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"Simply put, GM would waive its right to issue stock to settle at least the principal amount of the debt -- that's the $8 billion -- if and when it converts," Mr. Devine said, speaking at an auto-industry conference here. Doing so "would significantly limit any dilutative effect of the convertible bonds," he said.

The proposed rule is currently being reviewed by the FASB's Emerging Issues Task Force and would go into effect on Dec. 15. The rule would force companies to account for co-cos the same way they do with standard convertible bonds. The rule would not have an impact on GM's net income, only the way it calculates earnings per share.

Copyright (c) 2004, Dow Jones & Company Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.

TRAVERSE CITY, Mich. -- General Motors Corp. plans to pay holders of a certain type of bond to avoid a dilution of its earnings per share that would result if a proposed accounting rule takes effect, Chief Financial Officer John Devine said.

The rule concerns the way U.S. companies account for bonds that can be converted into stock and are known as contingent convertible bonds, or "co-cos." GM is one of the biggest issuers of this type of bond, having raised about $8 billion through these instruments.

Under an accounting rule proposed this year by the Financial Accounting Standards Board, companies would have to factor into their earnings per share calculations the potential impact of converting these bonds into shares.

In July GM said that could reduce its earnings per share this year by about one dollar, causing a minor stir on Wall Street. GM has forecast earnings of $7 per share this year.

To avoid any dilution, the car maker would opt to pay bondholders in cash instead of stock, Mr. Devine said yesterday.

"Simply put, GM would waive its right to issue stock to settle at least the principal amount of the debt -- that's the $8 billion -- if and when it converts," Mr. Devine said, speaking at an auto-industry conference here. Doing so "would significantly limit any dilutative effect of the convertible bonds," he said.

Mr. Devine said the bonds will be paid off over many years, with the first $1 billion due 2007, so it doesn't expect any impact on its financial results. Investment experts have said they don't expect the changes will have a significant effect on bondholders.

The proposed rule is currently being reviewed by the FASB's Emerging Issues Task Force and would go into effect on Dec. 15. The rule would force companies to account for co-cos the same way they do with standard convertible bonds. The rule would not have an impact on GM's net income, only the way it calculates earnings per share.

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Lingling Wei of Dow Jones Newswires contributed to this article.