New Accounting Rule Hits Common Stocks
          
          
               A traditional way to value common stock is by
          determining its book value, which is what a company
          would be worth if it sold all its assets and paid all
          its liabilities.  Now, FAS 106, a new accounting
          procedure that requires companies to show the cost of
          retiree health benefits in their annual accounting, is
          changing the way investors look at book value.
               Some analysts believe FAS 106 will cause no
          fundamental change in book value because companies have
          always had the expense of retiree health benefits. 
               Not so, say accountants and pension consultants.
          One major public accounting firm has estimated that the
          new rule will reduce the book value of the nation's
          largest industrial companies by 7 percent this year. 
          The firm predicts another 7.8 percent decline in book
          value over the next 10 years.
               The FAS 106 accounting requirement impacts book
          value in two ways.  First, each company effected will
          take a one-time "catch-up" charge that will immediately
          reduce book value.  The numbers vary among companies,
          but major corporations have already estimated
          transition charges of $250 million to more than $2.7
          billion against book value.
               The second way FAS 106 affects book value is that
          reported earnings will be reduced by annual charges
          each year.  Because earnings won't be as high,
          increases in annual book value won't be as great.
               Although the cost of retiree health benefits has
          always been an expense, the mandatory FAS 106 reporting
          now makes it clear that current and future shareholders
          are farther back in line when it comes to being paid.
               Future health benefits as part of labor costs. 
          Because the costs of retiree health benefits have
          previously been omitted in accounting, labor costs as
          reported to shareholders were understated.  This
          resulted in profits being overstated.  In short,
          accounting did not accurately reflect actual costs. 
          Shareholders must now re-evaluate the true earnings
          power of their corporate shares.
               Whether FAS 106 is considered a reduction of
          earnings, book value or both, it is hard to ignore the
          fact that it will affect the way common stock is
          evaluated.  Large corporations with strong unions have
          already felt the effect of FAS 106 on their bottom
          line. 
               How the stock market will react to these changes
          is yet to be seen.  If financial analysts overlook the
          changes in book value and earnings, we will see little
          change.  On the other hand, if analysts choose to see a
          real decline in book value and earnings, the market
          could follow to more accurately reflect the true value
          of the stock.
               Either way, you should be aware of FAS 106 and
          know that, in some way, it will change the way we value
          common stocks.