Black & Decker 2010 Annual Report Download - page 99

$49.6 million present value of the Contract Adjustment Payments reduced Shareowners’ Equity at inception.
As each quarterly Contract Adjustment Payment was made, the related liability was relieved with the
difference between the cash payment and the present value of the Contract Adjustment Payment recorded as
interest expense (at inception approximately $3.9 million accretion over the three year term). Due to the $10
Million Repurchase, $0.7 million in remaining liability for the related Contract Adjustment Payments was
reversed. The Company’s obligation to make Contract Adjustment Payments was satisfied in May 2010;
therefore at January 1, 2011 the company reported no further liability for Contract Adjustment Payments under
the terms of the Equity Purchase Contracts.
Convertible Notes:
The $320.0 million Convertible Notes principal amount currently outstanding has a five-year, two month
maturity and is due May 17, 2012. At maturity, the Company is obligated to repay the principal in cash, and
may elect to settle the conversion option value, if any, as detailed further below, in either cash or shares of the
Company’s common stock. The Convertible Notes bear interest at an annual rate of 3-month LIBOR minus
3.5%, reset quarterly (but never less than zero), and initially set at 1.85%. Interest is payable quarterly
commencing August 17, 2007. The Convertible Notes are unsecured general obligations and rank equally with
all of the Company’s other unsecured and unsubordinated debt. The Convertible Notes were pledged as
collateral to guarantee the holders’ obligations to purchase common stock under the terms of the Equity
Purchase Contract described above. The unamortized discount of the Convertible Notes was $14.9 and
$25.5 million at January 1, 2011 and January 2, 2010, respectively. The remaining unamortized balance will
be recorded to interest expense through the Convertible Notes maturity in May 2012. The equity component
carrying value was $32.9 million at January 1, 2011 and January 2, 2010.
In May 2010, the Company completed the contractually required remarketing of the $320.0 million of
Convertible Notes. Holders of $8.7 million of the Convertible Notes elected to participate in the remarketing.
Following the remarketing, the Convertible Notes bear interest at an annual rate of 3 — month LIBOR minus
3.5%, rest quarterly (but not less than zero).
The conversion premium for the Convertible Notes is 19.0%, equivalent to the conversion price of $64.34
based on the $54.06 value of the Company’s common stock (as adjusted for standard anti-dilution provisions).
Upon conversion on May 17, 2012 (or a cash merger event), the Company will deliver to each holder of the
Convertible Notes $1,000 cash for the principal amount of the note. Additionally at conversion, to the extent,
if any, that the conversion option is “in the money”, the Company will deliver, at its election, either cash or
shares of the Company’s common stock based on a conversion rate of 15.5425 shares (equivalent to the
conversion price set at $64.34) and the applicable market value of the Company’s common stock. The ultimate
conversion rate will be increased above 15.5425 shares in accordance with standard anti-dilution provisions
applicable to the Convertible Notes or in the event of a cash merger. An increase in the ultimate conversion
rate will apply to the extent that the Company increases the per share common stock dividend rate during the
five year term of the Convertible Notes; accordingly such changes to the conversion rate are within the
Company’s control under its discretion regarding dividends it may declare. Also, the holders may elect to
accelerate conversion, and “make whole” adjustments to the conversion rate may apply, in the event of a cash
merger or “fundamental change”. Subject to the foregoing, if the market value of the Company’s common
shares is below the conversion price at conversion, (set at a rate equating to $64.34 per share), the conversion
option would be “out of the money” and the Company would have no obligation to deliver any consideration
beyond the $1,000 principal payment required under each of the Convertible Notes. To the extent, that the
conversion option of the Convertible Notes becomes “in the money” in any interim period prior to conversion,
there will be a related increase in diluted shares outstanding utilized in the determination of the Company’s
diluted earnings per share in accordance with the treasury stock method prescribed by ASC 260. The
conversion option was “in the money” as of January 1, 2011 and had a very minor dilutive impact during the
year. As of January 2, 2010, the conversion option was “out of the money.”
There was no interest expense recorded for 2010 and 2009 related to the contractual interest coupon on the
Convertible Notes for the periods presented based upon the applicable 3-month LIBOR minus 3.5% rate in
these periods. The Company had derivative contracts fixing the interest rate on the $320.0 million floating rate
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