Black & Decker 2010 Annual Report Download - page 80

hedges are recorded in earnings in the same caption as the changes in the fair value of the hedged items.
Gains and losses on derivatives designated as cash flow hedges, to the extent they are effective, are recorded
in other comprehensive income, and subsequently reclassified to earnings to offset the impact of the hedged
items when they occur. In the event it becomes probable the forecasted transaction to which a cash flow hedge
relates will not occur, the derivative would be terminated and the amount in other comprehensive income
would generally be recognized in earnings. Changes in the fair value of derivatives used as hedges of the net
investment in foreign operations, to the extent they are effective, are reported in other comprehensive income
and are deferred until the subsidiary is sold. Changes in the fair value of derivatives not designated as hedges
under FASB Accounting Standards Codification, (“ASC”) 815 “Derivatives and Hedging” (“ASC 815”), and
any portion of a hedge that is considered ineffective, are reported in earnings in the same caption where the
hedged items are recognized.
The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses
resulting from the early termination of interest rate swap agreements are deferred and amortized as
adjustments to interest expense over the remaining period of the debt originally covered by the terminated
swap.
REVENUE RECOGNITION — General: Revenue is recognized when the earnings process is complete,
collectability is reasonably assured, and the risks and rewards of ownership have transferred to the customer,
which generally occurs upon shipment of the finished product but sometimes is upon delivery to customer
facilities.
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 (“SG&A”).
Multiple Element Arrangements: In 2010, 2009 and 2008, approximately $900 million, $900 million and
$1 billion, respectively, in revenues were generated by multiple element arrangements, primarily in the
Security segment. These sales contracts typically consist of products sold and installed by the Company at the
customer location. Revenue from equipment sales is generally recognized once installation is complete. Certain
sales agreements also include maintenance and monitoring services pertaining to the installed equipment.
Service revenue is recognized ratably over the contract term as services are rendered. Customer billings for
equipment not yet installed and for monitoring services not yet rendered are deferred to the extent paid in
advance by customers.
When a sales agreement involves multiple elements, deliverables are separately identified and consideration is
allocated based on their relative fair values in accordance with ASC 605-25, “Revenue Recognition —
Multiple-Element Arrangements”. Fair value is generally determined by reference to the prices charged in
stand-alone transactions.
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.
Selling general and administrative (“SG&A”) costs include the cost of selling products as well as administra-
tive 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.
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