Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Biotech / Medical : Elan Corporation, plc (ELN) -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (1502)	2/4/2002 5:03:29 PM
From: nigel bates	Read Replies (3) \| Respond to of 10345

I'll refrain from commenting on "Irish accounting priciples"... "...Pro-Forma Financial Information Relating to Qualified Special Purpose Entities (``QSPEs'') In the light of current market concerns relating to off-balance sheet arrangements through QSPE structures, Elan has two QSPEs which it has not consolidated in its financial results as presented under US generally accepted accounting principles (these entities are consolidated in Elan's primary financial statements which are prepared in accordance with Irish generally accepted accounting principles). Elan has guaranteed the indebtedness of these entities to the extent that the value of the investments held by the QSPEs are insufficient to repay the indebtedness of these entities. If these entities had been consolidated as of December 31, 2001 and 2000, the effect on net income (as a reduction in net interest and other income), diluted earnings per ordinary share after other charges, total assets, total indebtedness and shareholders' equity would be as follows: As of December 31, $ millions As Reported Pro-Forma 2000 2001 2000 2001 Net income (294.5) 347.7 (333.4) 211.4 Diluted earnings per ordinary share after other charges ($0.94) $0.97 ($1.06) $0.59 Total assets 4,653.0 6,327.8 5,371.0 7,108.1 Total indebtedness 1,508.6 1,989.0 2,308.6 2,989.0 Shareholders' equity 2,276.9 3,275.7 2,192.9 3,046.7 As of December 31, 2001 the market value of investments held by the QSPEs would have been sufficient to repay the indebtedness at that date..."

To: Madharry who wrote (1502)	2/4/2002 5:20:59 PM
From: Icebrg	Read Replies (1) \| Respond to of 10345

Harry, Thanks for bringing the matter up. It does look interesting, doesn't it? The subject is actually "described" in the company's PR today. Somewhere close to the bottom. Below the financials. If I understand this correctly these are items which are consolidated into the company's accounts in Ireland because the Irish GAAP requires them to do so. On the other hand in the US they are not supposed to include the effects of holding these QSEP's in their reporting, so they don't. Instead they are indicating their existence "under the line". The amounts are quite large. I would guess that this is some kind of Irish tax-avoidance scheme where they have put away some of their investments. It is a pity that the US GAAP is so strict that these kind of arrangements may not be accounted for in a proper way. Financial Times carried a piece some time ago on the differences between US and European accounting conventions. From this article: The complexity arises because US financial reporting, unlike that of the UK and other countries, is based on detailed rules rather than broad principles. The US model deals with more issues and applications than any other set of accounting standards. "There probably isn't a country in the world that demands as much disclosure," says Stephen Zeff, a professor at Rice University in Houston, Texas. The problem with highly prescriptive rules is that they can encourage companies to concentrate on complying with the letter of the law rather than its spirit. Baruch Lev, a professor at New York University's Stern business school, believes the focus on fine detail means US accounts often fail to capture the economic substance of companies' activities. "With all those rules and regulations, too many things are falling through the gaps," he says. "We need to move from legalistic concepts to economic concepts - not only to catch the Enrons but also to give a complete picture to investors." globalarchive.ft.com As far as I can see, Elan has done what could be expected from them. In the Irish reports they have accounted for these debts as a part of the consolidated group's debt, in accordance with Irish GAAP. And for the Americans where they due to the reporting restrictions are not allowed to consolidate, they have told about their potential liability "under the line". I don't think it is reasonable to expect them to do more. That some of the analysts seem to have problems understanding this is another matter and more of a problem for the analysts than for Elan. Ice