Black & Decker 2011 Annual Report Download - page 36

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Distribution center costs (i.e. warehousing and fulfillment facility and associated labor costs) are classified within SG&A. This
classification may differ from other companies who may report such expenses within cost of sales. Due to diversity in practice, to the
extent the classification of these distribution costs differs from other companies, the Company’s gross margins may not be
comparable. Such distribution costs classified in SG&A amounted to $240 million, $197 million and $101 million in 2011, 2010 and
2009, respectively. The increase is primarily attributable to the inclusion of the full year of Black & Decker results in the 2011 period,
as well as higher sales volume in the current year.
Corporate Overhead: The corporate overhead element of SG&A and gross profit, which is not allocated to the business segments,
amounted to $245 million in 2011 and 2010, and $71 million in 2009. The increase from 2009 to 2010 was primarily attributable to
the inclusion of a full nine months of Black & Decker in 2010. The previously discussed merger and acquisition-related charges, that
unfavorably impacted corporate overhead, totaled $75 million in 2011, $81 million in 2010 and $5 million in 2009. Corporate
overhead, excluding merger and acquisition-related costs, represented 1.6%, 2.0% and 1.8% of net sales in 2011, 2010 and 2009,
respectively.
Other-net: Other-net expense totaled $278 million of expense in 2011 compared to $199 million of expense in 2010. The increase
primarily pertains to higher amortization expense from intangible assets associated with recent acquisitions, $14 million of
incremental merger and acquisition-related charges, and the impact of defined benefit plan curtailment gains of $20 million in 2010.
Other-net amounted to $199 million of expense in 2010 compared to $138 million of expense in 2009. The increase is primarily
related to higher intangible asset amortization expense and $37 million of merger and acquisition-related charges, inclusive of
$20 million of defined benefit plan curtailment gains.
Gain on Debt Extinguishment: In May 2009, the Company repurchased $103 million of its junior subordinated debt securities for $59
million in cash and recognized a $44 million pre-tax gain on extinguishment.
Interest, net: Net interest expense in 2011 was $113 million, compared to $101 in 2010 and $61 million in 2009. The increase in net
interest expense mainly relates to the incremental interest costs associated with new debt issuances in the second half of 2010,
partially offset by higher interest income. The increase in 2010 versus 2009 relates to higher long-term borrowing levels resulting
primarily from the $1.8 billion in debt acquired in connection with the Merger.
Income Taxes: The Company’s effective tax rate was 11% in 2011 compared to 16% in 2010 and 19% in 2009. The low tax rate in
2011 can be largely attributable to the inclusion of $73 million of benefits from a favorable settlement of certain tax contingencies,
benefits resulting from foreign tax credits, and the distribution of domestic and foreign earnings. The effective tax rate differed from
the statutory tax rates in 2010 primarily due to various non-deductible transaction costs and other restructuring costs associated with
the Merger, which were principally offset by the inclusion of $36 million of benefits attributable to the favorable settlement of certain
tax contingencies. The lower effective tax rate versus statutory tax rates in 2009 primarily relates to benefits realized upon resolution
of certain tax audits. The effective tax rate may vary in future periods based upon changes in domestic and foreign earnings, changes
in the tax law in the jurisdictions the Company operates, as well as other factors.
Business Segment Results
The Company’s reportable segments are aggregations of businesses that have similar products, services and end markets, among other
factors. The Company utilizes segment profit (which is defined as net sales minus cost of sales and SG&A aside from corporate
overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment. Segment profit excludes
the corporate overhead expense element of SG&A, Other-net (inclusive of intangible asset amortization expense), restructuring and
asset impairments, interest income, interest expense, and income tax expense. Corporate overhead is comprised of world headquarter’s
facility expense, cost for the executive management team and the expense pertaining to certain centralized functions that benefit the
entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Refer to Note O,
Restructuring and Asset Impairments, and Note F, Goodwill and Intangible Assets, of the Notes to the Consolidated Financial
Statements for the amount of restructuring charges and asset impairments, and intangibles amortization expense, respectively,
attributable to each segment. As discussed previously, the Company’s operations are classified into three business segments: CDIY,
Security, and Industrial.