In NEW YORK story dated July 8 and headlined "New U.S. accounting rule seen pinching GM earnings" please read in second paragraph ... "Under recommendations being proposed by the Financial Accounting Standards Board, these stock-bond hybrids would be included to calculate earnings per share of a company" ... instead of ... "Under recommendations being proposed by the Financial Accounting Standards Board, these convertible bonds, stock-bond hybrids that can be converted into company stock at a higher price than where the stock trades, would be included to calculate earnings per share of a company." In third paragraph please read ... "is a bond that can only be converted into company stock when the stock price exceeds the conversion price of the bond by a predetermined amount for a specified length of time" ... instead of ... "works slightly differently from an ordinary convertible, as the underlying stock must rise to a level higher than the actual conversion price -- often 20 percent higher -- before the bondholder may convert." (Corrects explanation.)
A corrected version follows.
By Arindam Nag
NEW YORK, July 8 (Reuters) - General Motors Corp.'s voracious appetite for raising money with contingent convertible bonds could abate, as U.S. authorities weigh changes in accounting for those securities that would cut the automaker's earnings per share.
Under recommendations being proposed by the Financial Accounting Standards Board, these stock-bond hybrids would be included to calculate earnings per share of a company.
A contingent convertible, known on Wall Street as a CoCo, is a bond that can only be converted into company stock when the stock price exceeds the conversion price of the bond by a predetermined amount for a specified length of time.
A FASB spokesman said a special panel would present the plan to FASB's board on Friday. If approved it could take up to six months before taking effect.
GM has around $8.0 billion in CoCo debt and, according to an estimate by Goldman Sachs, FASB's move could cut 87 cents, or 12 percent, from its 2004 earnings per share estimate of about $7.00. FASB's move will not, however, trigger any cash charges.
The face value of the bonds is convertible into 147 million shares. Last year, GM issued $4 billion of CoCo bonds to boost its workers' pension fund, which at that stage was underfunded following an overall stock market downturn.
The potential earnings dilution would come as an additional blow to investors who have seen the automaker struggle to maintain margins in an overcrowded North American car market.
GM shares, which rose about 45 percent in 2003 and nearly doubled the performance of the Dow Jones industrial average, of which it is a component, are down 17 percent so far this year, lagging even a now-moribund Dow by more than 16 percent. GM is the second-worst performer among the 30 blue chips in the index so far in 2004, outperforming only Intel Corp. .
The stock closed Thursday at $43.76, down more than 1 percent on the day and just 2 percent above its low for 2004.
In a note to investors, Merrill Lynch, said the FASB move would dilute GM's 2004 EPS by 14.2 percent and 2005 EPS by 14.5 percent. Deutsche Bank Securities estimated it expects GM earnings to be reduced by 83 cents in 2005.
Toni Simonetti, GM spokeswoman said: "It's too early to know specifically how it will affect General Motors and which of our convertible bonds is included."
"This popped up quicker than people thought it would," Simonetti said. "We were aware that this kind of a rule was under consideration. What was surprising was how quickly it advanced."
Analysts also said auto parts makers Lear Corp. and American Axle & Manufacturing Holdings Inc. would also be hit by FASB's proposal. Deutsche Bank reduced its 2005 forecasts for Lear by 35 cents and for American Axle by 16 cents.
Among non-manufacturing companies, brokerage Merrill Lynch will see its diluted share count rising by 6 percent, reducing EPS by about 4 percent, according research from Prudential Equity Group LLC. (Additional reporting by Michael Ellis in Detroit)