Black & Decker 2012 Annual Report Download - page 96

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OTHER EQUITY ARRANGEMENTS
In December 2012, the Company entered into a forward starting accelerated share repurchase (“ASR”) contract with certain
financial institutions to purchase $850 million of the Company's common stock. The Company paid 850 million to the financial
institutions and received an initial delivery of 9,345,794 shares, which reduced the Company's shares outstanding at December
29, 2012. The value of the initial shares received on the date of purchase was $680 million, reflecting a $72.76 price per share
which was recorded as a treasury share purchase for purposes of calculating earnings per share. In accordance with ASC 815-
40, the Company recorded the remaining $170 million as a forward contract indexed to its own common stock in additional
paid in capital. The total amount of shares to be ultimately delivered by the financial institutions will be determined by the
average price per share paid by the financial institutions during the purchase period which ends in April 2013. The average
price is calculated using the volume weighted average price ("VWAP") of the Company's stock (inclusive of a VWAP
discount) during that period. In the unlikely event the Company is required to deliver value to the financial institutions at the
end of the purchase period, the Company, at its option, may elect to settle in shares or cash.
In November 2012, the Company purchased from certain financial institutions over the counter “out-of-the-money” capped call
options, subject to adjustments for standard anti-dilution provisions, on 10,094,144 shares of its common stock for an aggregate
premium of $29.5 million, or an average of $2.92 per share. The purpose of the capped call options is to reduce share price
volatility on potential future share repurchases. In accordance with ASC 815-40 the premium paid was recorded as a reduction
of Shareowners’ equity. The contracts for the options provide that they may, at the Company’s election, be cash settled,
physically settled, or net-share settled (the default settlement method). The capped call options have various expiration dates
ranging from March 2013 through August 2013. The average lower strike price is $71.43 and the average upper strike price is
$79.75, subject to customary market adjustments. The aggregate fair value of the options at December 29, 2012 was $31.1
million.
In May 2011, the Company purchased from a financial institution over the counter 3 month “in-the-money” capped call
options, subject to adjustments for standard anti-dilution provisions, on 2,448,558 shares of its common stock for an aggregate
premium of $19.6 million, or an average of $8.00 per option. The initial term of the capped call options was one month which
was subsequently extended in an addendum to the agreement with the counterparty to a three month term. The purpose of the
capped call options was to reduce share price volatility on potential future share repurchases by establishing the prices at which
the Company could elect to repurchase 2,448,558 shares in the three month term. In accordance with ASC 815-40 the premium
paid was recorded as a reduction of Shareowners’ equity. The contracts for this series of options generally provided that the
options might, at the Company’s election, be cash settled, physically settled or net-share settled (the default settlement method).
This series of options had various expiration dates within the month of August 2011. The applicable lower strike price was
$70.16 and the applicable upper strike price was $80.35. The capped calls were terminated in July 2011. The Company elected
to net share settle the transaction and received 3,052 shares valued at $0.2 million.
Convertible Preferred Units and Equity Option
As described more fully in Note H, Long-Term Debt and Financing Arrangements, in November 2010, the Company issued
Convertible Preferred Units comprised of $632,500,000 of Notes due November 17, 2018 and Purchase Contracts. There have
been no changes to the terms of the Convertible Preferred Units. The Purchase Contracts obligate the holders to purchase, on
the earlier of (i) November 17, 2015 (the Purchase Contract Settlement date) or (ii) the triggered early settlement date,
6,325,000 shares, for $100.00 per share, of the Company’s 4.75% Series B Cumulative Convertible Preferred Stock (the
“Convertible Preferred Stock”), resulting in cash proceeds to the Company of up to $632.5 million.
Following the issuance of Convertible Preferred Stock upon settlement of a holder’s Purchase Contracts, a holder of
Convertible Preferred Stock may, at its option, at any time and from time to time, convert some or all of its outstanding shares
of Convertible Preferred Stock at a conversion rate of 1.3333 shares of the Company’s common stock per share of Convertible
Preferred Stock (subject to customary anti-dilution provisions), which is equivalent to an initial conversion price of
approximately $75.00 per share of common stock. Assuming conversion of the 6,325,000 shares of Convertible Preferred Stock
at the 1.3333 initial conversion rate a total of 8,433,123 shares of the Company’s common stock may be issued upon
conversion. As of December 29, 2012, due to the customary anti-dilution provisions, the conversion rate on the Convertible
Preferred Stock was 1.3475 (equivalent to a conversion price of approximately $74.21 per common share). In the event that
holders elect to settle their Purchase Contracts prior to November 17, 2015, the Company will deliver a number of shares of
Convertible Preferred Stock equal to 85% of the Purchase Contracts tendered, together with cash in lieu of fractional shares.
Upon a conversion on or after November 15, 2017 the Company may elect to pay or deliver, as the case may be, solely shares
of common stock, together with cash in lieu of fractional shares (“physical settlement”), solely cash (“cash settlement”), or a
combination of cash and common stock (“combination settlement”). The Company may redeem some or all of the Convertible
Preferred Stock on or after December 22, 2015 at a redemption price equal to 100% of the $100 liquidation preference per
share plus accrued and unpaid dividends to the redemption date.