Black & Decker 2011 Annual Report Download - page 90

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In November 2010, contemporaneously with the issuance of the Convertible Preferred Units described above, the Company paid $50.3
million, or an average of $5.97 per option, to enter into capped call transactions (equity options) on 8.43 million shares of common
stock with certain major financial institutions. The purpose of the capped call transactions is to offset the common shares that may be
deliverable upon conversion of shares of Convertible Preferred Stock. With respect to the impact on the Company, the capped call
transactions and the Convertible Preferred Stock, when taken together, result in the economic equivalent of having the conversion
price on the Convertible Preferred Stock at $97.55, the upper strike price of the capped call (as of December 31, 2011). Refer to Note
H, Long-Term Debt and Financing Arrangements. In accordance with ASC 815-40 the $50.3 million premium paid was recorded as a
reduction to equity.
The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock equal to the
number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon
settlement of the Purchase Contracts. Each of the capped call transactions has a term of approximately five years and initially has a
lower strike price of $75.00, which corresponded to the initial conversion price of the Convertible Preferred Stock, and an upper strike
price of $97.95, which was approximately 60% higher than the closing price of the common stock on November 1, 2010. The capped
call transactions may be settled by net share settlement (the default settlement method) or, at the Company’s option and subject to
certain conditions, cash settlement, physical settlement or modified physical settlement. The aggregate fair value of options at
December 31, 2011 was $55.7 million.
A summary of the capped call (equity options) issued is as follows:
(Per Share)
Series
Original
Number
of Options
Net
Premium
Paid (In millions)
Adj.
Lower
Strike Price
Adj.
Upper
Strike Price
Series I ................................................................
......
2,811,041 $ 16.8
$ 74.69 $ 97.55
Series II ................................................................
....
2,811,041 $ 16.8
$ 74.69 $ 97.55
Series III ................................................................
...
2,811,041 $ 16.7
$ 74.69 $ 97.55
8,433,123 $ 50.3
$ 74.69 $ 97.55
In January 2009, the Company purchased from financial institutions over the counter 15 month capped call options, subject to
adjustments for standard anti-dilution provisions, on 3 million shares of its common stock for an aggregate premium of $16.4 million,
or an average of $5.47 per option. The purpose of the capped call options is to reduce share price volatility on potential future share
repurchases by establishing the prices at which the Company may elect to repurchase 3 million shares in the 15 month term. In
accordance with ASC 815-40 the premium paid was recorded as a reduction to Shareowners’ equity. The contracts for each of the
three series of options generally provide that the options may, at the Company’s election, be cash settled, physically settled or net-
share settled (the default settlement method). Each series of options had various expiration dates within the month of March 2010.
In 2009, the Company and counterparties to the transaction agreed to terminate 2,886,629 options. Of these terminations, 886,629
were cash settled using an average share price of $41.29, resulting in a $7.2 million cash receipt and 2,000,000 options were net-share
settled in 1.0 million tranches using an average share price of $49.67 and $49.32, respectively. These terminations resulted in
513,277 shares being delivered to the Company which was recorded to Shareowners’ equity. Because the market price of the
Company’s common stock was above the applicable upper strike price, the value per option to the Company was the difference
between the applicable upper strike price and lower strike price. The remaining 113,371 options were automatically exercised and net-
share settled in March 2010 using an average share price of $58.76 and a fair value of $1,673,265.
K. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) at the end of each fiscal year was as follows:
(Millions of Dollars)
2011
2010
2009
Currency translation adjustment ................................................................
.
$ (87.4) $ 29.1
$ 15.1
Pension loss, net of tax ................................................................
...............
(153.1) (62.5) (84.6)
Fair value of net investment hedge effectiveness, net of tax
......................
(32.8) (32.7) (11.8)
Fair value of cash flow hedge effectiveness, net of tax
..............................
(75.9) (50.2) 4.8
Accumulated other comprehensive loss ................................
......................
$ (349.2) $ (116.3) $ (76.5)