Black & Decker 2015 Annual Report Download - page 97

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Contemporaneously with the issuance of the Equity Units described above, the Company paid $9.7 million, or an average of
$2.77 per option, to enter into capped call transactions on 3.5 million shares of common stock with a major financial institution.
The purpose of the capped call transactions is to offset the potential economic dilution associated with the common shares
issuable upon the settlement of the Equity Purchase Contracts. With respect to the impact on the Company, the capped call
transactions and Equity Units, when taken together, result in the economic equivalent of having the conversion price on Equity
Units at $112.71, the upper strike of the capped call (as of January 2, 2016). Refer to Note H, Long-Term Debt and Financing
Arrangements, for further discussion. In accordance with ASC 815-40, the $9.7 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 equal to the number of
shares issuable upon settlement of the Equity Purchase Contracts at the 1.0122 minimum settlement rate. The capped call
transactions have a term of approximately three years and initially have a lower strike price of $98.80, which corresponds to the
minimum settlement rate of the Equity Purchase Contracts, and an upper strike price of $112.91, which is approximately 40%
higher than the closing price of the Company’s common stock on November 25, 2013, and are subject to customary anti-
dilution adjustments. 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 the options at January 2, 2016 was $26.3 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 $632.5 million of Notes due November 17, 2018 and Purchase Contracts. The
Purchase Contracts obligated the holders to purchase, on November 17, 2015, 6.3 million shares, for $100 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 $632.5 million.
In accordance with the Purchase Contracts, on November 17, 2015, the Company issued 6.3 million shares of Convertible
Preferred Stock. On November 18, 2015, the Company informed holders that it would redeem all outstanding shares of
Convertible Preferred Stock on December 24, 2015 (the “Redemption Date”) at $100.49 per share in cash (the “Redemption
Price”), which is equal to the liquidation preference of $100 per share of Convertible Preferred Stock, plus accrued and unpaid
dividends thereon to, but excluding, the Redemption Date.
The Company settled all conversions on December 24, 2015 by paying cash for the $100 par value, or $632.5 million in total,
and issuing 2.9 million common shares for the excess value of the conversion feature above the $100 face value per share of
Convertible Preferred Stock. The conversion rates used in calculating the Daily Conversion during the observation period, were
1.3763 (equivalent to a conversion price set at $72.66 per common share) prior to December 2, 2015 and 1.3789 (equivalent to
a conversion price set at $72.52 per common share) on and after December 2, 2015.
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 8.4 million
shares of common stock with certain major financial institutions. The purpose of the capped call transactions was to offset the
common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock. Refer to Note H, Long-Term
Debt and Financing Arrangements, for further discussion. 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 had a term of approximately five years
and initially had 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. On August 5, 2015, the Company net-share settled the capped call options on its common stock and
received 1,692,778 shares using an average reference price of $103.97 per common share.