Bank of America 2011 Annual Report Download - page 231

Bank of America 2011 229
Additionally, as a part of the Exchange Agreements, a portion
of the Series L 7.25% Non-Cumulative Perpetual Convertible
Preferred Stock (Series L Preferred Stock) with an aggregate
liquidation preference and carrying value of $269 million was
exchanged for 20 million common shares valued at $123 million
and senior notes valued at $129 million. The $17 million difference
between the carrying value of the Series L Preferred Stock and the
fair value of the consideration issued to holders of the Series L
Preferred Stock was reclassified from preferred stock to common
stock and additional paid-in capital. Because the number of
common shares issued to the Series L Preferred Stock holders
was in excess of the number of common shares issuable pursuant
to the original conversion terms, the $220 million fair value of
consideration transferred to the Series L Preferred Stock holders
in excess of the $32 million fair value of securities issuable
pursuant to the original conversion terms was recorded as a non-
cash preferred stock dividend. The dividend did not impact total
shareholders’ equity as it reduced retained earnings and increased
common stock and additional paid-in capital by the same amount.
The table below lists the aggregate liquidation value of each
series of preferred stock exchanged.
Preferred Stock Exchanged
(Dollars in millions, actual shares)
Non-convertible
Series D
Series E
Series J
Series K
Series M
Series 1
Series 2
Series 3
Series 4
Series 5
Series 6
Total non-convertible
Convertible
Series L
Total exchanged
Preferred
Shares
Exchanged
260
5,915
1,058
4,929
4,958
1,215
5,436
563
2,203
3,288
5,612
35,437
269,139
304,576
Liquidation
Value (1, 2)
$7
148
26
123
124
36
163
17
66
99
6
815
269
$ 1,084
(1) Amounts shown are before third-party issuance costs.
(2) Carrying value of preferred stock exchanged was $1,083 million.
The Series T Preferred Stock issued as part of the Berkshire
investment has a liquidation value of $100,000 per share and
dividends on the Series T Preferred Stock accrue on the liquidation
value at a rate per annum of six percent but will be paid only when
and if declared by the Board out of legally available funds. Subject
to the approval of the Board of Governors of the Federal Reserve
System, the Series T Preferred Stock may be redeemed by the
Corporation at any time at a redemption price of $105,000 per
share plus any accrued, unpaid dividends. The Series T Preferred
Stock has no maturity date and ranks senior to the outstanding
common stock with respect to the payment of dividends and
distributions in liquidation. At any time when dividends on the
Series T Preferred Stock have not been paid in full, the unpaid
amounts will accrue dividends at a rate per annum of eight percent
and the Corporation will not be permitted to pay dividends or other
distributions on, or to repurchase, any outstanding common stock
or any of the Corporation’s outstanding preferred stock of any
series. Following payment in full of accrued but unpaid dividends
on the Series T Preferred Stock, the dividend rate remains at eight
percent per annum.
In connection with the Merrill Lynch acquisition, Merrill Lynch
non-convertible preferred shareholders received Bank of America
Corporation preferred stock having substantially identical terms.
On October 15, 2010, all of the outstanding shares of the
mandatory convertible preferred stock of Merrill Lynch
automatically converted into an aggregate of 50 million shares of
the Corporation’s common stock in accordance with the terms of
these preferred securities.
In January 2009, in connection with TARP and the Merrill Lynch
acquisition, the Corporation issued to the U.S. Treasury non-voting
perpetual preferred stock for $30.0 billion.
In December 2009, the Corporation repurchased the non-voting
perpetual preferred stock previously issued to the U.S. Treasury
(TARP Preferred Stock) in 2009 and 2008 through the use of $25.7
billion in excess liquidity and $19.3 billion in proceeds from the
sale of 1.3 billion Common Equivalent Securities (CES) valued at
$15.00 per unit. The CES consisted of depositary shares
representing interests in shares of Common Equivalent Junior
Preferred Stock, Series S (Common Equivalent Stock) and
contingent warrants to purchase an aggregate of 60 million shares
of the Corporation’s common stock. On February 23, 2010, the
Corporation held a special meeting of stockholders at which it
obtained shareholder approval of an amendment to the
Corporation’s amended and restated certificate of incorporation
to increase the number of authorized shares of common stock.
Accordingly, the Common Equivalent Stock automatically
converted in full into 1.286 billion shares of common stock on
February 24, 2010. In addition, as a result, the contingent warrants
expired without having become exercisable and the CES ceased
to exist.
During 2009, the Corporation entered into agreements with
certain holders of non-government perpetual preferred stock to
exchange their holdings of approximately $7.3 billion aggregate
liquidation preference, before third-party issuance costs, of 323
million shares of perpetual preferred stock for 545 million shares
of common stock with a fair value of $6.1 billion. In addition, the
Corporation exchanged $3.9 billion aggregate liquidation
preference, before third-party issuance costs, of 144 million
shares of non-government preferred stock for 200 million shares
of common stock in an exchange offer with a fair value of stock
issued of $2.5 billion. In total, these exchanges resulted in the
exchange of $11.3 billion aggregate liquidation preference, before
third-party issuance costs, or 467 million shares of preferred stock
into 745 million shares of common stock with a fair value of $8.6
billion.
In addition, during 2009, the Corporation exchanged 3.6 million
shares, or $3.6 billion aggregate liquidation preference of Series L
Preferred Stock into 255 million shares of common stock with a
fair value of $2.8 billion, which was accounted for as an induced
conversion of preferred stock.
As a result of these 2009 exchanges, the Corporation recorded
an increase to retained earnings and net income (loss) applicable
to common shareholders of $576 million. This represents the net
of a $2.62 billion benefit due to the excess of the carrying value
of the Corporation’s non-convertible preferred stock over the fair
value of the common stock exchanged, partially offset by a $2.04
billion inducement representing the excess of the fair value of the
common stock exchanged over the fair value of the common stock
that would have been issued under the original conversion terms.