Black & Decker 2012 Annual Report Download - page 73

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designated as hedges under 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: The majority of the Company’s revenues result from the sale of tangible products,
where 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.
Multiple Element Arrangements: Approximately eight 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.
The Company’s 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. For certain short duration and less complex installation contracts, revenue is recognized upon contract
completion and customer acceptance. The revenues 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. The
associated deferred revenue is included in Accrued expenses or Other liabilities on the Consolidated Balance Sheets, 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 $121.4 million in 2012, $134.4 million in
2011, and $103.0 million in 2010. Expense pertaining to cooperative advertising with customers reported as a reduction of net
sales was $159.8 million in 2012, $151.7 million in 2011, and $138.8 million in 2010. Cooperative advertising with customers
classified as SG&A expense amounted to $4.4 million in 2012, $7.4 million in 2011, and $5.5 million in 2010.