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This excerpt taken from the ELN 20-F filed Mar 30, 2006. (e) Investments
and marketable investment securities and
impairment
Our investment portfolio consists primarily of marketable equity
securities, convertible preferred stock and interest-bearing
debt of other biotechnology companies.
Marketable equity and debt securities are classified into one of
three categories in accordance with SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities,” (SFAS 115): including trading,
available-for-sale,
or
held-to-maturity.
Non-marketable equity and debt securities are carried at cost,
less write-down-for-impairments, and are adjusted for impairment
based on methodologies, including the Black-Scholes
option-pricing model, the valuation achieved in the most recent
private placement by an investee, an assessment of the impact of
general private equity market conditions, and discounted
projected future cash flows.
The factors affecting the assessment of impairments include both
general financial market conditions for pharmaceutical and
biotechnology companies and factors specific to a particular
company. In the case of equity classified as
available-for-sale,
a significant and prolonged decline in the fair value of the
security below its carrying value is considered in determining
whether the securities are impaired. If any such evidence
exists, an impairment loss is recognized.
Equity accounting applies where we hold equity in the investee
and have the ability to exercise significant influence over the
operating and financial policies of the investee. Significant
influence is presumed to exist if we own 20% of the
investee’s common stock and common stock equivalents, but
may also exist in situations when we own less than 20% depending
on the existence of influential factors such as representation
on the board of directors, participation in policy making
processes, material intercompany transactions, interchange of
managerial personnel or technological dependency. Certain
circumstances, such as majority ownership by another company,
can offset the impact of such factors. The determination to use
cost or equity accounting requires a significant degree of
judgment of the facts and circumstances of a particular
investment. Investments which are accounted for under the
Table of Contents
Elan
Corporation, plc
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
equity method are stated at cost, adjusted for our share of the
earnings or losses and distributions of the investee after the
date of investment, less any provision for impairment in value.
We have no investments accounted for under the equity method at
December 31, 2005.
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