Black & Decker 2011 Annual Report Download - page 67

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Provisions for customer volume rebates, product returns, discounts and allowances are recorded as a reduction of revenue in the same
period the related sales are recorded. Consideration given to customers for cooperative advertising is recognized as a reduction of
revenue except to the extent that there is an identifiable benefit and evidence of the fair value of the advertising, in which case the
expense is classified as Selling, general, and administrative expense.
Multiple Element Arrangements: Approximately six percent of the Company’s revenues are generated by multiple element
arrangements, primarily in the Security segment. When a sales agreement involves multiple elements, deliverables are separately
identified and consideration is allocated based on their relative selling price in accordance with ASC 605-25, “Revenue
Recognition — Multiple-Element Arrangements”.
Sales of security monitoring systems may have multiple elements, including equipment, installation and monitoring services. For these
arrangements, the Company assesses its revenue arrangements to determine the appropriate units of accounting, and with each
deliverable provided under the arrangement considered a separate unit of accounting. Amounts assigned to each unit of accounting are
based on an allocation of total arrangement consideration using a hierarchy of estimated selling price for the deliverables. The selling
price used for each deliverable will be based on Vendor Specific Objective Evidence (“VSOE”) if available, Third Party Evidence
(“TPE”) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Revenue recognized for equipment
and installation is limited to the lesser of their allocated amounts under the estimated selling price hierarchy or the non-contingent up-
front consideration received at the time of installation, since collection of future amounts under the arrangement with the customer is
contingent upon the delivery of monitoring services.
For short duration and less complex installation contracts revenue is recognized upon contract completion and customer acceptance.
The Company’s more complex contract sales for the installation of security intruder systems and other construction-related projects
are recorded under the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract
revenue and related total cost of the project at completion. The extent of progress toward completion is generally measured using input
methods based on labor metrics. Revisions to these estimates as contracts progress have the effect of increasing or decreasing profits
each period. Provisions for anticipated losses are made in the period in which they become determinable. The revenue for monitoring
and monitoring-related services are recognized as services are rendered over the contractual period.
Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered and the associated
deferred revenue is included in current liabilities or long-term liabilities, as appropriate.
COST OF SALES AND SELLING, GENERAL & ADMINISTRATIVE — Cost of sales includes the cost of products and
services provided reflecting costs of manufacturing and preparing the product for sale. These costs include expenses to acquire and
manufacture products to the point that they are allocable to be sold to customers and costs to perform services pertaining to service
revenues (e.g. installation of security systems, automatic doors, and security monitoring costs). Cost of sales is primarily comprised of
inbound freight, direct materials, direct labor as well as overhead which includes indirect labor, facility and equipment costs. Cost of
sales also includes quality control, procurement and material receiving costs as well as internal transfer costs. SG&A costs include the
cost of selling products as well as administrative function costs. These expenses generally represent the cost of selling and distributing
the products once they are available for sale and primarily include salaries and commissions of the Company’s sales force, distribution
costs, notably salaries and facility costs, as well as administrative expenses for certain support functions and related overhead.
ADVERTISING COSTS — Television advertising is expensed the first time the advertisement airs, whereas other advertising is
expensed as incurred. Advertising costs are classified in SG&A and amounted to $143.8 million in 2011, $120.1 million in 2010, and
$29.3 million in 2009. Expense pertaining to cooperative advertising with customers reported as a reduction of net sales was $192.5
million in 2011, $200.0 million in 2010, and $23.3 million in 2009. Cooperative advertising with customers classified as SG&A
expense amounted to $7.5 million in 2011, $5.5 million in 2010, and $5.7 million in 2009.
SALES TAXES — Sales and value added taxes collected from customers and remitted to governmental authorities are excluded from
Net sales reported in the Consolidated Statements of Operations.
SHIPPING AND HANDLING COSTS — The Company generally does not bill customers for freight. Shipping and handling costs
associated with inbound freight are reported in cost of sales. Shipping costs associated with outbound freight are reported as a
reduction of net sales and amounted to $184.8 million, $160.4 million, and $86.1 million in 2011, 2010, and 2009, respectively.
Distribution costs are classified as SG&A and amounted to $240.4 million, $197.1 million, and $101.0 million in 2011, 2010, and
2009, respectively.
STOCK-BASED COMPENSATION — Compensation cost relating to stock-based compensation grants is recognized on a straight-
line basis over the vesting period, which is generally four years. The expense for stock options and restricted stock units awarded to
retirement eligible employees (those aged 55 and over, and with 10 or more years of service) is recognized on the grant date, or (if
later) by the date they become retirement-eligible.