New FASB Rule could cut many Companies’ Per-Share Profits Source: Dow Jones Business News, 4 August 2004 The Financial Accounting Standards Board will issue in October a final rule that will tighten how to book certain convertible debt and could cut the per-share profits for many companies. The convertibles at issue are those with a cash-settlement kick. Traditionally, a convertible bond converts into common shares when a company's stock hits a certain level and the com-pany must count, at the date of issuance, the shares underlying the bond when calculating diluted earn-ings per share. But once a convertible deal is structured in a way that allows - albeit not requiring - the issuing company to repay the principal amount in cash and any amount in excess of that in a mixture of cash and stock, the company is able to circumvent the existing account-ing requirement, recognizing little or even zero dilu-tion from the bonds. Such securities are dubbed by many market participants as "the golden goose of convertibles." It is unclear how many companies have structured convertible deals this way because convertible notes are often sold through private placements, making information hard to come by. But, by some bankers'
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