Black & Decker 2011 Annual Report Download - page 79

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In October 2008, the Company repurchased $34.3 million of the ETPS for $24.9 million in cash, and in December 2008 the Trust was
dissolved. Upon the dissolution of the Trust, the $0.1 million investment in the unconsolidated Trust was unwound with a
corresponding reduction in debt. Additionally the Company caused the remaining $415.7 million of junior subordinated debt securities
held by the Trust to be distributed to the holders of ETPS in exchange for the ETPS upon dissolution of the Trust. A pre-tax gain of
$9.4 million was recognized pertaining to the partial extinguishment of this debt.
In May 2009, the Company repurchased $103.0 million of its junior subordinated debt securities for $58.7 million in cash. The pre-tax
gain recorded associated with this extinguishment was $43.8 million, and the principal balance of the debt after this extinguishment
and at January 2, 2010 was $312.7 million.
In December 2010, the Company redeemed the remaining junior subordinated debt at par without penalty.
2007 Equity Units Offering
In March 2007, the Company completed two security offerings: “Equity Units”, which consisted of $330.0 million of convertible debt
and $330.0 million of forward stock purchase contracts, and $200.0 million of unsecured notes (which matured March 15, 2010). The
$488.1 million net cash proceeds of these offerings and the related financial instruments described below were used to pay down a
short-term bridge facility and commercial paper borrowings.
Equity Units:
In March 2007, the Company issued 330,000 Equity Units, each with a stated value of $1,000. The Equity Units are comprised of a
senior convertible note (a “Convertible Note”) and a forward common stock purchase contract (an “Equity Purchase Contract”). The
Company received $320.1 million in cash proceeds from the Equity Units offering, net of underwriting fees. These proceeds were
used to repay short-term borrowings and, along with $18.8 million in proceeds from the sale of stock warrants, to fund the
$49.3 million cost of the convertible notes hedge as more fully described below.
In November 2008, the Company repurchased $10.0 million of the Equity Units for $5.3 million in cash (the “$10 Million
Repurchase”). To properly account for the transaction, the Equity Unit elements were bifurcated as effectively the Company paid
$10.0 million to extinguish the Convertible Notes and received $4.7 million from the seller to settle its obligation under the Equity
Purchase Contracts. As further detailed below, the Equity Purchase Contracts obligated the holder to purchase shares of the
Company’s common stock on May 17, 2010. At the November 2008 repurchase date, the Company’s common stock had a closing
market value of $25.38. The remaining liability for Contract Adjustment Payment fees, as defined below, associated with the
$10.0 million of settled Equity Purchase Contracts was reversed, resulting in an increase to equity of $0.7 million. The related
$10.0 million in Convertible Note Hedges (the “Bond Hedge”) and Stock Warrants were unwound with a nominal impact to equity.
As a result of the $10 Million Repurchase, there was an insignificant gain recorded in earnings and a net increase in equity of
$5.4 million.
Equity Purchase Contracts: The Equity Purchase Contracts obligated the holders to purchase on May 17, 2010, newly issued shares of
the Company’s common stock for $320.0 million in cash. Pursuant to that obligation, 5,180,776 shares of common stock were issued
on the May 17, 2010 settlement date.
Holders of the Equity Purchase Contract were paid a quarterly contract adjustment payment (“Contract Adjustment Payment”) of
5.125% per annum, and the first payment thereof was made August 17, 2007. The $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 December 31, 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 $3.9 and $14.9 million at December 31, 2011 and January 1, 2011, 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 December 31, 2011 and January 1, 2011.