Black & Decker 2011 Annual Report Download - page 41

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Based on its demonstrated ability to generate cash flow from operations as well as its strong balance sheet and credit position at
December 31, 2011, the Company believes over the long term it has the financial flexibility to deploy capital to its shareowners’
advantage through a combination of acquisitions, dividends, and potential future share repurchases.
Investing Activities: Cash flow used by investing activities was $1.464 billion in 2011 compared to cash flows provided by investing
activities of $270 million in 2010 and cash flow used by investing activities of $115 million in 2009. The majority of the increase in
cash outflows is from business acquisitions in 2011 which totaled $1.180 billion largely due to the Company’s acquisition of
Niscayah, as previously discussed. Aside from Niscayah, the Company completed nine other acquisitions in 2011, the largest of which
were Infologix and Microtec, which were purchased for $60 million and $59 million, respectively. In 2010 the Company expended
$550 million for ten acquisitions, mainly for CRC-Evans within the Industrial segment, and SSDS and GMT within the Security
segment. The cash flow provided by investing activities in 2010 also includes $949 million of cash acquired as part of the Merger.
During 2009 the Company completed six acquisitions for $24 million.
Capital and software expenditures were $302 million in 2011, $185 million in 2010, and $94 million in 2009. The increase in capital
expenditures in 2011 was due to the previously mentioned $89 million of Merger and integration related capital expenditures, while
the increase in 2010 is primarily due to nine and a half months of Black & Decker purchasing activity.
Proceeds from the sale of assets and businesses were $57 million in 2011, $11 million in 2010 and $3 million in 2009. The increase in
2011 reflects $27 million of proceeds from the sale of three businesses. The remaining activity relates to assets sold in the normal
course of business.
Net financial instrument investing outflows were $39 million in 2011 compared with inflows of $45 million in 2010, pertaining to net
investment hedge activity and $30 million of interest rate swap terminations in 2010 following the Merger.
Financing Activities: Cash flow used by financing activities was $372 million in 2011 compared to cash flows provided by financing
activities of $314 million in 2010 and cash flows used in financing activities of $249 million in 2009.
Payments on long-term debt amounted to $403 million in 2011, $516 million in 2010, and $65 million in 2009. The 2011 repayments
pertain to $400 million of term notes that matured in June 2011. The 2010 repayments primarily relate to the maturing of the
$200 million term notes and the $313 million of payments associated with the remarketing of the Convertible Notes. Net repayments
of short-term borrowings totaled $199 million in 2011, $264 million in 2010 and $120 million in 2009.
In November 2011, the Company received $399.6 million in proceeds from the $400 million issuance of senior unsecured 2021 Term
Notes with a 3.4% fixed coupon rate. The Company used the proceeds from this offering to pay down commercial paper.
In 2010, the Company received debt proceeds of $396.2 million relating to the $400 million in senior unsecured 2040 Term Bonds
with a 5.2% fixed coupon rate. In connection with this debt offering the Company paid $48 million for the termination of two forward
starting floating-to-fixed interest rate swaps. In 2010, the Company also completed a security offering of Convertible Preferred Units
(the “Convertible Preferred Units”) which consisted of $632.5 million of eight-year junior subordinated notes (the “Notes”) bearing
interest at an initial fixed rate of 4.25% per annum and $632.5 million of five-year forward Purchase Contracts (the “Purchase
Contracts”) that obligate investors to purchase 6,325,0000 shares of the Company’s 4.75% Series B Convertible Preferred Stock (the
“Convertible Preferred Stock”) for a price of $100 per share on November 17, 2015. The Notes initially rank equal in right of payment
with all of the Company’s other junior subordinated debt. With respect to the offering, the Company received $613.5 million of cash
proceeds, net of underwriting fees, and will not receive cash pertaining to the Purchase Contracts until November 2015. The cash
proceeds were used to redeem all of the Company’s outstanding 5.902% Fixed Rate/Floating Rate Junior Subordinated Debt Securities
due 2045 of $312.7 million, to contribute $150.0 million to a U.S. pension plan to improve the funded status of the Company’s
pension obligations, to fund the $50.3 million cost of the capped call transaction as more fully described below, and the remainder was
used to reduce outstanding short-term borrowings and for other general corporate purposes. Refer to Note H, Long-Term Debt and
Financing Instruments, of the Notes to Consolidated Financial Statements for further information regarding the Convertible Preferred
Units, Convertible Preferred Stock and the Notes.
Simultaneous with the offering of the Convertible Preferred Units, the Company entered into capped call transactions (equity options)
with counterparties. The total premium paid in 2010 for the capped call transactions was $50.3 million. Each of the capped call
transactions has a term of approximately five years and in aggregate the transactions cover, subject to anti-dilution adjustments, the
maximum number of the Company’s common shares issuable upon settlement of the Convertible Preferred Stock. These transactions
provide the Company the right to buy shares of its own common stock from the counterparties at a strike price of $75.00 per share,
which corresponds to the initial conversion price of the Convertible Preferred Stock, and also obligate the Company to sell shares of
its own common stock to the counterparties at a strike price of $97.95. The capped call transactions may be settled by net share
settlement or, at the Company’s option and subject to certain conditions, cash settlement, or physical settlement. The value received
by the Company, if the capped call transactions are exercised when the Company’s common stock price is above $75.00 (subject to
anti-dilution provisions), will be utilized to offset the dilution that may occur should holders of the Convertible Preferred Stock elect
to convert. Refer to Note H, Long Term Debt and Financing Arrangements, for further detail.