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Market Scene : No Verve Left in Elan: Yugoslav Firm Bankrupt : The sporting goods company that catered to the jet set prospered under Communist rule. But things have gone downhill fast in the new Europe.


BEGUNJE, Yugoslavia — In the days of Communist rule, when Eastern Europe was running to ruin, the Elan sporting goods enterprise seemed as far above the economic abyss as the towering peaks of the Julian Alps in which the factory is cradled.

Elan gained international renown by outfitting the jet set and world-class skiers, capturing an impressive 10% of the global ski market and bestowing a rare source of national pride on the republic of Slovenia.

Today, Elan is in the hands of liquidators, and its top managers are in jail.

The firm once seen as a national flagship is more than $300 million in debt. It has become a case study of greed and misguidance, Yugoslavia's economic disaster in microcosm.

Elan's riches-to-rags story is the result of collective ownership, which encouraged an attitude throughout Eastern Europe that industries were "nobody's property." Theft and mismanagement went largely unnoticed with no profit-conscious owners to keep an eye on the till.

Clandestine loans to hide embezzlement might have continued for years at Elan if Yugoslavia's runaway inflation of 1989 hadn't exposed them.

Igor Trillor, the court-appointed liquidator trying to rebuild Elan through what he calls a "controlled bankruptcy," says the company failed because it grew and diversified beyond its directors' ability to manage it.

"The main reason behind Elan's crisis of management was that the company was not at all transparent," said Trillor, euphemistically referring to the government's inability to see that it was being robbed. "There were simply too many opportunities for certain individuals to ignore."

The manufacturer of skis, boats, light aircraft, sporting goods and active sportswear also got into trouble because it expanded beyond its mission, Trillor said.

When the company, just five miles south of the Austrian border, grew by leaps and bounds in the late 1970s, its inexperienced managers decided to branch out into unrelated fields like banking and property development, requiring huge infusions of cash that even a successful manufacturer couldn't provide.

Elan's administrators borrowed heavily on the unofficial "gray market" to build a yacht works in Italy, a shopping center in Sweden and a hotel village in the Slovenian skiing center of Bohinj. They also skimmed vast sums and spent lavishly on management "perks."

"When the extreme high inflation of 1988 and 1989 occurred, Elan couldn't control the gray market. They were borrowing money at high interest and lending it out for development at lower rates," said Trillor.

New loans were repeatedly taken out to cover operating expenses and expanding embezzlement, until federal Prime Minister Ante Markovic's economic reform program exposed the cooked books to their first critical light.

Under Yugoslavia's former system of "self-management," enterprises set their own agendas and measured their own success. The result was an impenetrable accounting system that exaggerated output and obscured losses and theft.

Elan ciphered itself into virtual worthlessness by accelerating depreciation of everything, including its considerable real estate holdings, and omitting from the balance sheet such intangible assets as goodwill and company trademarks.

As a result, at this time of reckoning, the company's book value is officially estimated at about 100 million deutschemarks, or one-fifth of what it owes to its creditors.

The Markovic economic reforms mandate closure of all enterprises operating in the red for more than 60 days. Elan's vicious circle of borrowing to cover losses was revealed in a republic-wide review, and the company declared bankruptcy in September.

While Elan typifies the kind of losing operation that federal authorities have been lobbying to close, Slovenian authorities say there are strong arguments for sparing the republic's parade horse--and reasonable cause to expect that it may one day pull its own weight.

Liquidation would mean that creditors would get no more than 15 cents on their invested dollar. The best-known trademark in Slovenia--perhaps in all of Yugoslavia--would cease to exist. And the 1,300 workers employed by Elan would be banished to the swelling ranks of Yugoslavia's jobless.

Liquidator Igor Trillor, who passes for new management now that the old Elan bosses have been fired or jailed, has hatched a plan with republic leaders in Ljubljana to revitalize the company through the very reform program that ultimately exposed it.

The work force has been trimmed to 800 and production lines are moving again after a two-month shutdown. The republic's government has promised a loan of about $20 million through a fund to revitalize Slovenian industry, in return for about 10% ownership in the restructured company.

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