This excerpt taken from the ELN 6-K filed Apr 11, 2005.
Investments / non-consolidated subsidiaries
Derivative instruments are marked to market through net income under both Irish GAAP and U.S. GAAP. However, the definition of a derivative instrument is significantly broader under U.S. GAAP than under Irish GAAP, with the result that more investments are marked to market through net income under U.S. GAAP than under Irish GAAP. Additionally, under U.S. GAAP quoted common stock and certain debt instruments are marked to market on the balance sheet, but are not marked to market under Irish GAAP, and, consequently, shareholders equity differences may arise.
Under Irish GAAP, when a convertible instrument is exercised and converted into common shares of the issuer, the common shares acquired as a result are recorded at their fair value on the date of conversion, with any excess over the carrying value of the convertible instrument recorded as a gain. Under U.S. GAAP, no gain is recorded on conversion.
Under Irish GAAP, EPIL and EPIL II have been consolidated as subsidiaries of Elan, with the loan notes issued by each entity being recorded as a liability and the related interest charges expensed through the profit and loss account. Under U.S. GAAP, both entities were non-consolidated subsidiaries through the date of repayment of their loan notes (March 2001 and June 2004, respectively), as we had effected a true legal sale of a portfolio of investments to each entity and had not retained control over the transferred assets. Accordingly, the transfer of investments to each entity was treated as a sale of the assets at fair value under U.S. GAAP, and the related loan notes were not included as a liability. As a consequence, we did not expense the related interest charges under U.S. GAAP. In addition, the timing and amount of charges related to impairments of the investments transferred to these entities differed under Irish and U.S. GAAP, since under Irish GAAP each investment was assessed for impairment individually at each balance sheet date, whereas under U.S. GAAP we recorded provisions under our guarantee agreements with the noteholders based upon the difference at each balance sheet date between the fair value of the total assets of each entity and its total liabilities.