EITF Issue No. 04-8
June 30, 2004
Mr. Lawrence W. Smith
Chairman of Emerging Issues Task Force
Financial Accounting Standards Board
401 Merritt 7
Norwalk, CT 06856-5116
Dear Mr. Smith:
We appreciate the opportunity to comment on issues under consideration by the
Emerging Issues Task Force (EITF) in its deliberations regarding EITF Issue Summary
No. 04-8, Accounting Issues Related to Certain Features of Contingently Convertible
Debt and the Effect on Diluted Earnings Per Share (“EITF 04-8”).
Affiliated Managers Group, Inc. (NYSE: AMG) is a publicly-traded asset management
company that acquires interests in mid-sized investment firms. Our affiliated firms
currently manage over $100 billion of client assets. We have issued four equity-linked
securities as part of our diverse capital structure, including two contingently convertible
debt instruments (CoCos).
In our CoCos, investors are restricted from converting their bonds unless our stock
trades above approximately 120% of the bond’s conversion price (the “Contingency”).
We are able to call our CoCos for cash five years after they are issued. One of our
CoCos receives favorable tax treatment, as further described below.
We understand the EITF will be discussing the substance of the Contingency as part of
its deliberations on EITF 04-8. For your benefit, we would like to offer a perspective on
the benefits of the Contingency to an issuer.
We included the contingency in our CoCos for substantive economic and business
reasons. Two of these reasons include:
• The Contingency maximizes our tax benefits; and therefore, minimizes our cost
of capital; and
• The Contingency restricts the ability of our investors to convert; and therefore,
increases the value of our right to call the bonds.
EITF Issue No. 04-8
Comment Letter No. 2, p. 1
Tax Benefits
One of our CoCos is considered a “contingent payment debt instrument” under federal
income tax regulations. These regulations permit us to deduct int