Black & Decker 2014 Annual Report Download - page 74

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FINANCIAL INSTRUMENTS — Derivative financial instruments are employed to manage risks, including foreign currency,
interest rate exposures and commodity prices and are not used for trading or speculative purposes. The Company recognizes all
derivative instruments, such as interest rate swap agreements, foreign currency options, commodity contracts and foreign
exchange contracts, in the Consolidated Balance Sheets at fair value. Changes in the fair value of derivatives are recognized
periodically either in earnings or in Shareowners’ Equity as a component of other comprehensive income, depending on
whether the derivative financial instrument is undesignated or qualifies for hedge accounting, and if so, whether it represents a
fair value, cash flow, or net investment hedge. Changes in the fair value of derivatives accounted for as fair value 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 designated
as hedges under ASC 815, “Derivatives and Hedging” (“ASC 815”), including any portion that is considered ineffective, are
reported in earnings in the same caption where the hedged items are recognized. Changes in the fair value of derivatives not
designated as hedges under ASC 815 are reported in earnings in Other-net. Refer to Note I, Derivative Financial Instruments,
for further discussion.
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 from 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, 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 security 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.