EPILOGUE Not all of the stories related in this book are as yet finally resolved. In some cases, it might be many more years before a line can be drawn underneath them. Enron On 28 December 2005, Richard Causey, Enron’s former Chief Accounting Officer, pleaded guilty to securities fraud in a bargain with prosecutors and was expected to be a key witness in the trial of Ken Lay and Jeff Skilling, which started on 30 January 2006. WorldCom Bernie Ebbers appealed against his twenty-five year jail sentence, seeking a retrial. At a Federal appeals panel hearing on 30 January 2006, his lawyers claimed that he had been denied a fair trial as three potential witnesses were denied immunity from prosecution making them reluctant to testify for the defence. Meantime, Ebbers’ punishment remained stayed, pending the outcome of the appeal. Tyco In January 2006, the board of Tyco International approved a plan to split the once mighty conglomerate into three publicly traded companies: Tyco Healthcare; Tyco Electronics and Tyco Fire & Security. 184 Epilogue 185 Marconi Ericsson, the Swedish telecoms equipment giant, acquired the majority of the assets of Marconi for £1.2 billion in October 2005 bringing to an end the life of a British icon. The rump, renamed Telent, will continue as an independent company concentrating on its UK services business. Royal Ahold On 9 January 2006, the company announced that it had preliminary court approval to settle with the lead plaintiffs in a securities class action suit raised in the US, for $1.1 billion, the compensation to be distributed to Ahold shareholders worldwide. Given the settlement in the US class action case, the VEB (Dutch Investors’ Association) agreed that no further legal action would be taken against Ahold or its officers (including former directors) in return for payment of its expenses. However, the VEB has insisted that the inquiry before the Amsterdam Enterprise Chamber must be completed and the results made available to the VEB and investors. Parmalat Calisto Tanzi, on trial in Milan for his role in Italy’s biggest ever bank- ruptcy, on 12 January 2006, offered, for a second time, to plead guilty in exchange for a sentence of two and a half years, which would enable him to request community service rather than incarceration. His offer was refused and the trial, adjourned until March 2006, will proceed with charges against him of market manipulation, false communication and obstructing the stock market regulator, Consob. LIST OF ABBREVIATIONS CA Chartered Accountant CEO Chief Executive Officer CFO Chief Financial Officer COO Chief Operating Officer CPA Certified Public Accountant EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation EPS Earnings Per Share FASB Financial Accounting Standards Board (in the US) GAAP Generally Accepted Accounting Principles IASB International Accounting Standards Board IPO Initial Public Offering LLP Limited Liability Partnership MBA Master of Business Administration NASDAQ National Association of Securities Dealers Automated Quota- tion System NPV Net Present Value NYMEX New York Mercantile Exchange R&D Research and Development SEC Securities and Exchange Commission (in the US) SIMEX Singapore International Monetary Exchange SOX Sarbanes-Oxley Act of 2002 (US) SPE/SPV Special Purpose Entity/Special Purpose Vehicle SSAP Statement of Standard Accounting Practice (now replaced by the Financial Reporting Standard (FRS) in the UK) VPP Volumetric Production Payment 186 GLOSSARY Accruals concept: Accounting method whereby revenues and expense items are recognised in the period that they are earned and incurred (respec- tively) even though they may not have been billed or paid for in cash. Accrual releases: (see above) the process by which the final settled amount is matched against the recorded accrual, and any excess or short- fall is released or charged to the profit and loss account. Acquisition charges: Future costs relating to the target company (such as restructuring costs) identified during the acquisition process and provided or accrued for by the acquiring company. Provisions or accruals for acqui- sition charges should later be reviewed against actual costs incurred and released as appropriate. Arbitrage: The process of taking advantage of price differences in the same or similar instruments between one market and another. It is usually effected by the simultaneous purchase and sale of similar financial instru- ments in different markets in order to profit from distortions from usual price relationships. Arbitrage can occur in and across most financial instru- ments including foreign exchange, securities, commodities, futures and swap deals. ‘Asset light’: Refers to a strategy adopted with the aim of generating profits from a small fixed asset base. Certain industries, such as banking and financial services, are by nature asset light. Asset securitisation: Process whereby debt instruments (such as loan paper or accounts receivable originated by banks or credit card companies) are aggregated in a pool and new securities then issued backed by the pool. Bank covenants: A restriction on a borrower imposed by the lending bank. For example, it could be a requirement placed on a company to achieve and maintain specified targets such as levels of cash flow and/or 187 188 Glossary balance sheet ratios and/or specified capital expenditure levels in order to retain financing facilities. Bank of International Settlements (BIS): The BIS is an international organisation which fosters cooperation between central banks and other agencies in pursuit of monetary and financial stability. Its banking services are provided exclusively to central banks and international organisations. Bear market: A market in which prices are generally falling (cf. bull market). Brokers’ loans: Money lent to brokers by banks for financing the under- writing of new issues, financing customer margin accounts, and other purposes. Bull market: A market in which prices are generally rising (cf. bear market). Capital base: Another term for the total net assets or equity of a company. Capitalised line costs: In the telecoms industry, line costs are the costs of carrying voice or data traffic from its start point to its end point. They primarily consist of access charges to other carriers’ networks. Capitalising the costs involves treating the unused element of a fixed-rate long-term lease on access to third-party networks as an asset as opposed to an expense. The procedure is not permitted under most generally accepted accounting principles. Cash equivalents: Instruments or investments of such high liquidity and safety that they are virtually as good as cash. Examples are a money market fund and a treasury bill. Chapter 11 bankruptcy: In the US, bankruptcy is the state of insolvency of an individual or an organisation. Under US law, Chapter 11 provides that, unless the court rules otherwise, the debtor remains in possession of the busi- ness and in control of its operation. It also makes possible the negotiation of payment schedules, the restructuring of debt and even the granting of loans by the creditors to the debtor. (The UK equivalent term is ‘administration’.) Commercial paper: Short-term obligations with maturities ranging from 2 to 270 days issued by banks, corporations and other borrowers to investors with temporarily idle cash. Contingent liability: A potential financial liability that may exist in the future dependent on a past event. Disclosure is required in most countries but the liability is not provided for unless it is probable. Glossary 189 Counter-party exposure: The risk borne by one party involved in a trans- action in the event the other party is unable to fulfil its side of the contract/agreement/transaction. Credit ratings: see Ratings. Debenture loans: (i) (US/Canada) Unsecured bonds with no particular assets pledged as security. The term usually implies an unsecured obliga- tion. (ii) (UK) A security issued by a company acknowledging indebted- ness in a specified sum at a fixed date with interest thereon, normally – but not necessarily – constituting a charge on assets. Debt capital: The capital raised by the issuance of debt securities, usually bonds. Delaware limited partnership or limited liability company: The state of Delaware offers attractive conditions for companies or partnerships wishing to register as such in the US. Costs of incorporation are among the lowest in the US, there are no state residency requirements for directors, corporation tax is low and directors are shielded from responsibility regarding their actions as directors of the company. Derivatives: A derivative instrument is a contract that derives its value from the price of an underlying asset, an interest rate or an index. Exam- ples of derivatives are forward contracts, futures contracts and options. Derivatives usually cost a fraction of the underlying asset, making them highly geared. Equity derivatives are based on the underlying value of equities. Due diligence: (i) The obligation on a securities firm contemplating a new issue of securities to explain the new issue to prospective investors. (ii) In mergers and acquisitions, the process of reviewing the condition of a company in detail. EBIT: Earnings before interest and tax. A financial performance measure- ment and also often used in valuing a company (price paid expressed as a multiple of EBIT). EBITDA: Earnings before interest, taxes, depreciation and amortisation. A measure which is used as an approximation to operating cash flow. Earnings per share (EPS): Total profits of the company after tax divided by the number of issued shares. Equity capital: Any issued share capital entitled to a share in both the distribution of dividends on capital and proceeds on wind-up of a company. 190 Glossary But it usually means ordinary shares only, so that the ‘equity interest’ is that part of the business which belongs to the ordinary shareholders. Error account: Error accounts occur frequently in futures trading opera- tions. If a trade is miscommunicated, incorrectly executed or for some other reason not agreed to by the client, then it is booked into an error account.