Black & Decker 2014 Annual Report Download - page 85

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Equity Units
In December 2013, the Company issued 3,450,000 Equity Units (the “Equity Units”), each with a stated value of $100. The Equity
Units are initially comprised of a 1/10, or 10%, undivided beneficial ownership in a $1,000 principal amount 2.25% junior
subordinated note due 2018 (the “2018 Junior Subordinated Note”) and a forward common stock purchase contract (the “Equity
Purchase Contract”). The Company received approximately $334.7 million in cash proceeds from the Equity Units, net of
underwriting discounts and commissions, before offering expenses, and recorded $345.0 million in long-term debt. The proceeds
were used primarily to repay commercial paper borrowings. The Company also used $9.7 million of the proceeds to enter into
capped call transactions utilized to hedge potential economic dilution as described in more detail below.
Equity Purchase Contracts:
Each Equity Purchase Contract obligates the holders to purchase, on November 17, 2016, for a price of $100, between 1.0122 and
1.2399 shares of the Company’s common stock (subject to customary anti-dilution adjustments) or approximately 3.5 to 4.3 million
common shares, respectively. As of January 3, 2015, due to customary anti-dilution provisions, the settlement rate on the Equity
Units Stock was 1.0126 (equivalent to a conversion price of approximately $98.75 per common share). If a fundamental change
occurs, in certain circumstances, the number of shares of common stock deliverable upon settlement of the Equity Purchase
Contracts will be increased by a make-whole amount, resulting in the issuance of a maximum of approximately 6.1 million shares
of common stock. Upon settlement of the Equity Purchase Contracts on November 17, 2016, the Company expects to receive
additional cash proceeds of $345.0 million. The Junior Subordinated 2018 Notes, described further below, are initially pledged
as collateral to secure the holders’ obligations to purchase the Company’s common stock under the terms of the Equity Purchase
Contracts. Equity Purchase Contract holders may elect to settle their obligations under the Equity Purchase Contracts early, in
cash.
Holders of the Equity Purchase Contracts are paid contract adjustment payments (“Contract Adjustment Payments”) at a rate of
4.00% per annum, payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, commencing
February 17, 2014. The $40.2 million present value of the Contract Adjustment Payments reduced Shareowners’ Equity upon
issuance of the Equity Units and a related liability for the present value of the cash payments of $40.2 million was recorded. As
each quarterly Contract Adjustment Payment is made, the related liability is reduced and the difference between the cash payment
and the present value of the Contract Adjustment Payment of approximately $0.6 million is accreted to interest expense over the
three year term. As of January 3, 2015, the present value of the Contract Adjustment Payments was $27.3 million.
2018 Junior Subordinated Notes:
The $345.0 million aggregate principal amount of the 2018 Junior Subordinated Notes will mature on November 17, 2018. The
2018 Junior Subordinated Notes bear interest at a rate of 2.25% per annum, payable quarterly in arrears on February 17, May 17,
August 17 and November 17 of each year, commencing February 17, 2014. The 2018 Junior Subordinated Notes are unsecured
and rank subordinate and junior in right of payment to the Company’s existing and future senior indebtedness. The 2018 Junior
Subordinated Notes initially rank equally in right of payment with all of the Company’s other unsecured junior subordinated debt.
The Company may elect, at its option, to remarket the 2018 Junior Subordinated Notes early during a period beginning on August
12, 2016 and ending October 26, 2016. Unless an early remarketing is successful, the Company will be required to remarket the
2018 Junior Subordinated Notes during a final remarketing period beginning on November 7, 2016 and ending November 14,
2016. Holders of Equity Units may elect not to participate in the remarketing by creating “Treasury Units” (replacing the 2018
Junior Subordinated Notes with zero-coupon U.S. Treasury securities as substitute collateral to secure their obligations under the
Equity Purchase Contracts) or “Cash Settled Units” (replacing the 2018 Junior Subordinated Notes with cash as substitute collateral
to secure their obligations under the Equity Purchase Contracts), or by settling the Equity Purchase Contracts early in cash prior
to November 17, 2016. Upon a successful remarketing, the proceeds attributable to 2018 Junior Subordinated Notes that were
components of Equity Units will be used to satisfy in full the Equity Unit holders’ obligations to purchase the Company’s common
stock under the Equity Purchase Contracts (or, in the case of an early remarketing, will be used to purchase a portfolio of U.S.
Treasury securities, the proceeds of which will be used to satisfy such obligations). At the time of the remarketing (1) the interest
rate on the 2018 Junior Subordinated Notes may be re-set and (2) the ranking of the 2018 Junior Subordinated Notes will change
such that they rank senior to all of the Company’s existing and future unsecured junior subordinated debt and junior to all of the
Company’s existing and future senior debt.
Interest expense of $7.8 million and $0.7 million was recorded for 2014 and 2013, respectively, related to the contractual interest
coupon on the 2018 Junior Subordinated Notes based upon the 2.25% annual rate.