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Biotech / Medical : PLSIA (Premier Laser Systems) -- Ignore unavailable to you. Want to Upgrade?

To: Dennis who wrote (1617)	7/7/1998 9:16:00 PM
From: Sr K	Read Replies (2) \| Respond to of 1773

60% OT Didn't read the IBD article yet, but ... I have comments on accounting. Did anyone here notice that CNC (Conseco) is taking "special charges in 2Q98 totaling approximately $498 million, net of income taxes, related to its June 30, 1998, acquisition of Green Tree"? Point: For those who think accounting is black and white, there are many grays within GAAP. Companies that are losing money in their startup phase are encouraged to use liberal accounting to maximize the expectation of fully using the tax loss carryforwards. When they are paying hard cash in taxes, as CNC is, they often take a harsher stance. Conseco Chairman Stephen C. "Hilbert said the [...] charges reflect primarily three significant changes Conseco has made to the accounting assumptions previously used by Green Tree. "First," Hilbert said, "we have increased the assumed prepayment speeds used in calculating the value of Green Tree's interest-only securities. Existing loans, especially those securitized from 1995 to 1997, have in recent months been prepaying faster than Green Tree expected in its year-end 1997 model because of the continued decline in interest rates. Our higher estimates of prepayment speeds take current prepayment levels into account, as well as our expectation that some further interest rate declines may occur. "Second," Hilbert said, "we have increased (from 11 percent to 15 percent) the discount rate used to value Green Tree's interest-only securities. Under Generally Accepted Accounting Principles, those securities are valued by estimating their future cash flows, and then discounting those cash flows. This increase in discount rate is consistent with recent changes in the market value of similar securities. "And third," Hilbert said, "although Green Tree's current loan default rate is among the best in its industry and continues to improve, we have also taken a conservative posture by increasing the assumed default rates used in calculating the value of Green Tree's interest-only securities. This reflects our view that today's unusually strong economic environment may deteriorate, leading to increasing defaults. Those who argue that Premier has been too liberal in its accounting and needs to write down equipment assets and other assets more than GAAP requires may be missing (or ignoring) the prudent course for a company that has tax loss carryforwards of $23 million or so.