Black & Decker 2014 Annual Report Download - page 40

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management, which more than offset negative impacts from foreign currency fluctuations and lower Security margins caused
by field operations inefficiencies and negative installation and recurring revenue mix.
The Company reported gross profit of $3.904 billion, or 35.8% of net sales, in 2013 compared to $3.657 billion, or 36.5% of
net sales, in 2012. Merger and acquisition-related charges, which reduced gross profit, were approximately $30.0 million in
both 2013 and 2012. Excluding these charges, gross profit was 36.1% of net sales in 2013 and 36.8% of net sales in 2012. The
decrease in the profit rate year over year was primarily driven by lower Security margins due to sales volume decline, field
service inefficiencies, and high European RMR attrition and negative impacts from foreign currency, which more than
outweighed the positive impacts of higher volumes, productivity projects and cost synergies.
SG&A Expense: Selling, general and administrative expenses, inclusive of the provision for doubtful accounts (“SG&A”), were
$2.596 billion, or 22.9% of net sales, in 2014 as compared $2.691 billion, or 24.7% of net sales, in 2013. Within SG&A, merger
and acquisition-related compensation costs and integration-related expenses totaled $31.6 million and $135.7 million in 2014
and 2013, respectively. Excluding these charges, SG&A was 22.6% of net sales in 2014 compared to 23.5% of net sales in
2013. The decrease in the SG&A rate was mainly attributable to increased volumes and the positive impacts from headcount
reduction actions and the Company's efforts to significantly reduce indirect expenses.
SG&A expenses were $2.691 billion, or 24.7% of net sales, in 2013 as compared with $2.474 billion, or 24.6% of net sales in
2012. Within SG&A, merger and acquisition-related compensation costs and integration-related expenses totaled $135.7
million in 2013 and $138.3 million in 2012. Excluding these charges, SG&A was 23.5% of net sales in 2013 compared to
23.3% of net sales in 2012. The slight increase in SG&A rate was mainly attributable to higher expenses associated with
organic growth initiatives, partially offset by cost synergies and cost containment efforts.
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 $243.2 million in 2014, $229.5 million in 2013 and
$202.5 million in 2012. The increase over the years is primarily attributable to higher sales volume.
Corporate Overhead: The corporate overhead element of SG&A and gross profit, which is not allocated to the business
segments, amounted to $177.4 million in 2014, $254.0 million in 2013 and $252.3 million in 2012. The previously discussed
merger and acquisition-related charges that unfavorably impacted corporate overhead totaled $18.7 million in 2014,
$89.4 million in 2013 and $77.1 million in 2012. Corporate overhead, excluding merger and acquisition-related costs,
represented 1.4%, 1.5%, and 1.8% of net sales in 2014, 2013 and 2012, respectively.
Other-net: Other-net totaled $239.7 million of expense in 2014 compared to $283.9 million of expense in 2013. The decrease
was primarily driven by lower amortization expense and acquisition-related costs in 2014 as compared to 2013.
Other-net amounted to $283.9 million of expense in 2013 compared to $296.3 million of expense in 2012. The decrease was
primarily driven by reduced negative impacts of foreign currency losses related to derivatives and lower deal transaction costs,
partially offset by higher amortization expense from intangible assets associated with the Infastech acquisition and other 2013
acquisitions.
Gain/Loss on Debt Extinguishment: During the fourth quarter of 2014, the Company extinguished $45.7 million of its notes
payable and recognized a net pre-tax gain of $0.1 million on extinguishment. During the fourth quarter of 2013, the Company
extinguished $300 million of its notes payable and recognized a $21 million pre-tax loss on extinguishment. In 2012, the
Company repurchased $900 million of its senior notes and recognized a $45 million pre-tax loss on extinguishment.
Interest, net: Net interest expense in 2014 was $163.6 million compared to $147.3 million in 2013 and $133.9 million in 2012.
The increase in net interest expense in 2014 versus 2013 was primarily attributable to interest costs associated with the issuance
of debt in the fourth quarter of 2013, partially offset by higher interest income. The increase in net interest expense in 2013
versus 2012 mainly relates to the incremental interest costs associated with the higher debt levels during 2013, partially offset
by higher interest income.
Income Taxes: The Company's effective tax rate was 20.9% in 2014, 11.7% in 2013, and 14.2% in 2012. The effective tax rate
in 2014 differed from the US statutory rate primarily due to a portion of the Company's earnings being realized in lower-taxed
foreign jurisdictions, the passage of U.S. tax legislation, settlement of various income tax audits and the reversal of valuation
allowances for certain foreign net operating losses which have become realizable. The effective tax rate in 2013 differed from
the US statutory rate primarily due to a portion of the Company's earnings being realized in lower-taxed foreign jurisdictions,
the acceleration of certain tax credits, the recurring benefit of various foreign business integration structures and the reversal of
certain foreign and U.S. state uncertain tax position reserves, related largely to statute expiration. The effective tax rate in 2012