Black & Decker 2010 Annual Report Download - page 86

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Based on the closing price of Stanley common stock on the merger date, the consideration received by Black &
Decker shareholders in the Merger had a value of $4.657 billion as detailed below.
(In millions)
Conversion
Calculation Fair Value
Black & Decker common stock outstanding as of the merger date........ 61.571
Multiplied by Stanley’s stock price as of the merger date multiplied by the
exchange ratio of 1.275 ($57.86 * 1.275) ........................ $73.77 $4,542.2
Fair value of the vested and unvested stock options pertaining to pre-
merger service issued to replace existing grants at closing (a) ......... 91.7
Fair value of unvested restricted stock and restricted stock units pertaining
to pre-merger service issued to replace existing grants at closing (a) .... 12.2
Other vested equity awards (a) .................................. 10.1
Cash paid to settle fractional shares .............................. 0.3
Total fair value of consideration transferred ........................ $4,656.5
(a) As part of the Merger the Company exchanged the pre-merger equity awards of Black & Decker for
Stanley Black & Decker equity awards. Under ASC 805, the fair value of vested options and the earned
portion of unvested options, restricted stock awards and restricted stock units are recognized as consider-
ation paid. The remaining value relating to the unvested and unearned options, restricted stock awards and
restricted stock units will be recognized as future stock-based compensation. The allocation of the pre-
merger equity awards between consideration paid and future stock-based compensation is as follows (in
millions):
Award type
(In millions)
Number of
Awards
Fair value
Recognized
as
Consider-
ation
Paid
Fair Value
to be
Recognized
as Future
Compensa-
tion Cost
Stock options ........................................... 5.8 $91.7 $14.1
Restricted stock units and awards ............................ 0.4 12.2 12.8
Other vested equity awards ................................. 0.2 10.1 —
Total ................................................. 6.4 $114.0 $26.9
The following assumptions were used for the Black-Scholes valuation of the pre-merger Black & Decker stock
options in the determination of consideration paid:
Stock price............................................................. $57.86
Post conversion strike price................................................. $23.53 – $74.11
Average expected volatility ................................................. 32%
Dividend yield .......................................................... 0.7%
Weighted-average risk-free interest rate ........................................ 1.4%
Weighted-average expected term ............................................. 2.9years
Weighted-average fair value per option ........................................ $18.72
The expected volatility is based on two equally weighted components: the first component is the average
historical volatility which is based on daily observations and duration consistent with the expected life
assumption; the second component is the market implied volatility of traded options. The average expected
term of the option is based on historical employee stock option exercise behavior as well as the remaining
contractual exercise term. The risk-free interest rate is based on U.S. treasury securities with maturities equal
to the expected life of the option. The fair value of restricted stock and restricted stock units and other vested
equity awards was $57.86 per share. Total compensation expense recognized during the year ended January 1,
2011 for the options, restricted stock, and restricted stock awards that were assumed as part of the Merger was
$8.8 million.
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