Black & Decker 2011 Annual Report Download - page 76

64
In December 2010, the Company entered into a fixed-to-floating interest rate swap on its $300.0 million notes payable due in 2014. At
December 31, 2011 the carrying value of the debt includes increases of $8.9 million associated with the fair value adjustment made in
purchase accounting and $3.8 million pertaining to the fair value adjustment of the swap.
In December 2010, the Company entered into a fixed-to-floating interest rate swap on its $300.0 million notes payable due in 2016. At
December 31, 2011 the carrying value of the debt includes increases of $20.1 million associated with the fair value adjustment made
in purchase accounting and $10.4 million pertaining to the fair value adjustment of the swap.
Unamortized gains and fair value adjustments associated with interest rate swaps are more fully discussed in Note I, Derivative
Financial Instruments.
Convertible Preferred Units
In November 2010, the Company issued 6,325,000 Convertible Preferred Units (the “Convertible Preferred Units”), each with a stated
amount of $100. The Convertible Preferred Units are initially comprised of a 1/10, or 10%, undivided beneficial ownership in a
$1,000 principal amount junior subordinated note (the “Note”) and a Purchase Contract (the “Purchase Contract”) obligating holders
to purchase one share (subject to adjustment under certain circumstances if holders elect to settle their Purchase Contracts early) of the
Company’s 4.75% Series B Perpetual Cumulative Convertible Preferred Stock (the “Convertible Preferred Stock”). The Company
received $613.5 million in cash proceeds from the Convertible Preferred Units offering, net of underwriting fees. These proceeds were
used to redeem all of the Company’s outstanding 5.902% Fixed Rate/Floating Rate Junior Subordinated Debt Securities due 2045, at a
price 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 to reduce
outstanding short-term borrowings and for other general corporate purposes.
Purchase Contracts:
Each Purchase Contract obligates the holder to purchase, on the earlier of (i) November 17, 2015 (the “Purchase Contract settlement
date”) or (ii) the triggered early settlement date (as described below), for $100, one newly-issued share (subject to adjustment under
certain circumstances if holders elect to settle their Purchase Contracts early) of Convertible Preferred Stock. A maximum of
6,325,000 shares of Convertible Preferred Stock may be issued on the Purchase Contract settlement date, resulting in total additional
cash proceeds to the Company of up to $632.5 million. The Notes, described further below, are pledged as collateral to guarantee the
holders’ obligations to purchase Convertible Preferred Stock under the terms of the Purchase Contracts. Purchase Contract holders
may elect to settle their obligations under the Purchase Contracts early, in cash, at any time prior to the second business day
immediately preceding the Purchase Contract settlement date or the triggered early settlement date, as applicable, subject to certain
exceptions and conditions.
Upon early settlement of any Purchase Contracts, except in connection with a “fundamental change” or trigger event, the Company
will deliver a number of shares of Convertible Preferred Stock equal to 85% of the number of Purchase Contracts tendered for early
settlement. Upon the occurrence of a fundamental change, holders of Purchase Contracts will have the right, subject to certain
exceptions and conditions, to settle their Purchase Contracts early at 100% of the settlement rate for the Purchase Contracts.
Holders of the Purchase Contracts are paid contract adjustment payments (“contract adjustment payments”) at a rate of 0.50% per
annum, payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, commencing February 17,
2011. The $14.9 million present value of the contract adjustment payments reduced Shareowners’ Equity at inception. As each
quarterly contract adjustment payment is made, the related liability will be relieved with the difference between the cash payment and
the present value of the contract adjustment payment recorded as interest expense (at inception approximately $0.9 million accretion
over the five year term). At December 31, 2011 the liability reported for the contract adjustment payments amounted to $11.9 million.
The Company has the right to defer the payment of contract adjustment payments until no later than the Purchase Contract settlement
date or the triggered early settlement date (each as described below), as applicable. Any deferred contract adjustment payments will
accrue additional contract adjustment payments at the rate of 4.75% per year until paid, compounded quarterly.
Convertible Preferred Stock:
When issued following a settlement of the Purchase Contract, holders of the Convertible Preferred Stock are entitled to receive
cumulative cash dividends at the rate of 4.75% per annum of the $100 liquidation preference per share of the Convertible Preferred
Stock. Dividends on the Convertible Preferred Stock will be payable, when, as and if declared by the Company’s board of directors,
quarterly in arrears on February 17, May 17, August 17 and November 17 of each year.