Self-insurance — —
i. Employee termination benefits 25,844,334 132,985
j. Accounts receivable—municipalities (10,429,115) (53,664)
k. Power purchase agreements 2,317,186 11,923
l. Investments 12,659,000 65,139
m.Income taxes 183,082,286 942,072
Net adjustments (394,132,453) (2,028,056)
Approximate shareholders' equity in accordance with
U.S. GAAP 834,282,526 4,292,902
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).